Paw Tracker newsletter (Week of Jul 26)

On Jul 25, Quanzhou, an ancient harbor city that witnessed China’s glorious past as a great maritime power during the Song and Yuan dynasties, was listed as a World Heritage Site. “Quanzhou thrived during a highly significant period for maritime trade in Asia,” the UNESCO announced, and went on to list a series of archaeological remains in the city, including administrative buildings, the 11th century Qingjing Mosque, sites of ceramic and iron production, and elements of the city’s transportation network. 

Today’s Quanzhou is not content with just being a museum for a historical era of trade and overseas engagement though. The Fujian provincial government, which now oversees Quanzhou city, is one of the most active of domestic actors in trying to capitalize on the BRI. Those provincial initiatives, featured in this week’s newsletter, constitute the other side of the BRI story, which shows how China’s overseas endeavors also have the potential of invigorating its own local economies that lagged behind in the first waves of Reform and Opening.

Talk of the Town

Last week the official WeChat account of the BRI provided an overview of the initiative’s progress on the provincial level in the first half of 2021, giving a glimpse of how the BRI is being used by local governments and corporate actors to stimulate domestic economic activities.

As the starting point of the 21st Century Maritime Silk Road (the “Road” in Belt and Road), Fujian province was once again highlighted in this year’s 14th Five-Year Plan as one of China’s two jumping board provinces for the BRI (the other is Xinjiang). Over the past half year, the province’s priority was getting its “two countries, two parks” (“两国双园”) initiative off the ground. Fujian and Indonesia’s North Sumantra signed an MOU in Jan 2021 to bundle Fujian’s Yuanhong Investment Park together with Indonesia’s Bintan Industrial Park and others into a partnership to facilitate investment in food processing, building materials and the “blue economy,” which might involve fishery industry collaborations given Fujian’s important role in China’s deep water fishing.

While coastal provinces are natural fits for economic gains from the BRI, landlocked provinces are active too. Chongqing’s three BRI collaboration projects with Hungary this year are eye-catching to say the very least: a study project of the edibility and food safety of insects; a research project on preservation of red chili peppers after harvesting, and a China-Hungary technology transfer center. The projects carry strong “indigenous characteristics” (Chongqing food is one of the spiciest in China’s provincial cuisines), showing how local economies are trying to capitalize the BRI in their own ways - Belt and Road with provincial characteristics, if you will.

Chongqing is known not just for its food. In recent years it has become one of the most important production bases in the country for IT products. Much of its involvement in the BRI has been concentrated in the area of building alternative transportation routes to the market, given its relative distance from the sea. In 2021, it opened up a designated freight train line to the southern province of Guangxi facing the South China Sea. From there, goods from Chongqing get transported to Vietnam and the US. This is China’s “New Western Land-Sea Pathway”.

Another noteworthy province is Yunnan, China’s gateway to the ASEAN region, and has a history of engagement and investment in its neighbors going back to long before the BRI. The province was busy in the first half of 2021 cultivating its relationship with Vietnam. Capitalizing on the free trade agreement with ASEAN under RECP, the province has this year started exporting food products to Vietnam tariff-free. It has also started a mechanism for Yunnan’s provincial Communist Party Secretary to have dialogue with the Party Secretaries of four Vietnamese provinces, a unique communist form of cooperation under the BRI.

These provincial initiatives illustrate how the BRI is deeply connected with China’s local economies. While often depicted as an international development endeavor with geopolitical motivations, the BRI’s domestic economic implications should not be overlooked. After all, one of the stated objectives of the initiative is to unlock development potentials of China’s inland provinces previously deprived of opportunities to link to global markets compared to their coastal peers.

This week's highlight projects

UAE: Chinese city builds overseas warehouse in Dubai to facilitate trade

Yiwu, China’s and the world’s capital of small merchandise, from paper clips to hair bands, is going to build a 210,000m2 overseas warehouse in Dubai to facilitate trade of Chinese goods globally. The city in east China’s Zhejiang province will invest, build and operate the warehouse, which will also serve as the center for exhibition and shipment in the future. It will be the first time a Zhejiang entity has invested overseas using the “investment-construction-operation integration” model.

Why it gets our attention: The pandemic is disrupting trade in many ways and one of the difficulties is for foreign traders to visit China and select merchandise to sell in their home markets. Yiwu used to attract business people from across the world. It is now placing its offerings in Dubai and encouraging Chinese companies and individuals to open shops there to shorten the trade routes. The project received USD 13.4 million in insurance from Sinosure, which allows it to unlock domestic bank loans for early stage development. The warehouse will open for business on the eve of the Dubai Expo 2021.

One more thing: The UAE is increasingly becoming China’s most important political, business and financial ally in the Middle East region, with important connections to African markets too. Read up more on this underappreciated strategic partnership in PPDC’s interview with Jonathan Fulton, Assistant Professor of political science at Zayed University, here.

Other project & corporate updates

Bangladesh: Build-Operate-Transfer highway project receives international award

The Dhaka Elevated Expressway project, sponsored by a number of groups including China Shandong International Economic & Technical Cooperation Group and Sinohydro, recently won The Asset’s Transport Deal of the Year award. The project is the first large scale PPP project undertaken in Bangladesh and one of the government’s most ambitious attempts to relieve the capital’s congestion problem. Alongside Chinese companies, the USD 861 million project also involves an Italian-Thai joint venture. 

Why it gets our attention: As well as achieving a prominent international award, the elevated expressway is also the first overseas transport project operating under a Build-Operate-Transfer (BOT) model to receive insurance from Sinosure. A BOT project involves greater financial risk than an EPC, or “turnkey”, project whose operations are simply handed over to domestic owners after construction is completed. In a BOT project, the constructor and operator typically plans to recuperate some of the initial construction costs through the operation of the project over a fixed period of time. This exposes finances to various market and political risks. Sinosure’s insurance, therefore, provides important financial protection to make the project possible.

On the other hand, a BOT project can give the construction company greater control over the roll out of the project, from design through to operating stage. It can also be beneficial in mitigating other risks such as illegal or unjust land grabs and community opposition, all of which an EPC company has relatively little sway over. China is increasingly encouraging BOT and investment-construction-operation models over EPC projects along the Belt and Road, as signalled in the Ministry of Commerce’s 14th Five Year Plan released at the beginning of July.

Kenya: Shandong company win “smart road” contract 

A subsidiary of Shandong Highway Group has won the tender for a highway video surveillance project in Nairobi. The company describes the project as its first “digital road” project in Africa. Operating over a 26.8km section of highway from the Jomo Kenyatta International Airport to Nairobi’s CBD, the project will conduct video surveillance, number plate recognition and data storage services. The company hopes that the project can be a “smart highway model” and set standards in this new field of infrastructure.

Worth your time

In a paper for the Carnegie Endowment for International Peace, Katherine Adeney and Filippo Boni take a deep dive into the domestic Pakistani politics that have shaped the China-Pakistan Economic Corridor (CPEC). From project type to location to timeline, the authors find that CPEC has been far from an assertive Chinese masterplan for the two countries’ relations. On the contrary, China has had to be extremely adaptive and accommodating to changes of government, the influence of the Pakistani Army, and other domestic political forces pushing for projects aligned with their own interests. The paper also shows how the Gwadar port, though certainly also of strategic interest to China, originated from Pakistani strategic concerns about sea access shaped by its rivalry with India. Part of a series of deep dives into the on-the-ground realities of the Belt and Road, the paper is worth a read.