Seven years have passed since China launched its Belt and Road Initiative (BRI) in 2013. Since then, 138 countries and 29 international organisations have signed cooperation agreements for the BRI. As the ripple effects of COVID-19 are felt across the globe, the progress of BRI will also be affected, both in the near and longer-term future.

In an interview with China Enterprises Association (Singapore), UOB was invited to share our views on the impact of COVID-19 on the BRI, and how UOB and its Foreign Direct Investment (FDI) Advisory team could facilitate Chinese enterprises looking to tap on the opportunities in ASEAN. Representing FDI, Mr Sam Cheong, Managing Director and Head of FDI Advisory and Network Partnerships gave his views in an email interview.

According to Mr Sam Cheong of UOB, China and ASEAN can increase their engagement in areas such as trade tariffs, foreign labour and tax to strengthen their understanding, which will in turn help drive BRI's objective of economic cooperation. Photo: UOB

Q: How do you think the pandemic has affected the Belt and Road Initiative (BRI)? How do you think the BRI can play a bigger role in advancing international cooperation given the current situation?

A: Many countries around the world closed their borders and implemented restrictive measures to control the spread of the virus. This resulted in negative impact on many aspects of business, such as industry value chains, logistics and transportation as well as flow of labour over the short term. In China, while business activities have gradually resumed, there remains the risk of further waves of infection as seen from the resurgence of cases in Beijing.

In Southeast Asia, as countries increasingly have better control of the virus, some have gradually eased their restrictions. They are also focused on measures to drive economic recovery and to protect livelihoods. For example, Singapore has rolled out four budgets, amounting to close to S$100 billion, focusing on measures to protect jobs, livelihoods and enterprises as the country prepares for economic recovery. Thailand also launched a THB400 billion (S$18 billion) economic recovery programme to drive local infrastructure and community development. Over the long term as the pandemic eases, business activity will resume at an increased pace, disrupted supply chains and manpower shortages will also be gradually resolved.

Given the interrupted supply chains over the past few months, the pandemic has also led to more companies recognising the importance of market and supply chain diversification. Streamlined, zero-inventory business models are no longer the top choice for many companies as they are now more inclined to keep moderate inventory levels so that they can cope with emergencies better. After this crisis, more companies will seek to lower their risks and to develop more flexible local and regional supply chain networks. In addition, more companies have turned to online channels and technology during this time and this will continue to enable their development in the future.

The Belt and Road initiative was first unveiled by President Xi Jinping in 2013, with the aim of connecting Asia, Europe and Africa to China. Passing through dozens of countries and regions, the initiative seeks to promote economic cooperation across three continents with a population of about 4.4 billion and a third of the global economy. Photo: Shutterstock

The BRI's focus is on economic globalisation and connectivity, with participating countries committed to collaboration, sharing and mutual benefits. The BRI's collaboration model has played a role in coordination efforts on measures to fight the pandemic, for example in March, health officials from China and ASEAN countries held a video conference to exchange insights into virus transmission trends and treatments and to discuss areas of cooperation to enhance their collective response to the pandemic. This demonstrates BRI's strengths and deeper collaboration among participating countries.

Q: Singapore is an important regional hub. Even as financial institutions such as UOB help companies to cushion the impact of the pandemic, what role can they play to facilitate financing for BRI projects?

A: UOB has more than 80 years of experience, an extensive regional network, deep understanding of ASEAN and strategic coverage of China. We have also been actively promoting connectivity between China and ASEAN.

As economic and trade activities recover, more companies will consider business development and overseas expansion again. Their areas of focus remain on how to implement better investment structures, build local connections and tap various investment incentives to increase the effectiveness of their foreign ventures. UOB is able to provide the support in these areas.

Our FDI Advisory team has been providing one-stop solutions to companies, connecting them with government bodies, trade associations, professional service providers and the Bank's client network. There are 10 FDI centres across Asia, including in China, ASEAN countries, India and Japan. Through different ecosystem partners and multilateral collaboration, we have supported close to 2,600 companies in their overseas expansion. In stepping up our support of Chinese companies, the FDI Advisory team also has China desks set up in Singapore, Malaysia, Thailand, Indonesia and Vietnam, which are popular destinations for foreign investments.

