In the second of a three-part series on China’s Belt and Road initiative, law firms in the region talk about their expectations, while domestic firms explain why India is keeping its distance. George W Russell reports
At first glance, web surfers in Kazakhstan would appear to have little in common with bookworms in Tanzania. Yet both are already beneficiaries of China’s ambitious Belt and Road initiative, which seeks to link 60-plus countries through about US$900 billion in spending, mostly on infrastructure.
In the four years since Chinese President Xi Jinping announced the initiative – comprising a land route, the Silk Road Economic Belt and a sea link, the 21st-century Maritime Silk Road – headlines have trumpeted a seemingly unstoppable wave of project announcements.
The initiative’s core projects include a US$50 billion-plus overland corridor, from Xinjiang in China to Gwadar in Pakistan. Other big-ticket items include a US$4 billion high-speed rail line from Kunming to Singapore and a US$1 billion-plus port development near Colombo, Sri Lanka.
To fund such mega-projects, Beijing has created a raft of new lending vehicles, such as the Asian Infrastructure Investment Bank (AIIB), supported by 57 countries, which boasts more than US$100 billion of initial capital to be spent largely, though not wholly, on Belt and Road projects.
In addition, the US$40 billion Silk Road Fund, launched in 2014 by China Investment Corporation, China Development Bank (CDB), Export-Import Bank of China and the State Administration of Foreign Exchange, is dedicated to Belt and Road investment. In 2015, three banks – CDB, Export-Import Bank of China and the Agricultural Bank of China – were given a total of US$82 billion in central government funds to lend for related projects.
These huge sums – and the Belt and Road’s global reach – have inspired awe, with comparisons to the US Marshall Plan that rebuilt Europe after World War II. “The Belt and Road initiative has become a central strategy for the Chinese government to boost domestic development and cross-continental collaboration,” says Hu Yifan, chief China economist at UBS, a major bank.
For law firms, Belt and Road is a shot in the arm for project finance.
India keeps its distance
The headlines of leading Indian newspapers captured the country’s noticeable absence from the Belt and Road initiative summit, which took place in mid-May in Beijing. The government voiced concerns over territorial integrity due to the China-Pakistan Economic Corridor, which passes through Pakistan-occupied Kashmir. Shortly after this, tensions ran high as the militaries of the two countries had a standoff in the disputed area of Doklam, which lasted until the end of August.
“Since the Belt and Road is not an organization or treaty that requires formal accession, India can and will certainly reap economic benefits from Belt and Road projects in its neighbourhood,” says Santosh Pai, a partner at Link Legal India Law Services, who is one of the few Indian lawyers with extensive China experience, and who can speak Mandarin.
“India could also participate in Belt and Road projects on a selective basis, or China could resist using the Belt and Road label for India-related projects to make them more acceptable politically,” says Pai.
However, Hemant Sahai, the founding partner of HSA Advocates, agrees with the government’s decision to maintain a distance from the Belt and Road. “The Belt and Road has correctly been described as being ‘not a multilateral initiative’, rather a ‘Chinese-owned and operated’ initiative,” he says. “By participating in the Belt and Road initiative, India would have conceded strategic and economic space to China.”
Sahai says India has launched its own connectivity initiatives such as Chabahar port, the contiguous international north-south transport corridor and the Asia-Africa Growth Corridor, which is being co-developed with Japan. “These Indian-driven projects are, in my view, designed and being executed with a greater focus on financial viability and sustainability, as the underlying objective is primarily economic and not a projection of power and influence,” he says. “Therefore, the chances of these Indian projects being more acceptable to recipient countries and financially sustainable are much higher.”
So, will the Belt and Road initiative bring opportunities for Indian law firms? Sahai says these will be scarce in the immediate to short term, as “the financing, construction, execution and commissioning of the Belt and Road-related projects will be controlled exclusively by China”.
On the other hand, Pai says few lawyers are placed to take advantage of this until lawyers from both sides increase their familiarization of each other’s legal systems and cultures.
“There exists significant institutional distance between India and China in the legal and regulatory fields,” says Pai. “Very few lawyers have sufficient understanding of both Chinese and Indian legal systems to bridge this gap and add value to clients from both sides, apart from technical legal skills providing legal services within the India-China space, which also requires other cross-cultural skills that can only be developed by extensive exposure to both cultures.”