BC Business
China's ambitious Belt and Road Initiative includes a digital push into Asia, Europe and Africa
From left: Panellists Carson Wen, Li Shan and Margit Molnar with moderator Alfred Romann
It may not be the catchiest name to Western ears, but you’ll be hearing plenty about China’s Belt and Road Initiative (BRI) in the years ahead. With this US$1-trillion international infrastructure program, Beijing aims to extend its influence throughout Asia, Europe and Africa by building land and maritime trade routes between China and more than 60 other countries. Those nations comprise two-thirds of the world’s population and a third of its gross domestic product, research firm Oxford Economics estimates.
“The Belt and Road Initiative may be China’s idea, but its opportunities and outcomes are going to benefit the world,” President Xi Jinping said at this month’s Boao Forum for Asia, which is called the Asian Davos in some circles. “China has no political calculations, seeks no exclusionary blocs and imposes no business deals on others,” he added, calling for cooperation among the nations involved.
No matter what you think of Xi’s sales pitch—the European Union remains skeptical—the BRI is a go, from India to Germany to Kenya. During the recent Asia-Pacific Business Forum (APBF) in Hong Kong, BCBusiness sat in on a panel discussion called Digital Silk Road that looked at how digital technology figures in this ambitious plan.
The APBF, presented by public agency Hong Kong Cyberport Management Co., the Hong Kong government’s Innovation and Technology Bureau and the United Nations’ Economic and Social Commission for Asia and the Pacific (ESCAP), took place at tech incubator Cyberport. Many of the sessions focused on how the private sector can help reach the UN’s 2030 Sustainable Development Goals (SDGs).
The Digital Silk Road panellists included Margit Molnar, chief China economist with the Organization for Economic Co-operation and Development (OECD); Li Shan, CEO of Hong Kongbased investment firm Silk Road Finance Corp. Ltd.; and Carson Wen, founder and chairman, Bank of Asia, British Virgin Islands, and BOA Financial Group Ltd. Moderating was Alfred Romann, contributing editor, Asia-Pacific, for government-owned English-language newspaper China Daily.
What’s in it for China
The BRI could help reduce China’s large regional economic disparities, Molnar said. The country’s western regions tend to have much lower productivity in manufacturing and services than those in the east, she noted, and less so-called smart manufacturing. “BRI, through the infrastructure that it involves and also all the other impacts, can bring about a catch-up in the western part of the country.”
Last December Molnar attended the World Internet Conference in Wuzhen, China, where a handful of countries, including Saudi Arabia, Laos and Thailand, signed an agreement to participate in the Digital Silk Road. But the BRI faces challenges, she warned, including the cost of infrastructure. In the next three years, for example, China’s big three mobile companies plan to shell out US$180 billion on super-fast 5G networks.
“The other challenge is the regulatory framework,” Molnar said. For instance, so far there’s no agreement on how to tax e-commerce: “The debate is whether these Internet firms or their activities should be taxed outside of the country where they are registered.” Although the EU supports such taxes, the U.S. and China strongly oppose them, Molnar observed.
A new trading currency?
Li talked about fintech’s potential role in the BRI, which faces a logistical barrier because the countries involved use some 60 different currencies. A single paper currency for trade would be the most efficient option, he noted, but it would invite the same problems that the euro is now confronting—on an even larger scale. “If you have a single currency, you will affect the independence of monetary policy.”
Using blockchain technology, it’s possible to create a digital currency that would facilitate trade and investment across all of the BRI regions, Li maintained. Meanwhile, each central bank would retain its own paper currency.
As Wen pointed out, the Digital Silk Road is the third prong of the BRI. Besides a digital infrastructure, the program needs a set of laws, policies and trade treaties that would allow countries to share data. “Currently there’s not an international set of these rules allowing movement of data,” Wen said. “The Digital Silk Road is probably the first initiative to cross borders in terms of movement of data and information.”
Over the next three years, China will build a fibre optic network and other digital infrastructure for the BRI, Wen explained. Then there’s the BeiDou Navigation Satellite System (BDS), the country’s version of GPS. “With 30 satellites, within this year it could connect the entire Belt and Road,” Wen said. “By 2020, I think BeiDou would have 35 satellites across the world. By then, it would directly compete with the GPS.”
A fintech sandbox
Rather than rush into things, China is taking a “sandbox” approach to building a new digital ecosystem, Li told the audience. Wen pointed to the creation of a so-called international financial centre in Astana, the capital of BRI participant Kazakhstan, that launched in January. “It adopts common law and uses English as the official language,” he said of the new fintech hub.
“We have just received approval to set up the first sandbox digital fintech entity, which hopefully will become a bank,” Wen added. The goal of Eurasia Continental Fintech is financial inclusion, he said, noting that more than 2 billion people worldwide have a mobile phone but no bank account. “What we’re trying to do is build a financial entity out of Astana using fintech, and hoping to serve whoever around the world needs banking services.”
Skills are also important to the BRI’s digital push, Molnar asserted. When the OECD analyzed the skills of about 800,000 Chinese university graduates, it found that the biggest deficiency is in computer programming. “Probably this would be a very big bottleneck on all the digitalization plans,” Molnar noted.
To that end, the OECD recommends providing “a certain minimum level of basic education for everyone,” she said. “That’s where you start building all the digital skills.”