Special Report – Belt and Road

Beijing’s trade strategy: US firms want a level playing field

AmCham Hong Kong boss says companies are keen to take part in Chinese-sponsored projects

PUBLISHED : Monday, 19 March, 2018, 4:01pm
UPDATED : Monday, 19 March, 2018, 4:01pm

Transparency and a level playing field are among the factors that may determine the extent to which American companies embrace China’s global trade strategy, “Belt and Road Initiative” (BRI), as they adopt a wait-and-see stance in the wake of United States trade tariffs.

The US government has yet to officially endorse BRI – China’s massive cross-continental programme to develop infrastructure projects over maritime and land routes – but American companies are free to bid for projects in the industries they choose.

“The US government is not standing in the way of US companies getting involved in BRI projects,” says Jack E. Lange, chairman of the American Chamber of Commerce (AmCham) in Hong Kong.

“We expect enterprising companies involved in relevant industries – such as construction, engineering, logistics, heavy equipment manufacturing, finance and professional services – will continue to explore opportunities. But only for so long as they think that the opportunities are reasonably open and the playing field is reasonably level.

“As a practical matter, there are significant constraints on the ability of American and other non-Chinese companies to participate in Chinese-sponsored projects. There is often little visibility at the early stages of these projects, when many of the contractors and suppliers are being brought on board.

“Chinese players have many advantages in projects with financing from Chinese sources. Even where tendering is open and competitive, American companies are often competing with giant Chinese [state-owned enterprises] that benefit from subsidies and other state support.”

In October last year, the Washington DC-based Atlantic Council – a body that promotes economic and political engagement across the globe – said US companies should seize the opportunities presented by BRI, adding that they do not have to agree to every component of the programme.

Lange says that, theoretically, opportunities existed for a wide range of American businesses. However, he says that overseas companies were wary because of the perception that mainland competitors had the advantage when it came to bidding for projects.

A bankable BRI project is the holy grail – there is an enormous amount of debt financing capacity available for truly bankable projects with a BRI theme
Jack E. Lange, chairman, American Chamber of Commerce, Hong Kong

“Openness and transparency are real issues,” he says. American and other international companies will eventually get discouraged from trying to participate if they don’t think they are getting a fair shot, and that won’t be good for the host countries of BRI projects.

“We have excellent companies providing goods and services essential to BRI projects. Some very large American companies have been pursuing opportunities. American companies should be competitive to the extent that high ESG (environmental, social and governance) and technical standards are adopted for the projects.

“But in practice, there won’t be real, large-scale opportunities unless there is openness, transparency and a reasonably level playing field. Given the scale of many BRI projects, it may be difficult for SMEs [small- and medium-sized enterprises] to participate except through consortiums.”

On March 8, US President Donald Trump signed off on tariffs of 25 per cent on steel and 10 per cent on aluminium imports, raising the stake of a trade war with China. Canada, which represents 41 per cent of US steel imports, and Mexico are exempt from the tariffs.

Lange says he hopes American companies can overcome obstacles should there be any retaliatory moves by the mainland government.

“It’s a bit hard to predict what impact rising trade frictions may have – we hope that Hong Kong and American businesses can play a constructive role in mitigating these,” says Lange, a partner in law firm Paul, Weiss, Rifkind, Wharton & Garrison.

“In the long run, the development of a more comprehensive Indo-Pacific strategy by the US government could help develop a framework for high standard infrastructure development that offers more opportunity for participation by American companies.”

Britain recently indicated that its government was warming to China’s BRI, with its big banks willing to free up loans to support projects.

Lange says US banks are interested in financing BRI projects but not ones that pose a debt risk, describing a genuine bankable project as the “holy grail”.

“American banks, investment funds and other finance firms will certainly be interested in being involved in ‘bankable’ BRI projects,” he says. “It is not in the interests of international lenders – certainly not in the interests of host countries – to get involved in projects that can’t support their debt service and end up in the hands of the lenders.

“But a bankable BRI project is the holy grail – there is an enormous amount of debt financing capacity available for truly bankable projects with a BRI theme. And American finance firms are likely to encounter the same difficulties in accessing attractive opportunities as companies in other industries.”

One US company that has dived head first into the BRI is Aecom, the world’s largest engineering firm that has linked up with local clients and mainland state-owned enterprises, Lange says. Aecom’s projects include the Kuala Lumpur-Singapore high-speed rail, Bangladesh’s Padma bridge and the Colombo Port City in Sri Lanka.

“GE is involved in power projects in Vietnam, Pakistan and Macau and will establish a joint energy infrastructure platform with the Silk Road Fund,” Lange says. “So there are opportunities for American companies and there is meaningful activity, ­but there are serious constraints as well.”

He says he hopes AmCham in Hong Kong could act as a platform for American companies to seek business opportunities with China’s BRI.

“As in all areas of significant business activity for which Hong Kong can be a platform, we are keen to help our member companies identify and take advantage of opportunities and to advocate policies that stimulate trade, investment and sustainable growth,” he says.

“And Hong Kong ... is very well positioned to be a platform for BRI activity.

“We will continue to encourage all of the governments, multilateral institutions and other players involved in shaping the ‘Belt and Road Initiative’ to embrace international best practices, including open, transparent and fair tender procedures and high level environmental, social, governance and technical standards.”