Worries about the Chinese economy are mounting. Despite respectable growth of 4.8% for the first quarter, several indicators paint a more sombre picture. Consumption data, in particular, rattled policymakers. In March, the retail sales of consumer goods decreased by 3.5% year-on-year, down from a 6.7% increase in the first two months of the year. 

Last month’s data confirmed Beijing’s concerns. April’s Purchasing Manager Index (PMI) – which measures the Chinese manufacturing sector – dropped to 47.4, the lowest figure since the beginning of the pandemic. Export data, too, weakened in April, growing only 3.9%, the lowest monthly growth since June 2020. 

To stabilise the economy, the Chinese government has issued several guidelines ahead of this year’s Communist Party Congress, which is expected to select President Xi Jinping for a historic third term. Yet while most of the recent announcements targeted infrastructure and job security, it will probably fall – once again – onto China’s strong export sector to save the economy and lead the recovery.

Background 

Though recent figures may still be a far cry from the dramatic slump during China’s first lockdown, the global situation is much less favourable than it was in early 2020. Back then, most countries were just about to enter lengthy lockdowns themselves. Central banks around the globe were switching on the money printers to keep their economies from collapsing, and customers in advanced economies had cash to spend, as they were saving on commuting costs and other expenses. Now the situation is exactly the opposite. Most developed economies have exited lockdowns and are returning to pre-pandemic levels of economic output, monetary supply is tightening, and soaring inflation is squeezing households. 

And it’s not just Chinese policymakers that are worried. Foreign businesses and investors are also growing weary of the country’s economic troubles. A recent flash survey by the European Chamber of Commerce in China (EUCCC) showed that nearly 60% of participating companies had reduced their revenue predictions for 2022, and about a quarter were considering shifting investment to other markets. In February and March, foreign investors pulled out of RMB 193 billion (£23.3 billion) worth of Chinese bonds – the greatest outflows since the beginning of China’s bond market. At the same time, early-stage investment by VCs declined by 90% year-on-year in the first quarter of 2022. 

To reverse the trend, the Chinese government has released a series of policy guidelines to stabilise the economy. Four areas are crucial: infrastructure, domestic consumption, jobs and trade. This update will look at each of them and highlight the key challenges.

Year-on-year retail sales growth (left) and 2019-2022 official manufacturing PMI (right) (Source: National Bureau of Statistics)

Infrastructure 

Since the financial crisis in 2008, infrastructure spending has been the default lever for Chinese policymakers to stimulate growth. So it didn’t come as a surprise when, on 26 April 2022, the Central Committee for Financial and Economic Affairs – the Party organ overseeing economic and financial policy – announced a slew of new measures to speed up infrastructure spending across the country. 

Most of the areas targeted relate to logistical choke points like transport networks and waterways. Logistics and supply chains were a natural victim of lockdowns with truck traffic in March 2021 dropping to 40% of normal levels. In Shanghai, traffic plummeted even further to only 15%, according to the South China Morning Post. Other areas of investment include 5G networks, renewable energy and data centres.

Improving transport links and investing in next-gen technologies, therefore, certainly makes sense. However, speeding up infrastructure spending now also means that many of the RMB 14.8 trillion yuan (£1.8 trillion) worth of planned projects will be front-loaded. This could boost growth now but lead to weaker economic activity later this year. 

Consumption 

Besides infrastructure spending, stimulating consumption is another top priority. In a strategy paper on domestic consumption published on 25 April, Covid takes the top spot. The paper outlines several measures the government should take to alleviate the damage caused by the recent lockdowns: 

• Reduce taxes and fees
• Ease access to financing and bank loans
• Suspend interest payments and fee collection (e.g. rents, electricity bills)
• Offer special support measures for retail, hospitality and tourism sectors
• Optimise online service innovation to allow businesses to stay open during lockdowns

The policies outlined here are in line with the measures taken during the previous lockdown in 2020 and conform to the Chinese government’s general emphasis on ‘supply side’ measures to support the economy. 

It remains questionable, however, whether they will be enough to ensure a speedy recovery once the lockdowns are lifted. Official data from 2020 shows that retail and hospitality sectors took much longer to recover than manufacturing, which returned to positive growth in April 2020. Retail sales, on the other hand, did not recover until August 2020. 

A recent mobility heat map shared by Natixis – a French investment bank – also indicates that it might take longer for a return to normal than in 2020. According to Natixis’s calculations, mobility across China was below the 2019 average in May for the third month in a row. By contrast, in 2020, mobility levels had returned to growth after only two months.

Employment 

Related to both infrastructure and consumption is, of course, employment. Job creation was a major theme in this year’s Two Sessions and was highlighted as a particular challenge by Premier Li Keqiang himself during his press conference at the end of the annual meeting in March. 

