BRI Countries Predicted to Surge by MNC’s Investment
Illustration of China Belt and Road Initiative (BRI). Photo: Special

JAKARTA (TheInsiderStories) – Most of China and international investors regard political risk as the biggest barrier to investment and pose the biggest challenges for future projects. But, market sentiment heated up the idea that investment from multinational companies  (MNCs) in Belt and Road Initiative (BRI) countries would rise in the coming year, said a international law firm CMS on Wednesday (02/20).

“To manage the risk, companies need to have concrete plans and teams to strengthen investment strategies and determine projects where geography is right to pursue,” Munir Hassan said in the latest report.

The study noted that despite Chinese President Xi Jinping promoted BRI as an international effort that was open to all participants. Trade and investment has been dominated by Chinese capital to date or requires the country’ partners to be involved in these projects.

Based on a recent study by the Washington-based consultancy RWR Advisory Group, around 14 percent or 234 of 1,674 China invested infrastructure projects were announced in 66 BRI countries since 2013 experiencing problems such as national security concerns, objections to labor policies, performance delays and public opposition to the project.

Other risk categories that need to be managed include foreign investment restrictions, regulatory challenges, political risks (which differ from one country to another), commercial risks and contracts to partners, litigation in local courts, and languages and cultural differences.

But this trend seems to be changing. Forty-six percent of respondents said that BRI projects currently do not require partners, support or approval from the Chinese government and 98 percent believe MNCs will be more active in the coming year when they are looking for opportunities and more aggressively stepping out of the market take roles in various project patches.

But, what role will multinational companies play in these projects? Respondents said that international involvement will largely revolve around joint partnerships and business alliances (according to 92 percent) because they are in a relationship with Chinese investors (who are likely to take on the role of major investors or project sponsors).

While for the second group, this approach will help reduce risk and bring a diversity of project experiences to the table to help navigate the project terrain that is often challenging in the jurisdiction of Belt and Road.

“There are comments suggesting that international investors do not need to have Chinese partners to be involved in BRI, and this is true,” said Managing Partner for CMS Beijing Nick Beckett.

However, according to him, multinational companies should often expect to have Chinese partners, especially in terms of projects in China, if only to provide additional security lawyers for the agreement. Chinese partners may know the authority and regulatory system, and can access people and key capital for agreements more than potential international partners.

Respondents said that political volatility in this case jurisdiction is the main problem, and in that tone, corruption at various levels in this jurisdiction might also play.

For this reason and other legal frameworks (according to more of 90 percent both groups of investors) and national governments political problems (according to 90 percent of Chinese respondents and 80 percent of international respondents) will be one of the most pressing challenges they tend to face in BRI investments in the future.

Surprisingly, the risk of human resources and reputation is not considered the biggest risk for BRI investments, each receiving less than 50 percent sentiment from two groups of investors.

The complexity and technical skills needed by many of these projects require experts not only with knowledge but also experience in managing and completing these efforts.

So far, respondents identified that countries in Africa, Southeast Asia and Central Asia could be “hot spots” that are very likely to increase investment in the coming year due to high infrastructure needs in these locations and anticipating opportunities in infrastructure “soft” like IT. The road and rail transportation are seen as the most attractive sectors for investment opportunities for BRI investors.

“You can see BRI’s investment patterns, especially for Chinese people, like a metaphorical journey. Exiting from China, the closest regions in Southeast Asia and South Asia will benefit greatly, given the geographical proximity and relative cultural similarity. This is also an area that requires infrastructure investment,” said CMS Partner in Singapore Adrian Wong.

The CMS survey also revealed a growing sense of optimism for BRI investments in the market from Asia to EMEA. It also increases trust among international investors, where they participate, if not every time, but at least in general and with increasing frequency next year.

Written by Daniel Deha, Email: daniel@theinsiderstories.com