China’s Top Twenty Belt & Road Export Partners – The Main Buyers Of Belt & Road Initiative Materials.

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Op/Ed by Chris Devonshire-Ellis

The Developing 2020 Belt & Road Infrastructure Procurement Export Market

China’s Belt & Road Initiative has been taking up an increasing share of China’s exports, which in light of the improved China Procurement situation coming into play next year as a result of changes to China’s Foreign Investment Law, (FIL) means that these are some of the primary markets that foreign investors in China, together with Chinese partners, should be looking at in terms of supplying materials for Belt & Road projects.

I discussed yesterday how changes to the FIL would impact positively on foreign investors in China in the article “China’s New Foreign Investment Law And The Impact On The Belt & Road Initiative”. Essentially the new law, which comes into effect from 1st January 2020, promises to treat Foreign Investors the same as Chinese domestic companies when it comes to procurement. At present over 60% of procurement contracts issued by Chinese financiers go to Chinese contractors and suppliers.

Why China Wants Foreign Investment In Belt & Road Projects
However, the wind of change is blowing and Beijing wants more foreign participation in place to limit the risk of wholly Chinese run projects taking advantage of Belt & Road projects and delivering shoddy workmanship. Xi Jinping doesn’t want his Belt & Road legacy to go down in a mound of collapsed buildings and bridges, as has happened recently in Cambodia, Kenya and South Africa. The new FIL encourages foreign investors to come in and help – investors that can provide the required due diligence, a rise in standards, and better operational and QC standards being put in place.

It will be required to partner with Chinese contractors in doing so, however many will welcome to chance to operate with more experienced foreign engineers, architects and experts. It will, over time, have the effect of improving China’s own construction and engineering sectors and raising it to standards similar to that insisted upon by the EU. This requirement comes hand in hand with the need for such foreign investors to establish a presence in China (if they haven’t done so already) in order to qualify for bidding on Chinese procurement contracts. However these days this is a relatively straight-forward procedure, although certain licenses still need to be obtained. It is something that Dezan Shira & Associates has been doing for over 25 years now – together with the knowledge and best practice and tax structures to use when setting up in China. This intelligence is already in place.

Foreign investors in China interested in participating in Belt & Road Initiative project contracts should also be aware of where they may be expected to go. Such projects by definition are bilateral in nature, at least in terms of financing, equipment, materials and expertise. A clue to where such projects may be taking place is to look at where China’s exports have been going. In the table below I list the top 20 countries/territories that China exports to that have also signed up to the Belt & Road Initiative. I also include the total annual export volume (2018) growth rates, the applicable tax treaties, and the local profits tax rates.

China’s Top Twenty Belt & Road Initiative Export Destinations

Country/Territory Annual Export Volume (US$, Billions)* Growth % YoY Trade Agreement Profits Tax Rate %**
Hong Kong 303 8.5 CEPA 16.5
Vietnam 84 17.3 ASEAN 20
Singapore 49 10.7 ASEAN 17
Russia 48 12.1 DTA 20
Malaysia 46 9.9 ASEAN 24
Thailand 43 11.5 ASEAN 20
Philippines 35 9.5 ASEAN 30
Brazil** 34 16.7 DTA 25
Italy 33 13.9 DTA 24
UAE 30 4.1 DTA 55
Turkey 18 -1.4 DTA 20
Bangladesh 18 17.1 DTA 25
Saudi Arabia 17.5 -4.4 DTA 20
Pakistan 17 -7 CPEC 25
South Africa 16 10.3 DTA 28
Chile 16 10.5 DTA 25
Iran 14 -24.6 DTA 25
Egypt 12 26.7 DTA 22.5
Kazakhstan 11 -2.1 DTA 20
Indonesia 43 24.4 ASEAN 25
*2018 figures from Worlds Top Exports
** Standard rate. Some countries adopt a staggered rate and may impose other related taxes. Check for details.
***Hasn’t signed a Belt & Road MoU, but is a member of BRICS.

As can be seen, for the most part, China’s exports to its main Belt & Road partners have been increasing by significant amounts. There are some negative growth countries among them, this handful have been impacted by sanctions imposed upon them by the United States, or in the case of Kazakhstan and Pakistan, negative economic conditions. However for the vast majority, exports from China have increased dramatically. Not all of the volume can be attributed to the Belt & Road, however it will have had a significant impact.

Major Destinations For 2020 Belt & Road Procurement Exports
Of note are Hong Kong, with whom China has a Closer Economic Partnership Agreement with, and Singapore, which as an ASEAN nation enjoys Free Trade Status with China on many goods and services. While not manufacturing centers, they are important regional hubs with highly developed service industries. This aspect makes up a significant part of their portfolio when added to imported goods from China. While the nearby ASEAN nations understandably feature prominently, there are other destinations whose importation of Chinese products is increasing rapidly. These include Russia, very much part of China’s Belt & Road as it is the main transport route between China and Europe, and is developing Port, Rail and Road, together with the related infrastructure and logistics support right across its territory. Readers may access our Russia Briefing portal to drill down for news about this.

Brazil, while it hasn’t signed off on a Belt & Road Initiative MoU is a key player for China in South America and is a member of the BRICS group. I discussed its involvement in the article “China’s Belt & Road Initiative: South America”

Exports to Egypt have also shown significant process, not least because China views this as a market to both access southern Europe but also the entire African market. Egypt is part of the recent African Continental Free Trade Agreement, which I wrote about in the article “China Set To Cash In On New African Free Trade Agreement”. Put simply, this eliminates cross-border tariffs across Africa. China sees a significant export opportunity and this goes hand in hand with its Belt & Road Initiative plans for the Continent.

Looking For Belt & Road Intelligence & Advisory Services? Contact Here

Foreign investors in China interested in taking part in Procurement for China’s Belt & Road projects should be preparing for getting into shape for what is going to happen. Qualifications and license applications need to be discussed to apply for such positions. Foreign companies not yet in the China market, but interested in supplying goods and / or services as part of the Belt & Road Initiative should also be evaluating the new China opportunity: Importing, adding value to, and selling products and services as part of Belt & Road Initiative project contracts.

About Us

Silk Road Briefing is produced by Dezan Shira & Associates. The firm provides business intelligence, legal advisory, tax advisory and on-going legal, financial and business operational support to investors throughout China, India, ASEAN and Russia, and has 28 offices throughout the region. We also provide advice for Belt & Road project facilitation. To contact us please email silkroad@dezshira.com or visit us at www.dezshira.com

 

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