Australia’s strengths in delivering large projects are clearly aligned with China’s new infrastructure vision.
"Without stones there is no arch"
The renowned scholar Joseph Needham in his monumental work Science and Civilisation in China, travelled the silk road to better understand the flow of technology (particularly papermaking, movable-type printing, gunpowder and the compass) from China to Europe and India.
These technologies were instrumental in liberating Europe from the dark ages. What then can the West and China expect from China’s One Belt One Road initiative?
This bold endeavour is much more than a thought bubble. It is an economic reality embracing 60 economies amounting to 60% of the world’s population and 46% of global GDP supported by access to China’s accumulated $5 trillion in foreign reserves and a clear and consistent political will.
Will Australia participate in this bold endeavour or allow the Asian infrastructure boom to pass us by?
In 2013 President Xi Jinping announced the launch of the New 21st Century Maritime Silk Road just one month after announcing the New Silk Road Economic Belt. The two quickly morphed into a consolidated strategy – the One Belt One Road.
Courtesy China’s Silky Indian Ocean Plans
This grand vision, like most successful Chinese policies, has one eye on the past (a strong historic link to the China of the Yuan and Ming dynasties) and one eye on the future (avoiding the so-called Thucydides trap).
A vision based upon a China that is more open to the outside. As President Xi says, “It is impossible for China to develop with its doors closed.” It’s a policy that is non-confrontational, based on mutual respect and that presents a common ground on issues of common interest.
Infrastructure is the focus
After more than 20 years of building roads, railways and airports, China now has a world-class infrastructure industry. Infrastructure employs roughly three percent of China’s working age population.
As China approaches a point where it can no longer deploy resources on domestic infrastructure investment, it is looking to re-orient this infrastructure industry to foreign markets. That is why infrastructure, in all its forms, is a clear priority of One Belt One Road.
This infrastructure focus has been given a powerful impetus through the Chinese government’s establishment of the $40 billion Silk Road Fund, the $100 billion Asia Infrastructure Investment Bank and the $100 billion New Development Bank.
The One Belt One Road policy in its aim to promote connectivity clearly complements China’s going out strategy and supports the export of Chinese infrastructure on a grand scale.
China’s commitment to building infrastructure in countries covered by the One Belt One Road initiative was revealed in data released by Grison’s Peak which shows the majority of the 67 overseas loan commitments made by China’s largest lenders – the China Development Bank and China Exim Bank – were for infrastructure projects in areas along the One Belt One Road.
These loans (just like development assistance programmes led by the West and Japan in the 1980s) have been tied to the involvement of Chinese companies either as suppliers of machinery and raw materials or in constructing and operating projects.
Indeed, on 16 July, China’s state news agency launched an information service which will offer credit information and risk assessments on countries in the One Belt One Road as well as databases, a think tank and consulting services.
The complexity and sheer scale of the second pillar of the One Belt One Road policy – facilities connectivity – cannot be understated. Projects to remove transport bottlenecks, promote port infrastructure construction, gas and oil pipeline construction, road construction, trunk line and network construction will require, in addition to iron ore and coal, project planning expertise and most importantly the right talent.
Opportunity for Australia
The commodities boom presented Australian construction companies with an opportunity to quickly climb the construction curve. The spike in energy and resource mega projects focused the world’s best construction professionals and contractors on Australia resulting in increased local project capability and capacity.
Complex construction projects enabled Australian companies to gain confidence in project delivery and develop world best practices in project planning and financial forecasting, talent and risk management.
With the decline in the commodities cycle, this expertise can now be redeployed in the One Belt One Road. We have already witnessed the desire for Australian construction companies with the acquisition by China Construction and Communication of John Holland.
As President of China Construction and Communication International, Mr Lu Jianzhong said, “From our perspective, ownership of John Holland is the optimal way for CCCC to participate in this dynamic market as part of our aim to be a global transportation infrastructure business. It will be an important strategic addition to CCCC and we see JHG as a strong independent competitor in the Australian market.”
China clearly understands the benefits that the Australian services sector has to offer China under CHAFTA. As we previously discussed China’s commitments to Australian companies under ChAFTA cover a wide range of service sectors including legal, financial, telecommunications, education, medical services, and construction and engineering services.
Acquisition is not the only option for China in securing the skills of Australian construction firms. The One Belt One Road Initiative, together with ChAFTA presents, opportunities for Australian companies to joint venture with Chinese companies in providing construction services.
At its heart the One Belt One Road Initiative is about connectedness both physically through infrastructure and politically through neighbourhood diplomacy (see Connectedness: The key to unlocking Asia?). Securing and maintaining a social licence in the delivery of infrastructure projects throughout the One Belt One Road will be fundamental to its success.
One dividend of the mining boom not frittered away is the positive reputation of Australian companies in the sector for sensitivity to local conditions, fair dealing and good corporate responsibility.
The delivery of large and small scale energy and resource projects, has equipped Australian construction companies with a myriad of sophisticated approaches to working with complex and competing interests which, in turn, have allowed them to effectively manage reputational risk and to secure a social licence to operate.
Chinese companies investing and partnering with Australian construction companies can utilise and leverage their expertise in developing and maintaining a social licence and seek to dispel myths about China’s greater ambitions underlying the One Belt One Road.
While Australia does not fall on the One Belt One Road map, it nonetheless presents Australian construction companies with an opportunity to gain from the spreading of economic development.
Supporting the One Belt One Road initiative, together with our involvement in the G20 Hub and Asia Infrastructure Bank, means Australian construction companies can be participants rather than bystanders in an initiative that is likely to reshape the global economy as the Silk Road did in the 14th century.