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June 8, 2017

Chinese president Xi Jiping’s Belt and Road Forum for International Co-operation held in May 2017 reaffirms China’s commitment to globalisation and free trade by promising a U$124 billion investment into countries along the Belt Road Initiative (BRI).

One of the biggest beneficiaries of the policy so far has been Sri Lanka, which is reportedly set to receive an injection of US$24 billion on top of the existing US$8 billion. Another recipient, Pakistan, has just signed US$500 million worth of deals in addition to the US$62 billion invested into the China-Pakistan Economic Corridor.

By actively engaging with the 29 heads of states attending the forum – from the likes of the United States and the U.K – President Xi’s is making a clear statement about his willingness to open BRI to more foreign investment and involvement.

“We are starting to see a subtle but important shift. Increasingly, other players – notably developers from around the world – will have the opportunity to get involved with the development of the real estate aspect,’ observes Steven McCord, JLL’s Head of Research in North China.

“Until recently, BRI-related development projects tended to be more fully integrated Chinese-built projects from start to finish: A state-owned Chinese developer would build the infrastructure, prepare the land, and construct the buildings on the land. This meant a complete end-to-end Chinese-led city within a city, which wasn’t always the most popular with local constituencies, and resulted in work stoppages and setbacks.”

McCord says that while it’s likely that Chinese state-owned enterprises will continue their role in building infrastructure, foreign players will be increasingly able to join in to support these ventures, particularly in developing the real estate. “

This will mean not only a set of diversified real estate investment opportunities, but the ability for international developers to access countries that were previously frontier markets such as Myanmar and Kazakhstan.

“With the infrastructure already taken care of – with lighting, proper roads and access to water – developers will have greater access to new markets and be better able to build at a higher quality with lower levels of risk,” says McCord.

JLL’s Director of Global Research, Jeremy Kelly, further explains that since many of the BRI countries lack the financial capacity to develop the infrastructure themselves either by public or private means, the BRI makes a crucial difference. “With the Chinese backing these infrastructure developments, it means opportunities to attract foreign investment and boost their economic development for these nations.”

Real opportunities for real estate
The growing prominence of BRI globally is having a significant impact on local real estate markets stemming from growing demand in Chinese tourism as well as increased demand for manufacturing and office space. JLL is seeing an uptick in demand from Chinese corporate occupiers looking for space in new BRI markets.

Sri Lanka has already seen greater investor interest in real estate, buoyed by the prospect of BRI and the country’s strategic location between India and China. Several Chinese corporates such as China Harbour Engineering Company and China Communications Construction Company are leading the way by establishing their regional HQ’s in the island state.

The Colombo Financial City is currently underconstructed and, with more than 5.6 million square meters of built space of lifestyle and business offerings, it is being positioned as a hub of commerce in South Asia. It is expected to attract US$13 billion worth of investment projects ranging from residences to schools and health facilities from 2018.

Sri Lanka’s Prime Minister Ranil Wickremesinghe told the media at May’s Forum that “the Belt and Road Initiative (BRI) will provide the much needed hard and soft connectivity in the Indian Ocean required for rapid economic and social development”.

Over in Southeast Asia, the potential of BRI’s maritime Silk Road has led to Malaysia and China recently signing nine Memoranda of Understanding and agreements believed to be worth US$7 billion. This includes investment projects in Malaysia such as the Melaka Gateway in Melaka, Robotic Future City in Johor Bahru, and the Methanol and Derivatives Project in Sarawak.

And with the BRI passing through 18 Chinese provinces, several new domestic commercial hubs are developing. Head of Research at JLL China, Joe Zhou, identifies Xi’an, Chengdu, Wuhan, Chongqing and areas north of Shenzhen and Guangzhou as cities where Chinese enterprises are likely to set up base, thus spurring demand for office space.

Long term impact
There is no doubt that the BRI’s massive scale, spanning 65 countries across three continents, spells China’s ambitions and Beijing’s increasingly global outlook. It showcases China’s capacity for overseas investment and has projected Chinese soft power on the world stage.

“The BRI represents increasing integration into global networks of trade as well as closer links with the massive Chinese economy,” says Kelly. “It could pave the way forward and serve as a basis for other and new large-scale regional collaborations.”

 

Steven McCord
Head of Research, North China, JLL

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