one belt one road implications on various industries
ONE BELT ONE ROAD IMPLICATIONS ON VARIOUS INDUSTRIES In the year 2013, China’s President Xi Jiping launched China’s One Belt One Road (“OBOR”) initiative which involves 65 countries and encompasses massive infrastructure development surrounding Central Asia, Eurasia, and Africa. It is targeted to benefit not only the Chinese companies but many other parties from the Belt and Road (“B&R”) countries in terms of numerous emerging trade opportunities. The initiative is seen as the next potential catalyst for China’s growth through exporting excess supplies and investments abroad. Not to mention, the increased connectivity between countries would encourage further trading activities which in turn to stage for potential growth. But the question that intrigues the most, which industries would benefit the most from OBOR? In the following sections, we highlighted several key sectors that are likely to benefit from the initiative.
Consumer Goods and F&B: Set To Benefit From Growing Consumer Demand First and foremost, it is a likely known fact that industry operating in steel, building materials, energy, and construction would likely benefit the most from OBOR initiative. But apart from it, we expect food and beverages companies like Unilever, Mondelēz International, and Nestlé are poise to be a strong beneficiary of OBOR initiative as well.
For more information on GreenProCapital Corp. Phone: (+852) 3111 7718 Email: [email protected] www.greenprocapital.com
NESTLÉ REVENUE BUSINESS SEGMENT Other Business Segments 36%
Zone Europe, Middle East and North Africa 19%
Zone Americas 29% Zone Asia, Oceania and Sub-Saharan Africa 16%
Source: Nestle Financial Statement 2015
For example, Nestlé; a global food and beverage company, has already had more than one-third of its sales contributed by Europe, the Middle East, and Asia in combination in the year 2015. The Asia, Oceania and sub-Saharan Africa region collectively contributed approximately 16% of total revenue in 2015, representing countries such as Vietnam, Thailand, and Indonesia as a huge potential market yet to penetrate. Thus, we expect companies with strong global presence such as Nestlé would benefit even more from the support the OBOR initiative, provides to income levels and demand for consumer goods in the region.
Logistics Industry: Strong Multinational Company to be the Beneficial Well established logistics platform would be able to reap the benefits under the OBOR initiative as well. For instance, countries like Singapore and Hong Kong are well positioned in the heart of Southeast Asia have world class port transportation management facilities with shipping routes spanning across the globe. Not to mention, its customs clearance’s efficiency is second to none. As such, both of the countries can help the regions along the B&R countries to revamp their port cities by drawing its experience and establish cooperation networks in areas like data exchange and mutual law enforcement support.
For more information on GreenProCapital Corp. Phone: (+852) 3111 7718 Email: [email protected] www.greenprocapital.com
In addition, with growing demand in e-commerce development within ASEAN countries, upgrade works for poor transport infrastructure in the region would improve connectivity and bolstered e-commerce businesses and as a result, benefiting the logistics and delivering companies. With that in mind, we estimate companies with a wide global presence such as UPS, FedEx, and DHL are well positioned to benefit from the OBOR initiative. For instance, DHL Global Forwarding had already begun cooperating with China and Turkey in building a rail corridor; a critical juncture within the Silk Road Economic Belt which it estimates will generate more than US$2.5 trillion in annual trade within the next ten years. 1
Source: DHL, 2016
For more information on GreenProCapital Corp. Phone: (+852) 3111 7718 Email: [email protected] www.greenprocapital.com
Financial Industry: Poised to be Multi-channel Financing Centre Given China will be financing most of OBOR’s development, it is likely the financing will be provided mainly in Renminbi (“RMB”) and as a result, this would create a greater widespread and internationalisation of RMB. However, the nation would not be able to fulfil the funding on its own and would require leaning on other nations and private sectors to develop the initiative’s needs. As such, the financial sector can assume a more active role in the following fields, for instance, RMB offshore business, debt financing, fundraising, asset management, and insurance. As a result, countries such as Singapore and Hong Kong have advantages to capitalise on the OBOR platform to expand into new markets as both countries are already the world’s default trade and financial gateway to ASEAN. For example, countries such as Hong Kong; one of the world’s largest offshore RMB business hub, can leverage its strength by providing asset management services, transparent and diverse financial products, offshore RMB financing and strong financial regulatory system. With these advantages, Hong Kong is well-positioned of becoming the multichannel financing hub for B&R’s countries.2 In addition, companies like Standard Chartered had already set their presence along the B&R countries to supplement the financing needs and formed a strategic alliance with China Merchants Bank (“CMB”). According to Standard Chartered, they have also estimated about US$1 trillion financing is needed within the next decade for the B&R countries, signalling a huge potential opportunity to be grasped.3
The Tourism Industry: A Winner from OBOR The tourism industry will likely be one of the beneficiaries of the OBOR initiative. Through infrastructure developments, the OBOR would indirectly presents opportunities for the B&R countries to promote their respective tourism development within China, and hence driving up the tourism sector. According to Travel China Guide4, the number of Chinese outbound tourists reached 59.03 million in the first half of 2016, which is an increase of 4.3% over the same period
For more information on GreenProCapital Corp. Phone: (+852) 3111 7718 Email: [email protected] www.greenprocapital.com
of 2015. This made China the largest source of outbound tourists in the world and a crucial market to capture. Using Thailand as an example, tourism is a major income source for its economy and accounts for nearly 10% of its gross domestic product (“GDP”) with about eight million Chinese tourists, followed by Malaysia in second with more than three million tourists in the year 2015. By the year 2016, the government is estimating a 3.5% growth and revenue of 2.3 trillion baht from the tourism sector.5 As a result, some airline companies have already begun capitalising on this opportunity by opening new routes to cities along the B&R countries. For instance, Air China airline is looking to establish new routes from China to Central Asia and Africa. And for some airlines, they are looking for strategic partnership; such as United Airlines – cooperating with Air China, and Delta with China Eastern with the primary focus on US-China routes and subsequently cover B&R regions.6
CONCLUSION In summary, although the OBOR infrastructure projects will be led by China’s stateowned enterprises and financial institutions, local industries are likely to benefit from the positive externality such as urbanisation and the growing consumer demand along the regions. However, problems such as the financial approach and risk of investment are yet to be addressed. And more importantly, the question “how to measure its return on investment from this initiative” remains unanswered.