According to the latest data, jobs did indeed take a hit during the latest lockdown round. Urban employment rose to 6.1% in April 2022, the highest level since February 2020. More worryingly, the impact of lockdowns is now compounded by a series of long-term effects, such as the recent wave of redundancies made by China’s tech giants. According to TechNode, nearly 73,000 tech employees lost their jobs between July 2021 and mid-April 2022. 

Although current lockdown measures can probably provide occupation for some unemployed workers, the situation is expected to become graver the longer the current lockdowns last. In a statement published on 7 May, Premier Li Keqiang has warned provincial leaders of a grim outlook for China’s job market and has urged policymakers to do everything they can to ensure stable employment. 

Yet whether the country can – in fact – achieve its self-set goal of 11 million new urban jobs this year, will also depend on whether it can get China’s export machine back on track.

National mobility levels since 2020 (left) and industrial production and retail sales growth in 2020 (right) (Source: Natixis, National Bureau of Statistics)

Trade 

Chinese exports were undoubtedly the main engine of the country’s post-Wuhan-lockdown recovery. Outbound shipments soared 29.9% year-on-year to a historic level of USD 3.3 trillion (~£2.7 trillion) last year. So, given their preeminent role during the recovery, the drop in exports compared to the previous month is clearly worrying. Even though the value of exports in April – USD 273.6 billion versus USD 276.1 billion in March – remained comfortably above pre-pandemic levels, the timing of the slowdown comes at an unfortunate moment. 

As the Chinese business magazine Caixin reported, the lockdown is hitting season-sensitive industries like textile manufacturers – many of which are concentrated in the Yangtze River Delta – particularly hard. One producer told Caixin that if restrictions weren’t loosened before the end of May, his company might lose out on orders for the rest of the year, meaning that exports could suffer for the whole of 2022. 

What makes the situation worse for these industries is that other labour-intensive and export-oriented economies such as Vietnam and Indonesia are already exiting their own lockdowns and are increasing export volumes. This could accelerate the already existing offshoring trend among some Chinese industries towards lower-income countries. In this case, some jobs would then be gone for good. 

While China’s overall export levels will probably remain above pre-Covid levels this year, the potential long-term damage for Chinese exporters – and the related negative knock-on effects on employment – will put growing pressure on Chinese policymakers to find a viable exit strategy for its current Covid policy.

The CBBC View 

Getting the economy back on track will be one of the major tasks for the Chinese government in the coming months. Although there is still a huge amount of uncertainty regarding the country’s inflexible Zero Covid policy, CBBC expects economic recovery to take precedence over harsh lockdowns and quarantine rules. 

Although the current focus is mostly on infrastructure spending and consumption, we also expect that manufacturing and exports – and not domestic retail – will once again play the role of the workhorse for China’s recovery. Past experience and recent mobility data suggest that Chinese consumers will probably remain cautious and fearful of further lockdowns. It might therefore take even longer for retail levels to recover than in 2020. 

It is also worth noting that an economic recovery entails its own risks. First, there is inflation. At 2.5%, China’s CPI in April remained far below the price increases seen in North America and Europe. Without the deflationary pressure of lockdowns, however, Chinese consumers could thus be faced with similar price hikes, especially as Chinese factory prices have been consistently more than 10% higher than last year’s numbers over the last couple of months. 

And then there are jobs. The already high unemployment rate might further rise especially as tax holidays for Chinese SMEs are supposed to end in June. It is also likely that current lockdown measures mask some of the unemployment as jobless workers are mobilised to testing and quarantine facilities. 

Given these risks, it is to be expected that the Chinese government will extend tax and social insurance fee holidays beyond June and potentially launch yet another stimulus package in the second half of the year.

The post Can China really pull off Zero Covid and a stable economy? appeared first on Focus - China Britain Business Council.

Geoffrey F. Gresh’s ‘To Rule Eurasia’s Waves: The New Great Power Competition at Sea’ (Yale University Press) is a sweeping study of the situation concerning the vital sea lanes running from Asia to North America, Europe and the UK. The book considers the rise of Russia, India and China as major shipping nations, transporting containerised goods crucial to our trade relationship, as well as the ways in which they have become increasingly involved in protecting those international sea lanes.

The need for Chinese exports to be delivered around the globe in a seamless logistical chain, as well as vital imports of energy into China to keep the economy humming, mean that Beijing is keen to see the country becoming dominant both in shipbuilding (as it now is) as well as fleet operation. These aspirations are encapsulated in China’s Maritime Silk Road, a series of policies that have ramifications for Britain, too. Gresh is professor of international relations at the National Defence University in Washington, and as such, the views expressed here are those of the interviewee alone and do not represent official policy or his employer.

Forty percent of China’s economy relies on trade and a dependency on energy imports. In the book you say that China will leverage its investment in the region’s ports for its own geo-strategic and geoeconomics interests – where will we see this play out in the coming years?