As an international financial centre, Singapore offers foreign investors a pro-business environment, established infrastructure, cost-competitiveness, a highly skilled and cosmopolitan labour force. Photo: UOB

UOB is positive about ASEAN's long-term potential and believes that there will be more Chinese companies choosing to expand into the region. Local support in the financial and currency markets is key to these companies' expansion. Capitalising on Singapore's status as an international financial centre and strengths as a fundraising hub, UOB as a Singapore bank can connect companies to the region's capital markets, provide solutions such as syndicated loans, debt and equity fundraising, and help connect them to diversified sources of investors and funds. The Bank can also meet their needs for different currencies, providing direct trading of RMB against ASEAN currencies such as Ringgit, Baht and Rupiah, as well as derivatives in currencies such as Pesos and Rupiah. As it is critical to help investors understand regional markets, foreign exchange and regulations, UOB has built an ecosystem of government bodies, financial institutions and institutional investors to help all parties deepen their understanding of different operating environments and companies' background and business needs.

Q: How has the pandemic impacted ASEAN markets? What is the outlook for China-ASEAN collaborations? What are the key areas of collaboration?

A: This unprecedented crisis has affected all industries and recovery across economies and businesses will take time. ASEAN countries will have to adjust to a new normal. However, UOB is positive about ASEAN's long-term potential. In the last three years, the region has received more than US$470 billion (S$655 billion) in FDI, demonstrating that the region, as one of the key economic blocs in the world, is poised to attract more investments.

There will be increasing demand from companies for support in business continuity, diversification and supply chain management. Setting up regional distribution centres in ASEAN can help companies to increase their resilience as supply chains shift from global to regional. This will also help strengthen ties among the countries in the Regional Comprehensively Economic Partnership (RCEP).

“In the last three years, the region has received more than US$470 billion (S$655 billion) in FDI, demonstrating that the region, as one of the key economic blocs in the world, is poised to attract more investments.”

As international projects under the BRI are underway, China and ASEAN will continue to deepen their partnerships and more Chinese companies will step up their overseas expansion plans. Even as China's 1Q GDP and investment inflows dropped 6.8 per cent and 10.9 per cent respectively, its investment outflows bucked the trend and grew 1 per cent to RMB113 billion (S$22 billion), with ASEAN becoming its top trade partner. As ASEAN countries gradually open their borders after the pandemic, China's companies will continue to search for expansion opportunities as part of their internationalisation drive.

The pandemic has also led to more opportunities for business transformation, innovation and adoption of technology to adapt to the changing business environment. In particular, the pandemic has accelerated the adoption of remote working and new operating models in areas such as education, e-commerce and healthcare. Solutions and services driven by technology have also seen widespread adoption. As such, it is the time to quicken the pace of digitalisation. China and ASEAN are expected to deepen their collaboration in digital technology to help businesses in their digital transformation so that they can be more flexible to navigate through different environments and market cycles.

Q: The pandemic has shown the importance of international cooperation. How can the BRI drive greater economic collaboration?

A: From their experience and joint efforts in combating the pandemic, China and ASEAN can identify areas for deeper and better collaboration to manage potential issues in bilateral or multilateral projects in the future. China and ASEAN can also increase their engagement in areas such as trade tariffs, foreign labour and tax to strengthen their understanding, which will in turn help drive BRI's objective of economic cooperation. After the pandemic, there will be renewed understanding of collaboration as no one or no country will be able to stand alone in the face of crises. Global efforts to combat the virus have also shown the urgency and importance of ensuring sustainable economic and social development. To this end, the BRI can play its part in driving international cooperation and joint efforts and in promoting new ways of thinking and working amid these mega trends.

Important notes and disclaimers

This article shall not be copied, or relied upon by any person for whatever purpose. This article is given on a general basis without obligation and is strictly for information only. The information contained in this article is based on certain assumptions, information and conditions available as at the date of the article and may be subject to change at any time without notice. You should consult your own professional advisers about the issues discussed in this article. Nothing in this article constitutes accounting, legal, regulatory, tax or other advice. This article is not intended as an offer, recommendation, solicitation, or advice to purchase or sell any investment product, securities or instruments. Although reasonable care has been taken to ensure the accuracy and objectivity of the information contained in this article, UOB and its employees make no representation or warranty, whether express or implied, as to its accuracy, completeness and objectivity and accept no responsibility or liability for any error, inaccuracy, omission or any consequence or any loss or damage howsoever suffered by any person arising from any reliance on the views expressed and the information in this article.