For more information on GreenProCapital Corp. Phone: (+852) 3111 7718 Email: [email protected] www.greenprocapital.com
Appendix 1
DHL lays tracks for new Silk Road with China-Turkey rail corridor
http://www.dhl.com.sg/en/press/releases/releases_2015/local/dhl_lays_tracks_for_n ew_silk_road_with_china_turkey_rail_corridor.html 2 Business
Talks: New Silk Road: http://www.business.hsbc.com.hk/en-gb/hk/campaign%20sub%20page/belt-androad-financial-services Standard Chartered signs ‘One Belt One Road’ business cooperation agreement with China Merchants Bank: http://www.theasianbanker.com/press-releases/standard-chartered-signs%E2%80%98one-belt-one-road%E2%80%99-business-cooperation-agreement-withchina-merchants-bank 3
China Outbound Tourism in 2016: https://www.travelchinaguide.com/tourism/2016statistics/outbound.htm 4
Thailand expects record tourist arrivals in 2016 http://www.reuters.com/article/us-thailand-tourism-idUSKBN0UK0IU20160106 5
6 Air
China and United Airlines strengthen and extend strategic partnership: http://centreforaviation.com/news/air-china-and-united-airlines-strengthen-andextend-strategic-partnership-538092 DEEP DIVE: One Belt One Road – Impact On Western Multinational Companies https://fungglobalretailtech.com/research/deep-dive-one-belt-one-road-impactwestern-multinational-companies/ Seizing the Opportunities Brought About by “One Belt and One Road” and Seeking New Directions for Hong Kong’s Economy: http://beltandroad.hktdc.com/en/market-analyses/details.aspx?ID=473722
For more information on GreenProCapital Corp. Phone: (+852) 3111 7718 Email: [email protected] www.greenprocapital.com
Consumer Goods and F&B: Set To Benefit From Growing Consumer Demand First and foremost, it is a likely known fact that industry operating in steel, building materials, energy, and construction would likely benefit the most from OBOR initiative. But apart from it, we expect food and beverages companies like Unilever, Mondelēz International, and Nestlé are poise to be a strong beneficiary of OBOR initiative as well.
For more information on GreenProCapital Corp. Phone: (+852) 3111 7718 Email: [email protected] www.greenprocapital.com
NESTLÉ REVENUE BUSINESS SEGMENT Other Business Segments 36%
Zone Europe, Middle East and North Africa 19%
Zone Americas 29% Zone Asia, Oceania and Sub-Saharan Africa 16%
Source: Nestle Financial Statement 2015
For example, Nestlé; a global food and beverage company, has already had more than one-third of its sales contributed by Europe, the Middle East, and Asia in combination in the year 2015. The Asia, Oceania and sub-Saharan Africa region collectively contributed approximately 16% of total revenue in 2015, representing countries such as Vietnam, Thailand, and Indonesia as a huge potential market yet to penetrate. Thus, we expect companies with strong global presence such as Nestlé would benefit even more from the support the OBOR initiative, provides to income levels and demand for consumer goods in the region.
Logistics Industry: Strong Multinational Company to be the Beneficial Well established logistics platform would be able to reap the benefits under the OBOR initiative as well. For instance, countries like Singapore and Hong Kong are well positioned in the heart of Southeast Asia have world class port transportation management facilities with shipping routes spanning across the globe. Not to mention, its customs clearance’s efficiency is second to none. As such, both of the countries can help the regions along the B&R countries to revamp their port cities by drawing its experience and establish cooperation networks in areas like data exchange and mutual law enforcement support.
