Belt & Road Initiative projects and tenders: opening the BRI to non-Chinese companies

Belt & Road Initiative projects and tenders: opening the BRI to non-Chinese companies

By Dr. Sebastien Goulard, founder of OBOREurope

The Belt and Road Initiative (BRI) is sometimes considered a project that was made exclusively for Chinese companies and financed solely by Chinese institutions. However, this assumption is wrong as it does not take into account the evolutive nature of the BRI. The Belt and Road is getting more and more international and the BRI’s success will highly depend on the ability to attract foreign companies in projects.

There is BRI paradox. Since its inception in 2013, the BRI has been presented by Beijing as an international programme to increase connectivity between China and the world. In his speech delivered at the Indonesian Parliament in October 2013 in which he first mentioned the Maritime Silk Road, President Xi Jinping stated “China cannot achieve development in isolation from the world, and the world also needs China for development.” For China, the Belt and Road Initiative is not exclusively Chinese, on the contrary, this is a project offered to the world, and reflects China’s strong support for multilateralism. In May 1017, at the opening ceremony of the Belt and Road Forum for International Cooperation, President Xi Jinping, in his speech, declared that he would work with other heads of state and government to pursue “the Belt and Road Initiative, a project of the century, so that it would benefit people across the world.”

However, criticism has been formulated against the BRI for (supposedly) being carried out only by Chinese companies, and for the lack of transparency of the bidding process. According to the World Bank, BRI large infrastructure projects present risks due to their lack of transparency and openness. It cannot be denied that most of the BRI flagship projects such as the expansion of Gwadar port in Pakistan, or the new railroad in Laos have been conducted by Chinese companies.

In order to address this criticism and make the BRI more sustainable, Chinese leaders have called other nations to join in the BRI and invited foreign companies to take part in specific projects of the new Silk Road. Thus, since September 2019, the China Pakistan Economic Corridor, one of BRI’s most important segments, has been officially opened to foreign investors and companies. Saudi Arabia and Oman, two countries enjoying good relations with both China and Pakistan accepted this offer, and they are now involved in major construction projects in the city of Gwadar. However, these foreign participations still not result from transparent bidding process, but from bilateral or multilateral negotiations between heads of state or government.

Still, some foreign companies are involved in BRI projects as members of Chinese companies-led consortia or as subcontractors, it is the case of Germany-based Siemens group that is active in several BRI projects.

We note absence of bidding process and BRI delays. Direct negotiations between heads of state and the absence of bidding process for many BRI projects have been considered a faster way to conclude agreements and develop projects. However, in many cases, delays have been experienced because local rules have not been abided.

a) Kenya’s Mombasa-Nairobi standard gauge railway

In late June 2020, Kenya’s Court of Appeal found illegal the agreement between “China Bridges and Railway Corporation” (CBRC) and “Kenya Railways Corporation” (KRC) for the construction of the railway line connecting Mombasa to Nairobi.  The court pointed out the lack of a tender process.

This line was inaugurated in June 2017; the decision of justice will not affect its service, but may be an obstacle to a possible line extension.

b) The Budapest-Belgrade line

Another BRI project affected by the lack of transparency is the Budapest-Belgrade railway line that was first formulated in 2013. This line constitutes a major segment of the corridor China is willing to develop between Central Europe and the port of Piraeus where China’s COSCO operates. On the Serbian side, construction is well advanced, and the segment will be completed by late 2020 or early 2021. However, in Hungary, this project has been facing several delays, because the project did not comply with EU regulations on public tenders. As a result, no major deal between China and Hungary was signed till April 2020.

We cannot blame China for not abiding to local regulations, as in most cases, host governments chose to bypass their own laws in order to secure a quick agreement with China.

There is no major BRI related infrastructure project completed so far. Much of the criticism against BRI projects seems to be unfair as very few BRI-related infrastructures projects have been completed so far. The BRI was launched in 2013, and most countries took some time to answer to China’s invitation to join in.

As a result, the projects that have drawn criticism by think-tanks and the US administration are not BRI projects, but projects that were planned before the launch of the Chinese initiative.

For example, Sri Lanka’s Hambantota port that is often described as a white elephant was first designed in the late 2000’s and its construction started in 2008. Chinese companies such as China Harbour Engineering Company were involved in this project, but it was still not a BRI project.

Negotiations regarding the construction of the Nairobi-Mombasa railway we mentioned earlier, started in 2009.

Many of the BRI-related infrastructure projects are large scale projects that require to conduct feasibility studies; agreements are reached after long negotiations and their construction takes several years. This means that there are few actual BRI projects.  Many earlier projects have received the BRI label only for public relations, to increase their visibility.

BRI is changing. Although projects formulated before the launch of the BRI and early BRI projects were largely dominated by Chinese companies, it might not be longer the case, as the BRI, -and its financing-, have evolved.

At the early beginning of the BRI, most projects were solely financed by Chinese banks or financial institutions; this partly explains the overwhelming participation of Chinese companies in BRI projects. However, BRI financing mechanisms have become more diversified; and more European banks and stock exchanges have partnered with Chinese financial institutions to fund BRI related projects. As a result, BRI projects tend to be more opened to foreign companies, as it becomes easier for them to receive adequate financial support.

Secondly, decision making process for BRI projects is to become more transparent as Chinese authorities are making this matter a top priority for the Belt and Road Initiative. Thus, in April 2019, at the second Belt and Road Forum, President Xi Jinping promoted transparency for BRI projects.

Some recommendations may be formulated. The BRI is a very ambitious project and it reflects China’s multilateral foreign policy and willingness to promote free trade around the world. The BRI may potentially change the world and offer opportunities for development in emerging countries. This connectivity programme has been widely criticised. Although some of these criticisms are valid, we must not forget that the BRI is a work-in-progress and that China is working to make it more sustainable and to open it wider to foreign nations.

China needs to pursue efforts to better monitor projects and launch calls for every project developed within the BRI. This is the only correct answer to face criticisms formulated by think-tanks and the US administration.

 

This article was first presented at an online conference organised by the University of Cagliari, Italy and entitled “How to resolve conflicts arising from the Belt and Road Initiative?”, held on July 30, 2020.

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