Belt and Road's potential real estate boost
Construction companies stand to win big by signing up now
Since the announcement of the Belt and Road Initiative by Chinese President Xi Jinping in 2013, the project has been perceived by many as a one-sided, Chinese ambition. Some have seen it as a massive enterprise to jump-start the Chinese economy before it slows down; other detractors feel it is a strategy to create a new world order.
But as the recent Belt and Road Forum for International Cooperation held last month in Beijing shows, China is increasingly taking on a global bent. A total of 29 heads of state and government attended the event, along with government representatives from more than 130 countries and regions and leaders from over 70 international organizations such as the United Nations, International Monetary Fund and World Bank.
This is a subtle but significant move demonstrating that the initiative is not just a Chinese-dominated one. Instead it is a platform for globalization and cooperation with wide-ranging implications -- both positive and negative -- for all countries, investors and companies involved. The conclusion of the forum has led to an agreement among the countries to work toward more than 270 detailed results in five key areas, namely policy, infrastructure, trade, financial and people-to-people connectivity.
What this means for real estate is equally important. Previous Belt and Road development projects tended to be Chinese-built from start to finish. A state-owned developer would put in place the infrastructure, take over the land and build the project -- a complete end-to-end Chinese city within a city. This has caused some local and geopolitical tension in countries such as Pakistan where the $50 billion China Pakistan Economic Corridor is being developed.
Since the blueprint has changed, projects are now open for foreign participation with the Chinese underpinning efforts by improving infrastructure capacity. Foreign investors and companies will be increasingly able to support Belt and Road ventures, especially for real estate developments. American companies such as General Electric and Citibank and British companies like design and construction consultancy Atkins have already thrown their hats into the ring for related project. JLL has spoken to clients who are interested in entering emerging markets like Sri Lanka and Myanmar.
Ultimately, the initiative provides opportunities for Chinese corporations to expand. Chinese technology giant Huawei Technologies is now working with countries involved to meet the impending demand for communications services. Similarly, Alibaba Group Holding's payment affiliate, Ant Financial Services Group, will be introducing an Alipay mobile payment system to Belt and Road economies, which would in turn boost financing options for local small-to-medium enterprises.
With these corporations leading the way, Chinese cities are on track for growth. Take Chengdu, which is well-positioned along several initiative routes, including the Bangladesh-China-India-Myanmar Economic Corridor and the Yangtze River Economic Belt. It will become a node for Chinese companies to expand to these corresponding regions, which spells demand for more office and residential space.
Shanghai, Hong Kong and several Pearl River Delta cities, in particular, could further stand to gain. Shanghai will be instrumental as a financial center while Shenzhen, which is currently seen as the Silicon Valley of China, is key to linking with Southeast Asia. Meanwhile Hong Kong can capitalize on its standing as a cosmopolitan hub and "super-connector" providing professional and financial services to foreign companies seeking initiative-related opportunities.
Southeast Asian factor
Chinese corporations are also heading south along the Maritime Silk Road. Malaysia is already a key beneficiary -- with Chinese-backed developments such as the Malaysia-China Kuantan Industrial Park and Kuantan Port. The Southeast Asian country and China signed nine memorandums of understanding and agreements at the forum, believed to be worth $7 billion. That includes projects such as the Melaka Gateway, Robotic Future City in Johor Bahru and the Methanol and Derivatives Project in Sarawak. Most recently, China Construction Bank (Malaysia) became the first foreign commercial bank to be granted a banking license in Malaysia in six years.
Neighboring Indonesia has received about $6 billion from Chinese investors and has been attracting more interest from mainland Chinese companies in the last 12 months. The strongest interest has been in the residential sector -- both high-rise condominium projects and landed township developments. Indonesia has offered Beijing more investment opportunities in North Sulawesi, North Sumatra and North Kalimantan, incidentally the provinces closest to the Maritime Silk Road.
There is no doubt the massive scale of the initiative -- spanning 65 countries across three continents -- underscores China's capacity for overseas investment. At the same time, its infrastructure undertakings have opened doors for other investors and developers to consider the upside in the countries involved.
The Belt and Road Initiative is a long game whose rules may seem complex to navigate. But the real estate players who make the right moves now will find themselves well placed to win out further down the road.
Anthony Couse is the Asia Pacific CEO at JLL.