For more information on GreenProCapital Corp. Phone: (+852) 3111 7718 Email: [email protected] www.greenprocapital.com
In addition, with growing demand in e-commerce development within ASEAN countries, upgrade works for poor transport infrastructure in the region would improve connectivity and bolstered e-commerce businesses and as a result, benefiting the logistics and delivering companies. With that in mind, we estimate companies with a wide global presence such as UPS, FedEx, and DHL are well positioned to benefit from the OBOR initiative. For instance, DHL Global Forwarding had already begun cooperating with China and Turkey in building a rail corridor; a critical juncture within the Silk Road Economic Belt which it estimates will generate more than US$2.5 trillion in annual trade within the next ten years. 1
Source: DHL, 2016
For more information on GreenProCapital Corp. Phone: (+852) 3111 7718 Email: [email protected] www.greenprocapital.com
Financial Industry: Poised to be Multi-channel Financing Centre Given China will be financing most of OBOR’s development, it is likely the financing will be provided mainly in Renminbi (“RMB”) and as a result, this would create a greater widespread and internationalisation of RMB. However, the nation would not be able to fulfil the funding on its own and would require leaning on other nations and private sectors to develop the initiative’s needs. As such, the financial sector can assume a more active role in the following fields, for instance, RMB offshore business, debt financing, fundraising, asset management, and insurance. As a result, countries such as Singapore and Hong Kong have advantages to capitalise on the OBOR platform to expand into new markets as both countries are already the world’s default trade and financial gateway to ASEAN. For example, countries such as Hong Kong; one of the world’s largest offshore RMB business hub, can leverage its strength by providing asset management services, transparent and diverse financial products, offshore RMB financing and strong financial regulatory system. With these advantages, Hong Kong is well-positioned of becoming the multichannel financing hub for B&R’s countries.2 In addition, companies like Standard Chartered had already set their presence along the B&R countries to supplement the financing needs and formed a strategic alliance with China Merchants Bank (“CMB”). According to Standard Chartered, they have also estimated about US$1 trillion financing is needed within the next decade for the B&R countries, signalling a huge potential opportunity to be grasped.3
The Tourism Industry: A Winner from OBOR The tourism industry will likely be one of the beneficiaries of the OBOR initiative. Through infrastructure developments, the OBOR would indirectly presents opportunities for the B&R countries to promote their respective tourism development within China, and hence driving up the tourism sector. According to Travel China Guide4, the number of Chinese outbound tourists reached 59.03 million in the first half of 2016, which is an increase of 4.3% over the same period
For more information on GreenProCapital Corp. Phone: (+852) 3111 7718 Email: [email protected] www.greenprocapital.com
of 2015. This made China the largest source of outbound tourists in the world and a crucial market to capture. Using Thailand as an example, tourism is a major income source for its economy and accounts for nearly 10% of its gross domestic product (“GDP”) with about eight million Chinese tourists, followed by Malaysia in second with more than three million tourists in the year 2015. By the year 2016, the government is estimating a 3.5% growth and revenue of 2.3 trillion baht from the tourism sector.5 As a result, some airline companies have already begun capitalising on this opportunity by opening new routes to cities along the B&R countries. For instance, Air China airline is looking to establish new routes from China to Central Asia and Africa. And for some airlines, they are looking for strategic partnership; such as United Airlines – cooperating with Air China, and Delta with China Eastern with the primary focus on US-China routes and subsequently cover B&R regions.6
CONCLUSION In summary, although the OBOR infrastructure projects will be led by China’s stateowned enterprises and financial institutions, local industries are likely to benefit from the positive externality such as urbanisation and the growing consumer demand along the regions. However, problems such as the financial approach and risk of investment are yet to be addressed. And more importantly, the question “how to measure its return on investment from this initiative” remains unanswered.
For more information on GreenProCapital Corp. Phone: (+852) 3111 7718 Email: [email protected] www.greenprocapital.com
Appendix 1
DHL lays tracks for new Silk Road with China-Turkey rail corridor
http://www.dhl.com.sg/en/press/releases/releases_2015/local/dhl_lays_tracks_for_n ew_silk_road_with_china_turkey_rail_corridor.html 2 Business
Talks: New Silk Road: http://www.business.hsbc.com.hk/en-gb/hk/campaign%20sub%20page/belt-androad-financial-services Standard Chartered signs ‘One Belt One Road’ business cooperation agreement with China Merchants Bank: http://www.theasianbanker.com/press-releases/standard-chartered-signs%E2%80%98one-belt-one-road%E2%80%99-business-cooperation-agreement-withchina-merchants-bank 3
China Outbound Tourism in 2016: https://www.travelchinaguide.com/tourism/2016statistics/outbound.htm 4
Thailand expects record tourist arrivals in 2016 http://www.reuters.com/article/us-thailand-tourism-idUSKBN0UK0IU20160106 5
6 Air
China and United Airlines strengthen and extend strategic partnership: http://centreforaviation.com/news/air-china-and-united-airlines-strengthen-andextend-strategic-partnership-538092 DEEP DIVE: One Belt One Road – Impact On Western Multinational Companies https://fungglobalretailtech.com/research/deep-dive-one-belt-one-road-impactwestern-multinational-companies/ Seizing the Opportunities Brought About by “One Belt and One Road” and Seeking New Directions for Hong Kong’s Economy: http://beltandroad.hktdc.com/en/market-analyses/details.aspx?ID=473722
For more information on GreenProCapital Corp. Phone: (+852) 3111 7718 Email: [email protected] www.greenprocapital.com
