One Belt, One Road – An opportunity for regional cooperation

China’s reported trillion-dollar One Belt, One Road (OBOR) initiative is something we have all heard a great deal of, over several years now. With certain projects already having been completed, and as others get underway or proceed towards completion, we consider the likely impact of the OBOR initiative on regional cooperation within Asia and the ASEAN region, and the potential diversification of trade routes for traditional energy sources. OBOR presents a tremendous opportunity for fostering regulatory, economic and legal cooperation amongst ASEAN states and beyond.

Regional cooperation
A natural consequence of the scope and reach of the OBOR initiative is a much-needed increase in cross-Asian cooperation and regulatory harmonisation. Whilst this already exists to a degree within ASEAN, it is apparent that a greater degree of regulatory, economic and legal cooperation will be necessary in order to realise the full potential of OBOR. Many Asian countries have, to this point, acted largely or entirely autonomously in determining regulatory, economic and legal policy, without significant consideration of broader Asia-wide cooperation or harmonisation. OBOR has the potential to change that – or, at the very least, to demonstrate the potential benefits of greater cooperation.

China views OBOR as a series of strategic projects which will together create a new “Silk Road”, opening up trade routes across Asia through a vast network of road, rail and port infrastructure. A project of the scale of OBOR requires at the very least bilateral negotiation amongst participating states, which brings with it a greater degree of regulatory cooperation. Indeed, one of the first indicators of such increased cross-Asian cooperation we have seen, in respect of OBOR projects, has been the vast numbers of Chinese workers who have been brought in to work on the construction of new infrastructure – even into countries where labour costs are equally low, or lower. Increased cooperation in respect of the movement of workers is likely to be an indicator of bigger things to come.

Beyond labour, the movement of goods and energy are the key goals of the OBOR initiative. The new infrastructure which is being constructed presently will facilitate that movement greatly – but with that must come greater regulatory cooperation to facilitate this movement. Some of the countries which are beneficiaries of the OBOR initiative are known to be difficult places to conduct business. Regulation is not uncommonly greatly bureaucratic, archaic, or worse. OBOR has the potential to change that, and quickly, although this change will need to be embraced by participating states.

New trade routes
Over recent years, we have seen particular countries – not least China – imposing import restrictions on certain energy products such as low net calorific value thermal coal which, previously, had been a key energy source within those countries. As China battles with its domestic pollution concerns, and looks to cleaner sources of energy and a greater emphasis on renewables to fuel its nation, new coal-fired power stations financed by China are being constructed along the OBOR corridors.  

Coupling the new road and rail infrastructure with the construction of a number of new deep-water ports, strategically dotted across the South Asian coastline in particular, assists with achieving one of the ultimate goals of opening up entirely new and untapped trade routes. These trade routes present opportunities for the project host nations and for China, creating new markets for Chinese domestic production, as well as facilitating imports. However, the new deep-sea ports also present opportunities for international producers and traders of energy sources within the physical seaborne market. Nations participating in OBOR projects should be seeking to leverage the global seaborne markets, and to open up other sources of revenue to assist them with the repayment of the Chinese loans which funded the projects.

Traditionally, producers of energy sources such as thermal coal have valued the certainty and simplicity of shipping product to large, recognised markets which have demonstrated stability and generally low performance risk. China has been the major beneficiary of that conservativism, over many years now. But with China seeking to diversify its own domestic energy production and move towards cleaner sources of power, the question arises as to where all of that excess production of lower grade thermal coal may be placed. While India for one has benefitted from the resulting price adjustments in thermal coal markets, so as to permit the purchase better product at lower prices, it too, like China, is becoming increasingly sensitive to the pollution implications of relying on “dirty coal” as a key energy source. As such, relatively untapped markets such as Pakistan and Bangladesh become of increasing interest to producers and traders, seeking out new markets for lower quality product. The construction of deep sea ports and power stations in such countries as part of the OBOR initiative is no coincidence.

However, there must be other changes too, to attract the seaborne trade in significantly increased volumes. In order to reap the benefits which OBOR projects may bring, Asian countries – ASEAN and beyond - must look to achieve greater regional regulatory harmonisation and cooperation. Stable and harmonious regulations across OBOR nations will give major producers and traders the confidence they require to commit to new and untested trade routes, without fear of unexpected and unappealing outcomes. It would, for example, open the door to confidence in shipping part cargoes to multiple discharge ports. Regulatory harmonisation should stretch to coastal nations undertaking a review of their existing maritime laws and utilising international standards when implementing new port regulations. There can be little less appealing to a producer or trader than the thought of having a vessel under their control arrested in Pakistan or Bangladesh. Utilising OBOR as an opportunity to coordinate in such spheres and to develop harmonised regulatory, economic and legal frameworks in the furtherance of international trade is an opportunity which beneficiaries of projects should not pass up.