This article was written by Xuhua Huang (Partner, Singapore) and Haibo Mo (Partner, Guangzhou).
Since China’s ambitious ‘One Belt, One Road’ initiative (“Initiative”) was first introduced in October 2013 by President Xi Jinping, the rest of the world has been playing close attention to how this major pillar of China’s economic policy will impact its integration with the global economy. It is being heralded as a blueprint for greater cooperation and integration through the development of an infrastructure network connecting all sub-regions in Asia, and between Asia, Europe and Africa.
In recent months, the Initiative has gained significant momentum with the unveiling of an overall strategic plan in March entitled “Vision and Actions Outlined on Jointly Building Silk Road Economic Belt and 21st-Century Maritime Silk Road” (“Vision and Actions”) by the National Development and Reform Commission, the Ministry of Foreign Affairs and the Ministry of Commerce.
In particular, it places a strong emphasis on orienting the Maritime Silk Road towards the Association of Southeast Asian Nations (ASEAN), accelerating the development of the Initiative.
Singapore’s unique position under the One Belt, One Road Initiative
According to the framework of Vision and Actions, Southeast Asia is an important area of the Initiative and strengthening the infrastructure of the countries along the route is a key priority. Southeast Asia is rich in resources but the lack of construction funds is a barrier to the region’s economic growth, causing an infrastructure deficit, low levels of industrial development and other issues.
For example, some Southeast Asian island nations still rely on archaic port facilities with outdated shipping vessels, making it difficult to ship manufactured products to other countries. On the other hand, some landlocked Southeast Asian countries are constrained by their terrains limiting their ability to construct transport infrastructure such as highways and railways, which is one of the hurdles these regions face in reaching their full economic potential. The Initiative strives to promote capital and technology investment by China into these ports, transport routes and other infrastructure in order to improve the circulation of resources, market integration and allow for better facilitation of trade and investment in Southeast Asia. By capitalizing on this Initiative, Southeast Asia will become one of the primary destinations for Chinese enterprises seeking to expand globally.
Singapore is the most economically advanced country in the Southeast Asian region and is likely to enhance its position as a world player as the Initiative implementation comes to fruition. As one of the world’s leading financial centres, the number one hub for commodities and oil trading in Asia, and a vital connection hub for China, Asia and Asia Pacific markets, Singapore is ranked as the country with the highest investment value (out of 64 countries included in the Initiative), according to a country investment value report issued in March 2015 by Grand View, an independent Think-Tank of China. The country’s key industries are drawing the attention of Chinese enterprises looking to invest in the region and many Chinese enterprises have already successfully integrated their regional resources and achieved internationalization through various methods of investment in Singapore. It is not a surprise that Singapore has established itself as the second leading offshore hub for RMB trading.
And that’s only one part of it. We expect to see Singapore’s status become more prominent as the shipping and aviation hub of Southeast Asia, in addition to witnessing an increase in trade and personnel exchange across the region as a result of the construction and development of infrastructure, such as ports, airports and other facilities. At the same time, we anticipate that Singapore’s centricity to Southeast Asia’s financial, trade and logistics services will expand significantly. These enhancements are motivated by the Initiative, but complimented by Singapore’s highly established investment and financial services markets, its strong legal system, sound infrastructure, experienced financial systems, and political and social stability.
Key industries that will benefit from the Initiative
Infrastructure and logistics industry
Singapore’s well-established infrastructure sector and expertise in logistics will reap benefits for the city under the Initiative. Positioned in the heart of Southeast Asia and the gateway of the Strait of Malacca, Singapore has flourished as an infrastructure and logistics hub for the Asia-Pacific. For example, the port of Singapore is amongst the three busiest and largest container ports in the world. Around 200 shipping lines connect Singapore to circa 600 ports in more than 120 countries around the world. Chinese enterprises have taken notice of the city’s influence on trade in Southeast Asia and in recent years, China has upped the ante in its investment in Singaporean infrastructure.
In Vision and Actions, the Chinese government voiced their wish for countries along the route to “improve the connectivity of their infrastructure construction plans and technical standard systems […] and form an infrastructure network connecting all sub-regions in Asia and between Asia, Europe and Africa step by step.” Undeniably, China’s recent deal with Thailand to construct the Thai section of the Singapore-Kunming rail brings this dream one step closer into fruition and ASEAN members, with Singapore at the centre, inextricably closer into forging an impressive Asian trade sphere. Singapore’s next step as a leader in infrastructure and logistics will be in aiding her neighboring countries and fellow trading partners in developing theirs.
While GDP, industrial output, and consumption have soared across the Southeast Asian region in countries such as Indonesia, Malaysia and Vietnam over the past decade, power, water, and transport systems have struggled to keep pace. The Asian market, driven by the region’s growth, is stated to represent nearly 60% of global infrastructure spending by 2025. As such, the progress of Singapore’s infrastructure and logistics capabilities positions it to partner with Chinese investors in tackling the broader region’s infrastructure deficit and under the Initiative striving to advice the region.
China has made it clear in Vision and Actions that tourism forms a key part of their plans for countries involved in the Initiative and will “jointly create competitive international tourist routes and products with Silk Road features; and make it more convenient to apply for tourist visa in countries along the Belt and Road”.
Tourism in Singapore is already a major industry and great contributor to the Singaporean economy. As the Initiative gains traction in the region, its impact will be crucial in helping even more tourists from neighboring countries visit Singapore.
Clean energy industry
In Vision and Actions, it is recommended that countries along the Initiative should work together “in the exploration and development of […] hydropower, nuclear power, wind power, solar power and other clean, renewable energy sources”. Building on its distinct competitive advantages as the premier clean energy hub for the region, Singapore is already strategically positioned to play a strong role in helping the clean energy industry capitalize on this continued growth in the Asia Pacific region under the Initiative. Leading businesses will use Singapore as a reference market to develop and trial solutions before expanding to neighboring countries.
Financial and professional services
As mentioned above, Singapore is one of the world’s leading financial centres and already plays an important role as a hub for raising and distributing equity and debt capital to facilitate investment in other parts of the region including the ASEAN countries, India and elsewhere in Asia-Pacific.
Consistent with that status, Singapore has strong, well regulated and transparent capital markets, as well as a significant concentration of expertise in banking and financial services, funds and investment management and private equity.
The Initiative creates significant opportunities for firms engaged in those areas, as well as the associated professional services, to assist both Singapore based and foreign enterprises as they look to participate in the financing and/or development of projects around the region in the sectors identified above.
Singapore as a hub for foreign investment
Singapore has a well-developed and well-regulated legal system with very low levels of corruption. Foreign investors are not required to enter into joint ventures or relinquish management control to local interests, and the same basic laws apply to both Singaporean and foreign investors. Singapore has more than 70 economic and tax treaties with other countries, and proven an attractive location for multi-national corporations, fund managers and other market participants to establish regional headquarters, funds or investment vehicles to facilitate investment into those other countries. While there are specific considerations for each industry, Singapore will certainly attract foreign investment in the key industries as discussed above. Its role as a transit destination for foreign investment into other countries (especially Southeast Asian countries) will also become more important along with the development of the Initiative.
The Initiative establishes a blueprint for Asia’s future infrastructure development and serves as a roadmap for China's growing global influence.
The economic potential cannot be underestimated. In particular, the opportunities for Singapore are significant. The country’s role as a major business, financial and trade hub for the Asia Pacific region will only be enhanced as China seeks to make the goals of the Initiative a reality and engages with the other Asian countries in doing so.