Lessons from Europe for Belt and Road: Private involvement can’t be taken for granted

The “Belt and Road Initiative” proposed by President Xi Jinping in 2013 is called the “project of the century” and involves major land- and maritime-based infrastructure projects in about 70 countries across Asia, Africa and Europe. Some consider the initiative a “loosely defined framework” and are concerned about the speed of implementation. International experiences with large-scale infrastructure initiatives indicate that private company involvement can play a crucial role for project selection and implementation.

The routes under the initiative cover more than 62 per cent of the world population, currently accounting for about 30 per cent of global gross domestic product and more than 35 per cent of global merchandise trade. And Hong Kong’s private companies in various sectors – banking, construction, infrastructure investment, project planning and development, consultancy, etc – have developed close business relationships with many belt and road countries in the past. So, one would think that they should waste no time in taking up the “super-connector” roles to partner with investors, intermediaries and project owners worldwide to take advantage of the opportunities from the initiative. But experiences with large-scale cross-border infrastructure projects elsewhere indicate that the involvement of private companies cannot be taken for granted.

An example for such a major infrastructure project is the Trans-European Transport Network. This European endeavour was formally recognised in the Maastricht Treaty in 1992 and included “30 priority projects” of particular importance and significant size (for example, 18 are railway projects, three are mixed railroad projects, two are inland waterway transport projects, one project refers to motorways of the sea). The purpose is to support the functioning of the internal market by removal of infrastructure bottlenecks and the use of environmentally friendly transport modes. the completion of these priority projects is planned for 2020. Two lessons may be drawn from this transport network:

Lessons learnt for implementing Belt and Road Initiative

First, private involvement in infrastructure projects cannot be taken for granted. Only three of the 30 priority projects had been completed by the end of 2003 and there were growing concerns at the time that, at the experienced rate of investment, completion would take too long. In response to these concerns, the Trans-European Transport Network Executive Agency was created by the European Commission in 2006 and called the Innovation & Networks Executive Agency since 2014. Its tasks include the technical and financial implementation of the projects covered by the network over the projects’ entire lifetime and the execution of the network’s budget. One of the benefits of such an agency is that it can reduce investment risks and thus making it more attractive for private companies to participate. Yet, private involvement in the projects has been very limited until today. This is true despite the fact that a special loan guarantee instrument was established in 2008 to offset early-period risks of demand and revenue uncertainty.