It is easy to imagine that the five-year old belt and road project from China is a smoothly-oiled machine that is rolling out seamlessly across a variety of Asian markets. But the reality may be more of a patchwork quilt being stitched together by different hands in response to different opportunities.
Some fascinating insights into the reality of what belt and road is really all about was provided recently by the foreign policy think-tank of the London School of Economics LSE IDEAS head of China foresight Dr Yu Jie.
Writing in the Financial Times she indicated that the biggest question facing anyone delving into the nitty gritty of BRI is to establish what precisely constitutes a project under either belt or road. There is no blueprint. There is no master list. Just a lot of disparate projects, often vying for attention. As Dr Yu said, “Few understand who in Beijing decides on BRI projects and how the overall budget is distributed through Zhongnanhai, the seat of China’s central government.” More tellingly, “it is seen as centrally run, but is actually quite uncoordinated.”
Opaque and uncoordinated
Dr Yu said, “This perception has caused a critical misunderstanding about the BRI in the west. BRI is very much in line with the distinctive Chinese character of past grand initiatives. It is fluid in nature, opaque in implementation and flexible in the measures used to deliver projects … The design fluidity of BRI leaves much room for mandarins in Beijing to veto loans and governors from provinces to jostle for their favoured interpretations of the BRI. The BRI has been a romantic idea without a detailed execution road map from its inception,” she wrote in the newspaper.
This helps explain why many insurers and reinsurers across Asia have expressed disappointment at their inability to get in on the action of the various BRI projects that come across their desks. And there are a lot of projects.
The latest estimates suggest that there are Beijing-backed projects in 78 countries involved, making the BRI one of the world’s most ambitious development programmes of all time. But the 78 countries selected by China to participate include many of the world’s most risky economies.
A paper published by LSE Research called ‘The belt and road initiative: domestic interests, bureaucratic politics and the EU China relations’ authored by Dr Yu concludes, “Close scrutiny of the official BRI document published in 2015 reveals it to be largely an effort to advertise the BRI initiative. It suggests the proposed achievements of the initiative at the economic and strategic level, rather than referring any concrete methodology to achieve them. The document does not offer any time frame or deadline, and more importantly, does not suggest any business model to make the initiative work. Sooner or later, the Chinese government must have concrete answers to fill in those conspicuous omissions if BRI is going to be a success.”
Insurance specialists have an open mind
It is hardly surprising that the region’s insurers, reinsurer and brokers are still trying to assess whether BRI will turn into real business or not.
Global CEO of JLT Re Mike Reynolds told Asia Insurnace Review, “It is something that is helping to drive growth in the region so from that point of view we obviously want to be part of that growth. We have probably seen growth in premium flow, certainly through JLT in particular in the agriculture area, but also in other lines of business. It’s a slow burn and it’s somewhere that, for the future, you have got to be a part of but I think that at the end of the day, China’s own economy is going to absorb a lot of that activity. But reinsurance is also a form of capital and ultimately additional capital and access to additional capital can always be useful in terms of development and so looking internally forever is probably not going to be the solution.”
Berkshire Hathaway Specialty Insurance president, Asia Middle East Marc Breuil is equally realistic. “China is a market that is extremely well served by the 85 non-life insurance companies that currently operate there,” he said. “The local carriers in particular have a huge amount of capacity and they are using BRI to internationalise themselves through following some of the investment, following some of the contractors, following some of the SOEs. BRI involves 62 different countries and it is a wonderful initiative for them.
“That makes the projects related to BRI very competitive not only with the Chinese carriers but also with international markets, all vying for what will amount to trillions of dollars of investment and related insurance. It is certainly something that we would like to participate in, but something that we think is going to be extremely competitive from a pricing perspective.”
Ever present competition
So, it represents a massive opportunity and it is very competitive. But that is not the whole story. “The other piece of the equation is that if you look at what has happened with multinational carriers in China over the past few years, you probably would think that there has been a coming of age of expectations,” said Mr Breuil. “A lot of carriers have realised that it wasn’t necessarily the El Dorado that it was thought to be 10 years ago. The Chinese market is growing at an incredible pace on the non-life side, about 30% in the first six months of this year but it is very competitive at the moment both for companies that have footprints in China or that want to compete in China.”
Zurich Asia Pacific CEO Jack Howell has also spent time pondering the reality of what BRI might mean. “Belt and Road is interesting,” said Mr Howell. “Theoretically, it is a huge opportunity from a financial services perspective to get involved in projects as China expands overseas. Practically speaking, how do you get into some of those relationships from a sales side? And where are those infrastructure projects happening and do you actually have an appetite to participate in those infrastructure projects based on where they are happening in the world?
Sourcing opportunities
“So when you start to narrow it down and ask what this really means for us, it becomes much harder to identify opportunities for foreign insurers. Having said that, we believe that we are in a relatively good position to help some of these Chinese insurers – and I do believe that Chinese insurers will lead on these projects – but we have a very good international programmes capability and that is something that can really help these firms as they move overseas,” he said.
But BRI is not just a numbers game. “It’s not going to be just about capacity. It will also be around services and an ability to deliver that extends beyond what the Chinese insurers can do on their own. I also think it’s a good thing to have this infrastructure built for Asia so I support what’s happening,” said Mr Howell.
RKH Specialty CEO Asia Pacific Stuart Beatty is equally open-minded about the opportunity. “With the scale of the initiative there is obviously going to be insurance needs across a whole range of lines and not just construction, but surety, liability, cargo, personal accident for the workers to name a few,” Mr Beatty said. “It is also looking across a variety of geographies. Then again you have the Chinese domestic carriers who obviously are very keen to maximise their positions on all of that. So our thinking has to be around how we can add value to those carriers. In a lot of countries, if it is Chinese-financed, invariably the insurance is underwritten by a Chinese carrier. The same thing happens if it is a Korean- or a Japanese-funded project for example.” A