According to a joint research on the Belt and Road Initiative (BRI) in ASEAN (carried out from October 2018 to October 2020) by the Hong Kong University of Science and Technology’s (HKUST) Institute for Emerging Market Studies (IEMS) and United Overseas Bank (UOB), Chinese companies are becoming more aware of the importance of good environmental, social and governance (ESG) standards; and are making efforts to address the concerns of and to create more benefits for the local communities in ASEAN.
As part of the BRI, many Chinese state-owned and private companies have been implementing large-scale infrastructure and foreign direct investment (FDI) projects in the region to promote greater connectivity between mainland China and ASEAN. There is also a priority on promoting Green and sustainable BRI projects, calling for companies to take active steps to ensure that their projects comply with regulations such as environmental standards and labour laws.
The question is: What’s been happening in Malaysia and Singapore so far?
|BRI facts according to the World Bank Group|
|Scale||Open arrangement where all countries are welcome to participate, but an official list of participating countries is yet to be announced. The World Bank research focusing on 71 economies geographically located along BRI transport corridors, including China, in 2017, shows that these economies received 35 per cent of global FDI and accounted for 40 per cent of global merchandise exports.|
|Cost||For the 70 BRI ‘corridor economies’ (excluding China), projects in all sectors that are already executed, in implementation or planned are estimated to amount to US$575 billion.|
|Opportunities||If completed, BRI transport projects could reduce travel times along economic corridors by 12 per cent, increase trade between 2.7 and 9.7 per cent, increase income by up to 3.4 per cent and lift 7.6 million people from extreme poverty.|
|Risks||The BRI presents risks common to many major infrastructure projects: debt risks, governance risks (corruption and procurement), stranded infrastructure, environmental and social risks.|
|Critical success factor||China and other corridor economies have to adopt deeper policy reforms that increase transparency, expand trade, improve debt sustainability and mitigate environmental, social and corruption risks.|
The Malaysian government hopes to attract investments in high-technology, capital-intensive and knowledge-driven industries. The government has set up a dedicated China desk in its investment promotion agency to promote FDIs. Major Chinese investments and construction contracts in peninsular Malaysia include multiple airports, ports, expressway, forest city and the Malaysia-China Kuantan Industrial Park (MCKIP).
MCKIP is a 51:49 joint venture between a Malaysian and a Chinese consortium, created to cater to a demand for expanding and improving the port at Kuantan, which includes a new deep-water terminal to accommodate larger vessels. The Kuantan Port Consortium, jointly owned by IJM and Beibu Gulf Holding, manages the port on a 60-year concession; US$730 million has been invested in dredging and reclamation work to create new berths, buildings, facilities, equipment and machinery as well as land for development with its infrastructure.
The Government of Malaysia has also invested US$267 million (RM1.1 billion) to build 4.7 kilometres of breakwater as well as road infrastructure. The port’s handling capacity will increase from 26 million to 52 million tonnes annually and its annual container volume will rise from 150,000 to 1.5 million TEU (twenty-foot equivalent unit).
Aside from light manufacturing, commercial, residential and leisure facilities, MCKIP will also host medium and heavy industries, with potential and confirmed investors including porcelain, tyres and battery manufacturing.
Another project that falls under the BRI scope of work is the Malaysia-Singapore High Speed Rail, which was initially planned as a 350-kilometre route comprising 335 kilometres in Malaysia and 15 kilometres in Singapore, but this project has been delayed twice.
Singapore and Malaysia are currently in discussions until today 31 December 2020 before the officials have to make a final decision on its status. It has been said that Malaysia is planning to continue the project without Singapore’s involvement and end the line in Johor, not Jurong East.
Singapore and China are in partnership in many areas, including the exchange of resources. The SinoSingapore Tianjin Eco-City (TEC) is one of the major cooperation projects between Singapore and China, a smart city that is now home to a growing population of 100,000 residents and a thriving destination for businesses and tourists. TEC is a key platform to support China’s goal to become carbon neutral by 2060 as part of the BRI.
Through the TEC, Singapore companies specialising in sustainable developments can participate in Tianjin’s Green movement. Singapore-based Tembusu Asia Consulting, for example, is currently developing a zero-waste master plan for TEC to introduce Singapore and international best practices for waste management.
Singapore and Tianjin alliance will also ease export expertise in developing the TEC and the suite of eco-solutions for smart and sustainable developments in more markets within and beyond China.
On its shores, Singapore does not have any major BRI-related infrastructure projects. Nonetheless, Singapore will not be immuned from the potential impact of BRI on the capital markets, and there are a number of risk factors rooted in the development of a deeper economic connection to China.
China is Singapore’s top trading partner so the risk pertinent to BRI will also affect the city-state’s economy. Although Singapore is currently holding the competitive edge of the shipping market, China also finances a number of ports around Indo-APAC, including the shipping centre in Malacca, which may emerge as a main competitor.
BRI is a colossal infrastructure investment, which is likely to open a new era of trade and growth for economies, but there are also major risks such as falling into a debt trap, stranded infrastructure, environmental and social impacts.
The research by HKUST IEMS and UOB suggests that companies need to reach out to local consultancies and civil society to understand specific dynamics and to establish a meaningful dialogue. They can also consult potentially affected parties regarding planned projects and work out an appropriate compensation with them.
In the case of the Malaysia-Singapore High Speed Rail, Malaysia will be paying Singapore RM300 million in compensation for the delay and will have to compensate Singapore a further RM500 million in the case of a termination.
The development was initially expected to have the potential spill-over impact between US$48–158 billion (RM200–650 billion) by 2069, as the connectivity will enhance business productivity and access to markets, unlocking development opportunities.
Lastly, regarding Singapore’s deeper and stronger ties with China and also its involvement in the BRI projects, along with the opening opportunities, there is also a question on the extent to which the potential loss and debt that will pose a risk to Singapore’s capital markets.
Anisa Pinatih – Construction+ Online
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