The One Belt One Road (OBOR) initiative is gathering steam quicker than anyone could have expected.
When China’s president Xi Jinping announced OBOR in 2013, it gave direction to a loose association of projects flooding out of the nation and around the globe. Transport, shipping and energy are all going to be transformed over the next three decades in one of the biggest infrastructure projects ever seen.
“It is epoch defining,” says Patrick Sarch, a partner in the London office of White & Case who is involved in the firm’s work in China. “This is a huge investment to connect China with the rest of the world that hasn’t happened in a thousand years.”
What’s it all about?
The name ‘One Belt One Road’ may sound confusing: but the concept is simple, if massive in scale. It is a massive initiative by the Chinese government to revitalise the ancient Silk Road – the trade route stretching across the vast Asian continent as far as Istanbul (the ‘Belt’) and the corresponding sea route across the South China Sea and Indian Ocean (the ‘Road’).
China is investing in infrastructure projects in the many countries along these routes, helping build ports, railways, airports, pipelines, power plants and more in locations as far apart as Vietnam and Turkey. Developing nations have seen the greatest level of early investment, with projects in Mongolia, Pakistan and Zimbabwe setting the pace.
The Chinese government says that in the region of 50 Chinese state-owned companies have invested in nearly 1,700 OBOR projects since 2013. Flagship initiatives include a 3,000km high-speed railway connecting China and Singapore and £55bn worth of investment in the infrastructure of Pakistan.
Why is all this happening now? Because China is changing. The country’s economy has grown at breakneck speed in the past 20 years. There is a growing middle class. These changes mean the days where anything can be made in China much more cheaply than in the West are coming to an end. The country wants to diversify, in the same way that the states of the Middle East want to move away from their reliance on their oil and gas reserves. And the connectivity between China and Europe has not been great in the past 30 years. By helping the likes of Uzbekistan and Kazakhstan build their infrastructure, China helps open itself up to the West.
“A big misconception about OBOR,” says Peter Lu, who leads White & Case’s China practice in Europe, the Middle East and Africa, “is that it’s about geopolitical issues before the economic interests. What I see when helping Chinese companies do these projects is that the Chinese are not giving away free money: they will expect you to make your own contribution and there emphasis is on the return on investment just as in a private equity deal.”
East meets West
The majority of OBOR deals involve Chinese companies, funded by Chinese banks. Where do Western law firms come into play? After all, neither the UK nor the United States is one of the ‘Belt’ or ‘Road‘ countries.
“By its nature One Belt One Road is international,” says Sarch. “The investors we are meeting don’t want to do it alone. They want these projects to be seen as international collaboration, not Chinese investment. And they want to use international financing techniques.” That means firms like White & Case – global players with expertise finance, projects and litigation – are well placed to pick up OBOR instructions.
English law is often the law of choice for these deals: “One of the concerns we hear from Chinese parties is about how international standards apply to their investments, says Sarch. “They have issues over their rights and getting their money back and a key priority for them is if English or New York law applies rather than local law. “
“From my practical experience,” adds Lu, “when we have been negotiating documentation, at the very beginning one side wants to use the local law and the Chinese party says that’s not acceptable. But they can meet in the middle and use English law. People find that very acceptable. English law is mature and well developed; indeed, one of the best things the UK can offer to the whole world a legal system that everyone trusts.”
“And English law is nicely neutral between Mr Trump and Mr Xi,” adds Sarch.
The last point is important because OBOR does of course have far-reaching geopolitical implications. The Trump administration has made it more difficult for Chinese companies to acquire US assets, especially anything with national strategic importance.
The nature of the Chinese political system can also cause problems for companies, but while the Chinese authorities crack down on certain types of investment, attempting to restrict spending on hotels, sports clubs and similar foreign assets, OBOR investment is being encouraged. “I think most people who observe Chinese outbound investment are familiar with the challenges that exist: there are all sorts of regulatory hurdles to be navigated for outbound investment to be permitted,” says Sarch.
“However, the strategic objective of the nation is to make these One Belt One Road investments and make them succeed. Everywhere we go, we hear the same message: if it’s One Belt One Road it will get those internal and external approvals. So for these projects there no obstacles in the way – in fact the path is being cleared.”
One thing is for certain: One Belt One Road is not going to be a flash in the pan. “Talking to people on the ground in China, they are fully prepared to invest even more in the coming years,” says Lu. “2018 is going to be a big year.”
“It is well publicised and well understood over here, but if anything I think its significance is underplayed,” continues Sarch. “Peter and I have connected with lots of trade organisations who are focused on it, but if anything the UK should be doing even more.”
“The reputation of English law puts us in a fantastic position and is a big advantage, but it shouldn’t be taken for granted. We need to be proactive and engage more: only by doing that will English law remain at the top of peoples’ minds.”
Given that it is here to stay, the OBOR opportunities for young lawyers are great: “I really need more people to help me,” Lu says. “We have good Mandarin speakers who know how to do business in China, but we want more.”
“The bottom line is, the world is changing,” Sarch concludes. “The drivers of world growth are now in the East. OBOR is an initiative that will reshape the whole world – it is very exciting. And if anyone is interested in being a part of these massive epoch-making changes, there are certainly great opportunities for young lawyers in China and in London.”
Facts and figures
- OBOR covers 65 countries across three continents.
- The route will cover 65 per cent of the world’s population.
- The first completed deal was the Thar Block II mine and associated power plants in Pakistan.
- Over 80 leaders of international groups have back the deal included the United Nations, the International Monetary Fund and World Bank.
- Around 50 cooperation documents were signed when the initiative was first announced.