The 2017 establishment of a Chinese military base in Djibouti signalled just how important China viewed the Horn of Africa and the Middle East. Moreover, Djibouti serves multiple purposes for the Chinese: It is an important anchor on the far western edges of the Indian Ocean; it is an essential entryway into Africa’s largely untapped markets and China’s other critical investments; and it is an increasingly critical perch and catapult into the Red Sea, Mediterranean, and the broader Middle East. Certainly, Djibouti is just one connection among many that the Chinese are developing. Further to the north and east of Djibouti near the opening of the Strait of Hormuz and the Persian Gulf, for example, China is developing Gwadar in Pakistan. Gwadar’s development has experienced significant developmental and security obstacles of late, but Gwadar could one day offer another vital maritime logistics hub and potential base for easier access to the Gulf, as well as a starting point along the China-Pakistan Economic Corridor.

China’s investment in its domestic port facilities and infrastructure has been massive right along its coast. This was partly based on projections of around 5% per annum growth in containerized trade out of China. But with trade disputes, a decoupling from China in some areas and the traumatic shock of Covid-19, is it possible China has over-invested in the MSR?

At some level, I agree that we will see certain shifts in trading patterns between China and other countries, especially in a post-Covid world. But that said, at present, more than 90% of the world’s goods transit the sea, bringing into relief the continued importance of the stability and security of the global commons.

Due to Eurasia’s growing and developing population, India and China in particular will likely still need to reach outward in their hunt for more natural resources, for example, to fuel their growing economies. As a result, I believe that maritime trade will remain an important element in any country’s orientation, especially that of China, and that it will necessitate the continued need for more investment in projects such as the Maritime Silk Road. China has indeed experienced significant difficulties in the expansion and current management of its Belt and Road Initiative (BRI), but the development of a maritime trade and logistics network via the MSR is already well underway with certain proven successes across the sea lanes of southern Eurasia.

Can China successfully find a way to protect its shipping lanes without antagonising other regional nations and superpowers? And can China, as well as being the top shipbuilder, become the biggest fleet owner too?

One of the open criticisms of the MSR and BRI is that it lacks transparency, standard rules and procedures. Growing concerns persist that many of the port projects are meant as dual-use infrastructure projects that could be used easily by the PLA or PLAN in the future, especially with the accompanying multi-decade port leases. Beijing is aware of the criticism and that is why it is readapting and readjusting the public face of its global initiative.

During the April 2019 BRI summit hosted in Beijing for example, the government tried to convey the message that it was prepared to change some of its prior practices and policies that were often criticised internationally. In a statement, Xi Jinping declared that, “Everything should be done in a transparent way and we should have zero tolerance for corruption.” In addition to transparency, there needs to be more trust-building efforts between China and other countries. As to building the biggest shipping fleet, I believe that anything is possible. China was quickly able to surpass South Korea and Japan to become the world’s top ship builder.  I believe that it could similarly be headed toward developing one of the world’s largest shipping fleets.

China was quickly able to surpass South Korea and Japan to become the world’s top ship builder.  I believe that it could similarly be headed toward developing one of the world’s largest shipping fleets.

Overseas port infrastructure projects and leases provide access that, some say, could also provide long range bases for China’s newly enhanced Blue Water Navy. The Chinese claim they are enhancing transparency – what indicators would you look for to reassure us this is happening?

I won’t repeat everything that I just argued in the prior question, but would add that transparency is indeed going to be a real hurdle moving forward. Better transparency, rules and standards will go a long way to attract other businesses and countries to join forces with the PRC and its Belt and Road Initiative projects. And more multilateral cooperation will help to ease certain tensions with some countries, especially a host nation that has willingly accepted BRI money for project development. But until many of the loopholes in many of the current standard BRI operating procedures are fixed and greater transparency is infused into China’s MSR and BRI investment apparatus, China will continue to face many challenges, including risky financial loans and investments, and the bad publicity that has come with it on certain projects. China’s recent BRI summit was a step in the right direction toward promoting higher standards and “fiscal sustainability” but it still has a long way to go to overcome mistrust that has festered in some host nations where projects have either been placed on hold or cancelled altogether due to a variety of factors.

You argue the United States (and presumably its allies) should try and match China’s level of economic development funding. Where should we be targeting such funding and how to do this to genuinely benefit nations and not simply end up in competition with China?

The US Agency for International Development and State Department funding levels have struggled in recent years. Time and again, analysts and officials lament the declining power of the US State Department and its influence on operations abroad. US aid is a critical instrument of statecraft and needs to be replenished to serve the needs and interests of the United States and its allies abroad. For the 2018 fiscal year for example, a 29% cut was proposed for the State Department’s budget worth an estimated US$16.2 billion. Though the US Congress has fought back to restore much of the cuts, it still sent a resounding message on the importance of the State Department during the former administration. The current Biden administration is trying to rectify what was lost under the prior administration, but they are already in a deep hole. That said, I think a focus on the Indo-Pacific, as big as it is, will be an important focal point moving forward. Moreover, I believe there is a lot that European, Australian, Japanese, Indian, and other partners and allies can contribute to aid and development initiatives across the region as well.

