Pioneering Hong Kong investors in Belt and Road markets describe challenges and opportunities

Experience described as especially valuable when tackling unfamiliar markets

PUBLISHED : Wednesday, 10 May, 2017, 8:01am
UPDATED : Wednesday, 10 May, 2017, 5:00pm

Political and foreign exchange risks are among the top challenges pioneering Hong Kong investors have faced in markets along China’s ambitious trade strategy, but opportunities exist such as undervalued assets and growing consumption markets, according to businessmen familiar with those countries.

Touted by President Xi Jinping, the “Belt and Road Initiative” aims to open up trade via two corridors: the land-based Silk Road economic belt in the north, and the maritime Silk Road in the south.

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But experience counts when it comes to investing in these largely unfamiliar markets. The Post spoke to several businessmen with substantial experience along the corridors to gain some insights into the main challenges and opportunities.

Jonathan Choi Koon-shum, chairman of conglomerate Sunwah Group, is particularly familiar with the maritime Silk Road, as his family-owned firm has operated seafood, coffee and real estate businesses in Vietnam for decades, while also investing in Myanmar, Cambodia, and Indonesia.

Political risks usually include policy and legal changes, and occasionally, a change of government. But it can be even more extreme, said Choi, who is also chairman of the Chinese General Chamber of Commerce in the city. “Our company was doing business in the former South Vietnam [in the 1970s], but after the civil war ended, we had to start all over again.”

“Fortunately, we were sincere in building a good relationship with the new government and our business was able to continue in the country,” he added. “Now, doing business in Vietnam is much better.”

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Choi recalled trading gold as currency in some countries in the region where the US dollar was not accepted. “Currencies can depreciate very quickly, and getting money out of the countries can also be a challenge,” he said.

The concern over currency fluctuations was shared by Joseph Chan, chairman of Kaisun Energy. His firm has invested in four coal mines in Tajikistan totalling US$80 million in value.

“After the depreciation of the Russian rouble a few years ago, Tajikistan’s currency fell 60 per cent,” he said. “So we decided to slow everything down.”

Chan cited a lack of an established transportation system as another difficulty. “Until the railway and roads were completed, we had to postpone our plan to export the coal and instead sell it to the domestic market.”

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Business culture can also be very different, according to Ben Simpfendorfer, founder and CEO of consulting firm Silk Road Associates.

“In the Middle East, it’s not enough to simply rely on email or cold calls. Relationships are key to business,” he said. “It’s critical to make regular visits to the region to build your networks and spend time with contacts.”

It’s critical to make regular visits to the region to build your networks and spend time with contacts
Ben Simpfendorfer, Silk Road Associates

Simpfendorfer, author of the book The New Silk Road, described the risks of working in China as comparable to those of working in the Middle East and “many parts of the world”. “It’s especially critical to complete your due diligence on a partner or project,” he added.

Despite the challenges, these Belt and Road veterans said there were plenty of virtues to doing business in the region.

For starters, quality assets could be available at attractive prices, Chan said, recalling his investment in Tajikistan. “We bought the coal mines when they were marketed in Hong Kong for about US$65 million. We think it was value for money. Tajikistan is near Xinjiang. We could see there was a lot of demand for coal as it was building a lot of railways.”

Mainland Headwear managing director Pauline Ngan Po-ling noted that labour costs in Bangladesh, where the listed cap-making company had set up a manufacturing base, were “around US$100 to US$120” per person per month – much lower than the 6,000 yuan rate in Shenzhen where it also had operations.

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As the Belt and Road countries become more affluent, huge domestic markets would follow, Simpfendorfer said. “The branded consumer goods sector is especially promising. It benefits from rising consumer affluence and online platforms that allow brand owners to tap demand in the over 500 major cities with populations greater than half a million.”

Choi noted that Hongkongers and other Chinese had been doing business in Belt and Road countries for a long time, but that now was the best time to seize the possibilities because of “the new synergy created by the Belt and Road initiative”.