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Follow the Belt & Road Initiative, not the Yellow Brick Road

919

#Djibouti #Gwadar #BRI #BeltRoadInitiative #HSBC

Some of you might remember the Silk Road being in the press and on Netflix because Ross Ulbricht was arrested in 2013. Ross allegedly made a darknet market website using anonymity and making crypto payments possible for a hidden economy using the infamous “Silk Road” that merchants and traders have been aware of since the times of Alexander the Great.

Today the only Silk Road left to discuss is the one that President Xi Jinping is rolling out. And during the global disruption of the last ten years, one thing remains constant, China’s plan to develop a huge Trading Network outside of China.

Fitch Ratings London recently reported that Global Quantitative Easing (QE) will probably reach $6 trillion in 2020 alone. The Fed’s balance sheet will probably hit $10 trillion by end-2020 and the ECB’s could go to more than $6 trillion, as they have still not managed to pay off the debt they generated after the Financial Crisis. The Bank of England comes in at £645 billion, but something even more unusual is happening in #Takahashi’s Japan where talk of unlimited spending has been discussed by BOJ Governor Haruhiko Kuroda. To cover the effects of the financial crisis, Japan has spent $670 billion so far, this year that might grow by a further $1 trillion in debt.

While these numbers are quite astonishing for most people to grasp, PwC, The Boston Consulting Group and many other specialists have been looking at a sector that the global banking giants are closely considering too. The Belt & Road Initiative that was launched by the President of China Xi Jinping in 2013 and is due to be completed on the 100th Anniversary of the birth of the People’s Republic of China. Estimated costs range up to $3 Trillion by many economists and specialists

These numbers dwarf any IPO seen on the Hong Kong stock exchange, and the world is only just getting used to numbers in the billions of dollars per IPO being raised. The Belt & Road Initiative will have huge consequences for Cities like Hong Kong, as the Gateway to China. For Beijing, where the Party is located. For Shanghai where the Financial centre of China is located. For Shenzhen where the Electronics Hub of China is located. For Chongqing where trains now leave regularly direct to Duisburg in Germany. In fact, soon we may be speaking of the large Cities in China with the same level of familiarity that we discuss Cities like Hannover, Hamburg, Dortmund, Frankfurt in the case of Germany.

What the British once grew famous for, the Chinese can use to better effect. Some call Chongqing a ‘mega-city’, and it started to play a major role in the Belt & Road Initiative (BRI) when a rail route direct to Duisburg was opened in May 2011. Chongqing had about 3 million inhabitants back in 1980, the fact that the city is now bigger than most Cities in Europe at over 15 million shouldn’t surprise you. Blockchain is another thing that is on the rise in Chongqing. Top Tech firms like IBM, Huawei and Tencent have recently helped establish a New Blockchain Innovation League there.  Several companies and the main bank in Chongqing are also listed on the Hong Kong Stock Exchange, and China wants another 50 mega-cities like Chongqing to be created by 2049, the scale of this plan and the population boom that will go with it are hard to comprehend.

And that is just one of the things to consider about the Belt and Road Initiative. The other thing to consider are the 38 countries in Sub-Saharan Africa, the 34 countries in Europe & Central Asia including 18 members of the EU, 25 countries in East Asia & Pacific, 17 countries in Middle East & North Africa, 18 countries in Latin America & Caribbean and 6 countries in South East Asia who have joined the Belt and Road Initiative by signing a Memorandum of Understanding (MoU) with China. And the Initiative is still in its’ early stages…

The US has an answer, but compared to the amount pumped into QE it’s a sorry $60 Billion into the Better Utilization of Investments Leading to Development (BUILD) to lend money for energy, ports and water infrastructure in developing countries. China is spending a bit more than this in places like Gwadar (Pakistan) and Djibouti, on the Red Sea alone. And they are also developing the BRI in other more exotic places like Malaysia, Ecuador and Thailand where developments are also underway at a much higher cost than the US’s investment. In some of these locations Chinese business are coming up against Sharia Compliant Banking which is definitely speeding up the speed at which China’s own banks are learning to operate on Global Markets.

In 2018 the City of London Corporation gave out a Report on the Belt & Road Initiative jointly with the People’s Bank of China. The report covered areas such as:

  • Fintech solutions and how significant digital finance is for BRI countries. E-wallet, cross-border e-payments and other initiatives are covered and Alipay, Ant Financial, JD Finance are all listed as models for solutions needed to support the initiative
  • The importance of commercial banks in China as well as foreign commercial banks to offer debt financing to countries along the BRI, case studies from HSBC and Standard Chartered are even included in the report

Today, across China and financial centres globally like London, Tokyo and New York, the Belt & Road Initiative has created new business opportunities for many global banks. HSBC, Standard Chartered, Citi, JPMorgan to name but a few have opened roles and put in place strategy leads to head up their BRI teams in cities like Hong Kong and Shanghai. And both trade finance and M&A are big focuses for these teams in ensuring that trade links globally improve.

Here is a small preview of how important this initiative is for global banking. And if banks see an opportunity there, then perhaps the City of London’s report is right and this is an area that Fintechs should be watching too!

The world may not be looking at the BRI as much as it should right now, but the local Bank has a reminder for those of you who are new to this area, and Mukhtar Hussain from HSBC is probably one of the most knowledgeable and objective authorities on this topic. He told Bloomberg back in late 2019 that HSBC had already seen in excess of $100 Billion in volumes related to BRI.

Author: Andy Samu