The UK obviously has a long trading relationship with China and many will argue we have a crucial role to play in a joint ‘Blue Economy’ of both seaborne logistics and maintaining open and safe sea lanes. It is also possible that UK ports could participate in more formal MSR projects. What advice would you have for UK companies and policy makers?

I think a lot boils down to your prior questions: Trust and transparency. I agree that there is such great potential for investing in the Blue Economy. The World Ocean has much to provide and share with all countries. It should be leveraged in a meaningful and sustainable way.  If agreements or joint ventures with Chinese and UK firms can be struck where you have open and transparent agreements, I think it would go a long way toward ensuring greater trust-building. The global commons and the maritime trade and logistics networks are vast and bountiful. There should be a way toward common investments that are of much benefit to all.  That said, there is still much more that China must do to reassure countries of its intentions vis-à-vis its geo-economic investments.

The post Paul French discusses China’s Maritime Silk Road with Geoffrey Gresh appeared first on Focus - China Britain Business Council.

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A rise in the Chinese student population benefits UK property market, writes Rosemary Playfair

Investors from China are cashing in on the opportunities provided by a drop in the value of the British pound and increasing yields and rents in the UK buy-to-let market, particularly with student flats. The Chinese student population in the UK has grown by 34 percent in the last five years and China now sends more students to the UK than any other country in or outside the EU.

Grant Property, leading UK based property investment company, reports a surge of interest from China as new and existing investors are purchasing more buy-to-let properties to add to their portfolios. An increase in rents as much as 15 percent over the last 12 months alone, combined with steady long-term capital growth (on average 7 percent per annum) and prices in regional UK cities rising at their fastest rates for 10 years, are factors making UK property an appealing investment prospect.

Student accommodation is the jewel in the crown for the property investment market

“We are seeing a huge demand from investors from China, some of whom are looking to buy multiple properties each,” says Peter Grant, founder of Grant Property. “In the last year we have sold over £33 million worth of properties to investors and we are currently dealing with 20 percent more enquiries than this time last year. Investors have seen returns of up to 28 percent per annum over the last 22 years. From China alone, we have gone from one client to 30 clients in a few years, and we are currently dealing with dozens of enquiries.

University of Essex’s new student accommodation in Southend on Sea, Essex

“Investors are capitalising on the opportunity to snap up traditional flats in UK cities, particularly where there is a large student population. The focus is on traditional refurbished properties in good city centre locations, not purpose-built blocks on the edge of town, which tend to attract mainly first year students.”

“Student accommodation is the jewel in the crown for the property investment market,” says Grant. Student accommodation is not subject to the same economic or political influences as the rest of the property market. Even in a recession, occupancy is very high, so rentals are virtually guaranteed. And high demand delivers high yields. UK universities and colleges are very popular with Chinese students, expats and UK students alike. Parents are recognising the virtues of buying property for their student son or daughter to offset tax, save on rental outgoings and even generate income from letting out a spare room.

Overseas investors in UK property are now outnumbering UK investors and, according to Grant, that is likely to continue.

“Most of our enquiries are coming from overseas now and that is showing no sign of changing. The latest figures for the Chinese student population in the UK was over 120,000, and that doesn’t even include the number of expats living in China, many of whom want their children to study in the UK. A lot of expats want to invest in property back home to build security for their future. I expect the numbers to continue to grow as the UK’s higher education system carries a lot of prestige in China (and indeed the rest of the world), and students achieve impressive qualifications.”

The post UK buy-to-let properties are proving very popular with investors from China appeared first on Focus - China Britain Business Council.

When did you launch in the UK and how has growth been since then?

2013 marked an important year for us. China’s Belt and Road Initiative (BRI) was conceived in 2013, the same year BCEG entered the UK market. The first project we became involved in was the £1 billion Airport City Manchester, which will ultimately provide 46,000 square metres of mixed-use development. The project is also the first in the UK involving a Chinese company as an equity partner.

BCEG has achieved much in the UK over the past five years and we have developed strong relationships with Manchester and the wider Northern Powerhouse region. In addition to Airport City, BCEG is working on a further £1.9 billion of projects: the £1 billion mixed-use development at Middlewood Locks in Salford, and the £90 million The Lexington residential development in Liverpool.

Why did you choose the North of England?

BCEG chose Manchester for its European Head Office for several reasons. The first was because we are equity and construction partners the major Airport City Project, it made strategic sense to be located at the airport. We were also very impressed with the leadership and ambition displayed by Manchester and wider city region when we began looking into our move into the UK.

