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June 20, 2017

Since the announcement of the Belt Road Initiative by Chinese president Xi Jinping in 2013, the project was perceived by many as a one-sided, Chinese ambition. Some saw it as a massive enterprise to jumpstart the Chinese economy before it slows down; other detractors feel it’s China’s strategy to create a new world order.

But as the recent Belt Road Forum for International Cooperation held last month in Beijing shows, China is increasingly taking a global bent. Head of states from 29 countries attended the event, along with government representatives from more than 130 nations and the leaders from over 70 international organisations such as United Nations, International Monetary Fund and World Bank.

This is a subtle but significant move demonstrating that the Belt Road Initiative (BRI) is not just a Chinese-dominated one. Instead it is a platform for globalisation and co-operation with wide-ranging implications – both positive and negative – for all countries, investors and companies involved. The conclusion of the forum has led to an agreement among the countries to work towards more than 270 detailed results in five key areas, namely policy, infrastructure, trade, financial and people-to-people connectivity.

Building opportunity
What this means for real estate is equally important. Previous BRI-related development projects tended to be Chinese-built projects from start to finish: A state-owned Chinese developer constructs the infrastructure, takes over the land, and builds the nearby projects –thus seen as a complete end-to-end Chinese city within a city. This has caused some local and geopolitical tension in countries such as Pakistan where the US$50 billion China Pakistan Economic Corridor is being developed.

Since the blueprint has changed, projects are now open for foreign participation with the Chinese underpinning efforts by improving infrastructure capacity. Foreign investors and companies will be increasingly able to support BRI ventures, especially for real estate developments. American companies such as General Electric and Citibank as well as British firms like design and construction consultancy Atkins have already thrown their hats in the ring for BRI-related projects. And JLL has spoken to clients who are interested in entering emerging markets like Sri Lanka and Myanmar.

The Chinese Boom
Ultimately, the BRI provides opportunities for Chinese corporates to expand. Chinese technology giant Huawei is now working with BRI countries to meet the impending demand for communications services; similarly, Alibaba’s payment affiliate, Ant Financial Services Group, will be introducing an Alipay mobile payment system to BRI economies, which would in turn boost financing options for small-to medium enterprises there.

With these Chinese corporates leading the way, Chinese cities are on track for growth. Take Chengdu, which is well-positioned along several BRI routes, including the Bangladesh-China-India-Myanmar (BCIM) Economic Corridor and the Yangtze River Economic Belt. It will become a node for Chinese companies to expand to these corresponding regions, which spells demand for more office and residential space.
Shanghai, Hong Kong and the other Pearl River Delta cities, in particular, could further stand to gain: Shanghai will be instrumental as a financial centre while Shenzhen, which is currently seen as the Silicon Valley of China, is key in linking to Southeast Asia. Meanwhile Hong Kong can capitalise on its standing as a cosmopolitan hub and “super-connector” for professional and financial services to foreign firms seeking BRI opportunities.

The Southeast Asian factor
Chinese corporates are also going south along the Maritime Silk Road. Malaysia is already a key beneficiary – with Chinese-backed developments such as the Malaysian-Kuantan Industrial Park and Kuantan Port. The southeast Asian nation and China recently signed nine Memoranda of Understanding and agreements at the BRI forum, believed to be worth US$7 billion. That includes investment projects in Malaysia such as the Melaka Gateway, Robotic Future City in Johor Bahru, and the Methanol and Derivatives Project in Sarawak. Most recently, China Construction Bank (Malaysia) Bhd (CCBM) became the first foreign commercial bank to be granted a banking licence in Malaysia in six years.

Neighbouring Indonesia has received about US$6 billion from Chinese investors and is attracting more interest coming from mainland Chinese firms in the last 12 months. The strongest interest has been in the residential sector – both high rise condominium projects and landed township developments. Indonesia has offered Beijing more investment opportunities in North Sulawesi, North Sumatra and North Kalimantan, incidentally the provinces closest to the Maritime Silk Road.

There is no doubt the BRI’s massive scale spanning 65 countries across three continents underscores China’s capacity for overseas investment. At the same time, its infrastructure undertakings have opened doors for other investors and developers to consider the upside in countries along the BRI.

The BRI is a long game whose rules may seem complex to navigate. But the real estate players who make the right moves now will find themselves well placed to win in the long run.

Anthony Couse, Asia Pacific CEO, JLL
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