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The Chinese Belt and Road Initiative: Infrastructure Opportunities in CEE

The Chinese Belt and Road Initiative: Infrastructure Opportunities in CEE

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The Chinese Belt and Road Initiative is one of the most ambitious development projects since the turn of the century. Through thousands of individual projects implemented under the BRI umbrella, China intends to develop land and sea corridors to support economic trade and development, integrate various regions of the world, and facilitate policy coordination, connectivity, unimpeded trade, financial services, and the connection of people. The BRI was launched in 2013, and last year was revamped with a new set of objectives.

CMS Partners Marcin Bejm in Poland and Kostadin Sirleshtov in Bulgaria explain what has changed with the BRI, which sectors will most likely benefit, and what CEE companies should expect when doing business with Chinese parties. CMS Partners Vladimir Zenin in Russia and Nicolas Zhu in China offer additional insight.

“The BRI is a seriously ambitious development by China to implement one of the largest infrastructure projects in world history,” Bejm begins. “Although there is no single database of BRI projects, it is generally accepted that more than 3,000 projects in over 130 nations have been started. Every CEE nation has signed up to the initiative and, with its strong geographical position, CEE is a key BRI route.” In fact, Bejm says, BRI is no longer simply a theoretical presence for CEE. “China is already present in CEE,” he says, “and has big plans for the region, recognizing its relative stability compared to some other BRI regions. While the top sectors for future investment have included roads, energy and logistics, the emphasis in CEE is now shifting towards investment in renewables and digital.”

Zhu, from Shanghai, agrees. “Chinese sentiment towards investment in CEE is very positive.” According to him, “with the backing of the Chinese government, the majority of Chinese companies foresee their participation in BRI projects growing in the near future. However, Chinese companies also feel that China’s vision for the BRI is not sufficiently appreciated by some international counterparties, including those in CEE.”

Bejm explains that hesitant degree of appreciation. “In addition to the known obstacles to doing business with Chinese counterparties – which include legal frameworks, operational difficulties, and political issues – the initial rollout of the BRI was met with some skepticism in CEE because the preliminary high expectations were not immediately fulfilled. This skepticism was, in my opinion, not entirely justified. Furthermore, Chinese investment in the CIS region and Russia has outstripped that in CEE, and now it is time for CEE to catch up.”

Zenin says the Chinese investment in Russia is natural. “Russia has a long history of being at the crossroads of East and West,” he says. “It is very similar to China in its ability to develop quickly and adopt new technologies.” There are significant geographical advantages as well, obviously. “Russia’s land border with China, along with those of the other members of the Eurasian Economic Union, runs for thousands of kilometres, creating many opportunities for both nations.” As for the kind of projects, he says, “infrastructure projects have covered the whole range of transport types, from a 2,000 kilometer pipeline taking gas from the Russian Arctic down to China, to airports, ports, railways, and roads. However, it comes as no surprise that energy projects have been the best performers, especially natural gas and oil.”

If the initial rollout of the BRI in CEE did not meet expectations, what has the Chinese government done to produce more positive results? According to Zhu, “last year, the Chinese government revamped the initiative’s objectives. BRI 2.0 has refreshed principles including the need to improve lives and promote sustainable development, adhere to international rules and standards, and make a stronger commitment to transparency and good governance.” He concedes that not everyone is convinced, however, noting that “this commitment to greater transparency has also met with some disbelief internationally.”

From Bejm’s perspective, the “refreshed” BRI has significant potential for the region. “Results in previous years may have justified some degree of doubt, but with BRI 2.0, hopes now are higher given the huge opportunities that CEE has to offer, especially in renewable energy and digital.”

For businesses in CEE that are thinking about working with Chinese investors, Sirleshtov offers some insight: “From a Chinese perspective, there are too many jurisdictions in CEE, so they look for a single law firm that can advise them throughout the region. Chinese companies are generally happy to use joint ventures but CEE companies do not share this enthusiasm, because they believe these projects will go ahead in any event.” There are other problems as well, he says. “It can be quite difficult to work with Chinese counterparties on BRI projects for a number of reasons. First, compared to Western counterparties, there is less transparency. Second, Chinese parties can rush to get a project to completion and then have second thoughts only at the signing.” Finally, he says, different perspectives on the value lawyers add can be another problem. “Lawyers are also considered a commodity,” he says, “and they are not always appreciated for the experience and quality they can bring to a project. It is also worth noting that WeChat is the standard communication channel. For CEE lawyers, this can be confusing to begin with, but the platform is in fact very user-friendly.”

Besides, it’s not as if there are only negative considerations, Sirleshtov says. “Chinese clients are more hands-on, and much faster, with a more decisive approach. They also have a keener focus and issues can be escalated for quick decision-making. In addition, the Chinese move into new countries very quickly.”

While there is no denying the enormous potential that BRI 2.0 offers, it remains to be seen if companies in CEE can overcome their skepticism. Progress in Russia and the CIS region may generate great optimism, and CEE companies can expect Chinese investors to bring a vast range of projects to the region as part of BRI 2.0.

This Article was originally published in Issue 7.12 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

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