There is a real sense of opportunity in Manchester and the Northern Powerhouse and we are delighted to be playing a small a role in it.

What benefits does the north bring?

BECG enjoys a great many benefits being located in the north. The transport links are fantastic with Manchester on our doorstep with direct flights to 225 destinations; the rail network connects us to the rest of the UK with London only a couple of hours away while Manchester’s Metrolink light rail system connects the city centre with the Airport and lots of suburbs of the city.

Manchester is one of the UK’s leading University cities with three major universities (and five in total) – the University of Manchester, Manchester Metropolitan University, and the University of Salford, all of which help to drive a collective student population of over 100,000.

All this contributes to a substantial talent pool to draw on and many graduates decide to stay in Manchester to embark on their careers.

A dynamic Northern economy benefits from many businesses and organisations and BCEG is committed to being part of that. Because our activities range from providing initial project finance, through design and construction to ongoing maintenance we would expect to have a long-term stake in the region’s economy, creating jobs and building local communities.

Our presence in the region gives us a greater understanding of the opportunities for growth and development of the economy, which can be achieved by harnessing innovation, investing in skills and improving infrastructure to deliver a positive impact on communities.

How have local government or other trade bodies helped you since your launch?

China’s Belt and Road Initiative (BRI), seeks to promote global economic development through improving trade, investment in infrastructure and fostering innovation. The UK’s Northern Powerhouse (NPH) initiative – which seeks to capitalise on opportunities for the North of England – stands as a key beneficiary from BRI investors seeking to diversify beyond developing markets. The NPH and BRI share many common goals. Existing areas of collaboration between the NPH and China also serve as a strong foundation for future progress under the banner of BRI, paralleling our ongoing participation in the £1 billion Airport City development at Manchester Airport.

Now is the perfect time for the UK and China to collaborate, join forces and forge lasting trade relationships.

The BRI will boost the Northern Powerhouse and encourage Chinese businesses to establish themselves in the UK.

BCEGI is proud to support the Northern Powerhouse programme as it enables our business to grow, scale and boost our business sustainably. It also gives us the opportunity to leverage expert insight, network and benefit from new ideas.

The Northern Powerhouse offers major investment opportunities for Chinese companies like BCEGI. It provides a great opportunity for us to learn from the West, implementing their greater technology, management theory and practices, long and rich industrial experiences and innovation through creative adaptation into our 33 operations in China and 27 globally. Blending the best of both East and West to strengthen our global competitive advantage and develop world-class capabilities as we evolve.

What are your plans going forward?

Over the last five years, BCEG has grown significantly. Starting with a team of four, we now have more than ninety employees and this number continues to grow. Over the next few years, we aim to expand our business to regions including Liverpool and Leeds. We are committed to working closely with local authorities to focus on infrastructure and regeneration development. BCEG remains open to business opportunities with these sectors from across the region and we are eager to hear more from businesses who could benefit from Chinese partners. Now is the perfect time for the UK and China to collaborate, join forces and forge lasting trade relationships.

The post Yu Dongwen of Beijing Construction Engineering Group discusses their growth in the north of England appeared first on Focus - China Britain Business Council.

Designed by Iraqi-British architect Dame Zaha Hadid, the airport terminals cover over a million square metres.

It cost RMB 80 billion (£9.3 billion) and took five years to build.

Daxing Airport cost RMB 80 billion (£9.3 billion) and took five years to build.

Beijing Daxing International Airport will handle 45 million passengers annually by 2021, 72 million by 2025 and 100 million passengers a year by 2040.

Beijing Daxing International Airport will handle 45 million passengers annually by 2021, 72 million by 2025 and 100 million passengers a year by 2040.

China Southern, China Eastern, Beijing Capital Airlines and China United Airlines will be among the domestic carriers to move to the new facility.

The airport is 50 kilometres south of the city in the centre of the Jingjinji region and near the Xiongan New Area.

The airport is 50 kilometres south of the city in the centre of the Jingjinji region and near the Xiongan New Area.

It is also classed as a transport hub with new motorways, a new subway line and a high-speed rail link that travels at 160 km/h.

Daxing airport has four runways and will handle 1570 flights per day by 2025.

Two lanes of the new four-lane-motorway connecting the city and the airport are reserved for self-driving cars.

The airport has four runways and will handle 1570 flights per day by 2025.

China is set to overtake the United States as the world’s largest aviation market by the mid-2020s.

British Airways announced it would be the first international airline to move its Beijing base to Daxing. BA will use the new airport for most of their inbound and outbound flights between Beijing and Heathrow from 27 October 2019.

China is set to overtake the United States as the world’s largest aviation market by the mid-2020s.

The total number of air travellers in the country is expected to jump to 1.6 billion a year by 2037, from 600 million in 2017.

