Based in Hong Kong since 1998, Andrew Kinloch advises across the whole infrastructure finance cycle in Asia. Clients include governments on policy, investors on fundraising and parties in dispute where he acts as an expert witness. Amongst other qualifications, he is a member of the Expert Witness Institute. For more of Andrew’s opinion pieces, see www.logiegroup.com.
China’s Belt and Road Initiative: Expert Witnesses needed
China’s Belt and Road Initiative turns five this year. Originally aimed at financing the building of all kinds of infrastructure along the overland routes to Europe (the “Belt”) and maritime ones across the Indian Ocean to eastern Africa (the “Road”), it has since evolved to embrace the Pacific and Arctic Oceans, and even cyberspace.
BRI involves political ambition, huge amounts of money, difficult value judgements, inexperienced players, changes of heart, immature legal systems, poor record keeping of land ownership, the potential for corruption, deals put together in a rush and more – this is a heady brew in which disputes will ferment and in which expert witnesses will be needed.
BRI is enormous. China Development Bank, the Silk Road Fund, China EXIM, Sinosure (which reinsures political risk), various regionally- focused funds, the Asian Infrastructure Investment Bank, the world’s four largest commercial banks (all of which are Chinese) and more may eventually invest, lend to or insure perhaps $1 trillion of business over the next twenty years.
But the merits of a number of early BRI deals are already being questioned. Hydro-electric dams in Myanmar and Nepal have been suspended. The $360 million Hambantota port in Sri Lanka has already defaulted and been leased back to China Merchant, branded a victim of “debt trap diplomacy”. In July, the new Malaysian government suspended construction of the $20 billion East Coast rail link (separately, it is also revisiting the $27 billion KL – Singapore high speed rail project where the Chinese were one of four bidders). All want reassurance that the cost represents reasonable value given that there was often no realistic competition at the tendering stage; that project economics will be sufficient to repay the loans; that softer issues such as opportunities for local employment, treatment of landowners will be addressed and more.
Further afield, the West remains concerned that BRI favours Chinese contractors (which have taken 83% of the business to date) and Chinese practices. Of course, it does! At one level, BRI is just another export credit agency with extra zeroes. The World Bank and the IMF have been pushing for greater transparency in China’s lending terms (China is not a member of the Paris Club of creditor nations) and scrutiny of these has now been caught up in the Trump administration’s trade war with China, the status of which changes daily.
At the same time, even Beijing cannot afford for BRI to continue as it began. So, BRI is at an inflexion point with the emphasis changing from doing deals, sometimes rash ones, to doing deals which both sides can agree are sustainable in the long term. Either way, disputes are inevitable.
This has been recognized in HK by the Trade Development Council, the Arbitration Centre and more. Although China set up courts in July this year to handle some of the commercial disputes in Xian for the Belt and in Shenzhen for the Road, disputes between states or between investors and states are more likely to be held offshore in HK (and Singapore and elsewhere).
Depending on their language skills, expert witnesses across all disciplines involved in building, operating and financing power plants, ports, airports, railways, roads and more across Asia should be busy for a long time to come!