Singapore in the BRI. Role, fears, challenges and opportunities

An analysis of Singapore's role in the BRI.

What will be the role of Singapore in the Belt and Road Initiative (BRI), the huge project conceived by the Chinese government and brilliantly promoted by the President Xi Jinping?

We are talking about 51 railways to connect 27 Chinese cities with 28 European ones and transport goods by rail, therefore shortening the time required by sea transportation.
In addition, a new 418 km railway line will connect China with Laos and from the Chinese province of Yunnan a 837 km high-speed line will connect China to the ports of Thailand.
By sea, we talk about dozens of ports in Asia, Middle East, Europe and Africa to be developed and strengthened. In addition to the purchase of the port of Piraeus in Greece, three Chinese government companies already acquired the port of Kumport in Turkey which is considered as an important intermodal junction ring between the railway network and the maritime road.
In November 2017, the port of Gwadar in Pakistan, was connected with the city of Kanshar in the North-Western Chinese province of Xinjiang.

To finance the BRI, Chinese assets will not be enough and, as it is a collaborative project that will require the participation and support of many players, it is logical to expect that financial institutions and investors from various countries will take part in it by contributing with the necessary funds.
Mainly involving infrastructural projects (but not only), the preferred instrument will be the issue of bonds and Singapore is the gateway to the Asian bond market.

As recalled by Ms. Jacqueline Loh, Deputy Managing Director, Monetary Authority of Singapore, during the 'Singapore - the gateway to Asia's Bond Market' seminar held in Singapore on 21 September 2017, the need of financing for infrastructures in Asia is extended, far beyond what governments and the banking system will be able to provide.
The financing of this debt by private sector can play a significant role and the Singapore bond market is already using private assets for infrastructural projects.
Singapore is well located to serve the growing need of financing in Asia and offers an excellent ecosystem for companies looking for international bond markets to collect assets (often in foreign currencies and also in RMB) and to diversify funding sources.
Over 50 international and regional banks based in Singapore are engaged in bond markets and supported by international lawyers, accountants and rating agencies.
Approximately 60% of infrastructural projects in the ASEAN have benefited from 'project financing' or from advisory services by banks located in Singapore.

In addition to banks, investment funds, law firms with experience in cross-border transactions, the insurance sector in Singapore will play an important role.
According to Swiss Re, the BRI can transform itself into a 10.6 billion USD dollars insurance opportunity from now to 2030 for South East Asia only. In terms of insurance lines, the partition is: 5.3 billion US dollars in real estate, 3.9 US dollars in Engineering Services and 1.3 billion US dollars in the maritime sector.

Singapore will also be able to contribute and benefit from the BRI thanks to the experience gained as a logistic center of global importance because of the port (the second in the world by volume after Shanghai and first if we take into account other factors such as logistics, innovation, services , etc.) and Changi airport. PSA in the past known as Port of Singapore Authority and now independent commercial entity is one of the largest port operators in the world and manages ports in Asia (ASEAN, North Asia, China and India), Middle East, Europe (Italy, Belgium), Turkey and South America.
The Singapore airport, the sixth in the world in 2017 with a passenger traffic of 62.2 million people and among the first for efficiency and services through the CAI subsidiary or the Changi Airport International has invested in airports in almost the whole world and in many cases became the operational manager of them.

What are fears and challenges that could arise among the government and entrepreneurs in Singapore? Actually, not many.

Political risk. The growth of China is unstoppable and alongside the economic growth, a military growth is somehow inevitable. This could jeopardize the negotiation of sovereign rights in the South China Sea where Vietnam, the Philippines, Malaysia, Taiwan and Brunei claim territorial rights. This could be a n issue for relations between China and Singapore, as well as a member of ASEAN. In the past, China has expressed its disappointment with the official position of Singapore in support of the UN arbitration (UNCLOS) in the dispute between China and the Philippines.

Risk related to the geographical position. In theory, Singapore could be cut off from mercantile flows between China and Europe through shorter maritime routes or new ports. There has been talk of Malacca, Port Klang and Tajung Pelapas in Malaysia, where the Chinese have invested, but the relevance of Malacca and Port Klang appears more linked to the need of China to have a presence on the Strait of Malacca where the 80% of its own energy needs go through.
The Kra canal in Thailand could shorten the journey of Chinese ships towards Europe by 1,000 km, but because of the prohibitive costs and local interests, it has been topic of discussion for years but it has never been a serious danger.

In conclusion, infrastructures that could be developed by neighboring countries are not enough to undermine Singapore's role as a logistic, financial and competence center. The Chinese know how to evaluate the infrastructures and know that cranes, basins and docks are not enough to manage a port or an airport, but skills, procedures and experience are also a basic requirement to do so, and these are more difficult to replicate.
Over the years, Singapore has invested not only in physical infrastructures but also in a logistic eco-system of specific skills that involves technological, financial, legal, banking and many other abilities, necessary for the success of these activities.

A contribution by Mr. Roberto Fabbri, entrepreneur, consultant and resident in Asia since 1980.

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