The total number of air travellers in the country is expected to jump to 1.6 billion a year by 2037, from 600 million in 2017.

China has 235 airports but plans to have 450 by 2035.

By 2035, China will handle a quarter of all global airline passengers.

The post Daxing International Airport appeared first on Focus - China Britain Business Council.

Dr Steven Kuo is a Sino-Africanist who lives in Johannesburg, South Africa, and regularly travels to Mainland China. He is Research Fellow within the School of International Relations and Public Affairs at Shanghai International Studies University (SISU). He previously taught African politics and International Security Studies at SISU and was a full-time Consultant for Chinese clients in Africa for a British risk management consultancy. Dr Kuo has a PhD from the University of St Andrews, where he focused on the study of Chinese participation in United Nations peace operations in Africa. He talks to Vikki Richardson about African reactions to the Belt and Road initiative.

 There has been much publicity surrounding the Belt and Road initiative (BRI). What are your thoughts on the significance of this project and its short, medium and long-term impact on African countries?

From an African perspective, the BRI will be a game changer and have significant impact on Africa’s substantial infrastructure deficit. With BRI’s focus on infrastructure, there can be substantial benefits for African countries’ overall economic growth in the medium and long-term, as power, roads and telecommunications receive much-needed investment.

As Chinese firms localise, they have begun to use British consultancies in areas such as risk management and public relations in order to manage local risks.

What have reactions within Africa been towards the BRI?

The reactions are mixed. Ethiopia and Kenya have led the way and have been outstanding in creating a political, economic and regulatory environment conducive to inbound Chinese investment. While South Africa remains the country that receives the most Chinese Foreign Direct Investment (FDI), the current political stalemate within the ruling ANC Party, as well as sustained distrust towards Chinese intentions from mid-level politicians, means that South Africa has not rolled out the welcome mat as wholeheartedly as it should have done to welcome Chinese inbound investments.

What are the key opportunities available to British companies within Africa, as part of cooperation alongside Chinese organisations in the BRI?

In terms of basic infrastructure, British companies can provide expertise in the areas of project finance, engineering consultancy, and environmental impact assessment as a part of identifying what is feasible.

Large Chinese construction companies are beginning to invest in African infrastructure in increasingly sophisticated ways, they are moving away from only acting as the project contractor, as the profit margins become ever tighter, and are becoming equity investors and taking part in PPP (Public Private Partnership) and other models of investment. In these endeavours, British advisors are able to lean on the UK’s reputation and expertise, and provide consultancy services to Chinese firms in Africa.

How can British companies and organisations (for example in the areas of security, insurance, logistics, and legal services) provide support to Chinese companies and organisations operating in Africa as part of the BRI?

Around five years ago, British government agencies and NGOs in Africa moved away from criticism of the Chinese model of operating in Africa (in the areas of aid, as well as investment), and have been advocating three-way cooperation with limited success. On the other hand, British companies in areas such as engineering consultancy, risk management (including security), project finance, as well as legal services, have always been ready to assist their Chinese clients in Africa. As in any market, those companies that put their clients’ interests first and offer the best solutions are doing very well.

There is a great deal of experience that Chinese companies can gain from working with British firms across the world as Chinese companies venture outside of their borders.

In addition, how can UK companies and organisations support African countries with their business dealings with China?

Many UK companies have decades of experience operating in either Hong Kong or Mainland China. UK companies in Africa can draw upon their Chinese experience and provide this to their African clients.

What are some of the main challenges and risks facing British companies who are working in cooperation with Chinese organisations under the BRI, within Africa? How can these be overcome?

British consultancies have evolved to service Western companies. As your readers are aware, there are still substantial cultural gaps between Chinese and Western ways of doing business, and a great number of British firms continue to mainly service Western clients in China. While many British firms have decades of experience in China, as well as in Africa, my experience is that the Chinese ‘old hands’ (and the local Chinese hires) do not know very much about Africa and vice-versa. Overcoming internal bureaucratic boundaries to coordinate a firm’s knowledge of Chinese clients’ needs with its African expertise can often be tricky. That the Chinese client will almost certainly have a HQ in Beijing or Shenzhen, as well as an African country office, adds to the problem of communicating and managing client expectations.

I would think that many people are stuck between Chinese clients’ expectations and British rules and regulations. I regret to confirm that there is no easy way of overcoming the cultural and bureaucratic constraints between British companies and Chinese state-owned enterprises that are spearheading the BRI in Africa. Those British companies that have won and maintained Chinese clients have done so by fully supporting their Chinese senior managers and partners.

As part of the BRI, China has provided funding for a number of ‘green tech’ projects in Africa and other countries. What do you believe to be the driving force behind China’s investment in green technology in these countries?

I think Adam Smith’s Invisible Hand is driving green investments in Africa. Electricity transmission lines are expensive and it can be difficult to coordinate different political entities. In this context, a solar or wind farm close to the energy user is the suitable solution. While BRI policy will push Chinese state-owned infrastructure companies to invest in a ‘political project’ (to satisfy Beijing’s demand to ‘Go Out’) these patently unprofitable projects remain in the minority. Chinese infrastructure and equipment supplier companies are primarily looking at return on investments when they assess bankable feasibility studies of green technology projects.

What do you believe the impact of BRI green technology projects will have on African countries involved?

I think it will differ from country to country, project to project. Those countries that are better managed, with more stable political structures and thus a brighter long-term outlook will likely do better. In those countries where governance is weak, BRI investment will become another project for corrupt politicians to take advantage of.

What are the challenges of China setting up green technology projects in Africa under the BRI?  

The larger Chinese state-owned infrastructure companies have had about a decade to find their footing and learn lessons in Africa. Similarly, African governments have also learnt to better manage Chinese projects, such as demanding skills transfer and employment of local workers. The biggest challenge is political will. The introduction of new green technology to Africa means loss of business to existing, state-owned electricity utilities. It requires political will to pacify resistance from existing suppliers and putting the necessary legislative framework in place, so that Power Purchase Agreements and supply in to the existing grid can be put in place.

How have, or how can, British companies contribute to overcoming these challenges?

British companies usually have better on the ground intelligence, and have longer experience operating in country. Chinese firms have learnt that their Chinese state-owned status and direct line to the Chinese embassy does not always offer them immunity from political risks. As Chinese firms localise, they have begun to use British consultancies in areas such as risk management and public relations in order to manage local uncertainties.

What effect do you believe UK-China cooperation and partnerships developed alongside the BRI will ultimately have on UK-China relations?

I think that the partnership and initiative from the UK in terms of working with the Chinese around the world is commendable. There is a great deal of experience that Chinese companies can gain from working with British firms across the globe as Chinese companies venture outside their borders.

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Over the past decade, China has been investing heavily in its high-speed rail industry. The CBBC has followed this sector closely, both within China, as well as the ever-growing international market – including countries across Africa. Rail is one of the 10 priority sectors under China’s Made in China 2025 (MIC 2025) national strategy (to find out more about this strategy see CBBC’s report on MIC 2025 here). However, at present, it is not only the high-speed rail industry that is grabbing the headlines.

On 2 June 2017, an entirely new type of intelligent urban transportation was launched in the city of Zhuzhou which is located in China’s southern province of Hunan. The name of this type of transportation is Autonomous Rail Transit (ART), also known as Smart Rail. It has been developed by the CSR (China Southern Rail) Zhuzhou Institute Co Ltd, a subsidiary of Chinese rail giant CRRC (China Railway Rollingstock Corporation).

CRRC began designing the ART system back in 2013 and the vehicle is a combination of a modern electric tram and a conventional bus, providing urban passengers with a whole new experience when it comes to public transportation. Compared with the high costs of building dedicated rail routes within cities, ART’s advantage is that it can transport large numbers of passengers; it requires minimal infrastructure investment and it is able to manoeuvre through traffic like a bus. Rather than having a physical track, ART utilises a technology known as a “virtual track control system” so that the vehicle runs along a virtual track. This virtual track can be adjusted according to the road conditions and the surrounding traffic.

The typical three carriage vehicle is 30-metres-long and can hold up to 300 passengers. The vehicle can be adapted to include an additional two carriages and therefore allow for an extra 200 passengers during peak hours. Due to its flexibility, ART can be an alternative to a metro system in first-tier cities, or can act as the main form of transportation in second-tier and third-tier cities.

Autonomous Rail can transport large numbers of passengers with minimal infrastructure investment

Similar to other modern rail and mass transit vehicles, ART’s operational top speed is set at 70 km/h. However, as it does not rely on physical rails, the completion time of a route is less than a year, vastly improving the lead-time from concept to completion.

Currently, each kilometre of China’s underground metro system costs between RMB 400-700 million to build, in comparison to RMB 150-200 million for a conventional tram. As ART requires only simple modifications to existing roads, the total investment is only one-fifth of that of a similar route for a conventional tram system. In other words, compared with a 10-kilometre tram route, ART could reduce capital investment by at least one billion RMB on a typical set of routes.

Under the current schedule, a 6.5km route in Zhuzhou is expected by the middle of 2018, and it is hoped ART will gradually improve the public transport system within the city. If the pilot project goes well, this new form of transport will not only spread to other cities in China but also around the world. So far, ART has already attracted interest from the Middle-East, the UK, and Canada. If ART comes to the UK, there will be opportunities for British businesses in areas including infrastructure development, after sales services and the relevant supply chain for components.

However, even though autonomous vehicles are being tipped as the future of transportation, they are not yet allowed on China’s public roads. Only last month, Robin Li, the head of Chinese online search engine giant Baidu, was investigated after riding in one of the firm’s driverless vehicles on a Beijing ring road. The regulation of autonomous public transportation is still being discussed at the top levels of government, as handling control of vehicles to artificial intelligence technologies still possess unknown safety and security challenges.

Products and equipment made in China traditionally have a poor reputation associated with low-cost manufacturing, as well as intellectual property issues. However, ART, along with the high-speed train, is proving that China is taking innovation seriously and is determined to follow the Made-in-China 2025 initiative and move up the value chain.

For more information on the rail and mass transit industry please contact the author, Mark Xu, sector lead for advanced manufacturing and transport at the China-Britain Business Council: mark.xu@cbbc.org.cn.

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To what extent is the Belt and Road initiative already benefiting the economy of China?

It is still very early days, as the initiative was only announced in late 2013 and its success can only be judged in 10 or 20 years’ time.

Having said that, there are a few indicators we can look at. At home, the Belt and Road appear to have brought new infrastructure investment, especially new roads and railways over China’s western borders. But the truth is that much of this investment would have happened anyway, so it cannot really be attributed to the initiative. Sceptics would also point out that yet more debt-fueled investment isn’t necessarily what China needs.

It is easier to look at the progress overseas. Here the aim is to place China at the centre of a trade and investment nexus stretching across Eurasia and the Indo-Pacific. Specifically, Beijing hopes state commodity producers, engineering firms and capital goods makers will find a lucrative new source of growth. It views the Belt and Road initiative as a lifeline for indebted firms suffering from weak demand at home and looking to export their overcapacity. It also calculates that better transport connections will bring prosperity to its own underdeveloped border region by transforming them into viable regions.

Official rhetoric exaggerates the potential of the Belt and Road to absorb industrial overcapacity. It is plausible that China could finance US$50-100 billion of overseas projects per year – but if you consider that China’s domestic infrastructure spending was running at about US$150 billion per month in 2015, it becomes immediately apparent that overseas construction demand will only be marginal. What government data do show are that Chinese firms signed construction contracts worth US$189 billion and earned revenues of US$145 billion in 60-odd Belt and Road countries in 2015-16. Some planned projects will not come to fruition, but the numbers are substantial and will probably grow.

Has that had a trickle-down effect in other countries or will much of the revenues generated go back to China?

Many of the construction revenues will go to Chinese construction companies and capital goods exporters. Some loans by the Chinese will be made on the condition that the recipient spends the money on Chinese goods. But China is also adamant that the Belt and Road is open to all, and it has specifically said it is willing to work with everyone. The extent to which that happens will vary from country to country. In Sri Lanka, almost all the diggers I saw at Colombo Port City were Japanese or South Korean, not Chinese.

China’s initiative will also have to dovetail with other national and sub-regional efforts, where the World Bank and ADB [Asian Development Bank] lend funds and construction firms from other countries will play a role. Chinese construction also employ local workers, while new ports and industrial zones also create jobs for locals. So there is truth in Beijing’s contention that its infrastructure push can benefit all sides.

Britain has just sent its first freight train to China along a Belt and Road corridor. Do you think the Belt and Road initiative is having direct benefits to Britain’s economy?

The UK sees the initiative as an opportunity for commercial cooperation, which explains why it was so keen to join the Asian Infrastructure Investment Bank. China claims that the initiative is open to all – the theme of the recent Belt and Road Forum was “interconnected development” and “international coordination” – and the UK is keen to work with Chinese firms in third countries. There could be opportunities in infrastructure, financial and professional services, agriculture and the environment, advanced manufacturing, transport and logistics, and energy and resources. The City could play a role in financing projects and, potentially, issuing RMB bonds.

Does Trump’s lack of experience in Asia (and, for example, his cancelling of the Trans-Pacific Partnership) give China the chance to dominate the region further?

Yes. The decision to bin the Trans-Pacific Partnership (TPP), which would have anchored the US’s economic and diplomatic presence in Asia, brings China a step closer to becoming the undisputed regional power. If the US continues to weaken its economic leadership in Asia, China will step up its efforts in order to fill the void. China is a strong supporter of the Regional Comprehensive Economic Partnership, an alternative free-trade vision to TPP that encompassing the 10 ASEAN countries and their six FTA [free-trade agreement] partners: India, Japan, South Korea, Australia, New Zealand and, crucially, China. Unless Trump comes up with policies that enhance rather than diminish Asia’s economic security, Asian states may have little alternative other than to seek a closer relationship with Beijing.  

Do we see China’s rise as the end of a singular global power and the start of a multi-polar era of power?

I don’t have a crystal ball but if Xi Jinping’s plans are realised, the 21^st century will be dominated by two superpowers: China and the US.

China’s Asian Dream: Empire Building Along the New Silk Road, by Tom Miller is out now with Zen Books. 

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