The Chinese Belt and Road Initiative (BRI) — or the ‘New Silk Road’ as it was branded in 2013 at its official launch in Kazakhstan — involves around 130 countries, more or less formally, in a wide range of infrastructure projects for rail, roads, ports, airports, telecommunications, power generation and distribution systems.
The map (below) shows a schematic concept of the overall scope. It is about dramatically improved connectivity and the political, trade and cultural influences that can then flow both ways. There are six named “Economic Corridors” which include rail, road and telecommunications infrastructure supported by energy and resource infrastructure and development.
There are two maritime “roads” — the oddly named “21st Century Maritime Silk Road” and more recently the “Arctic Silk Road”. The Maritime Silk Road includes an extensive distribution of ports owned by, or built by, the Chinese. They stretch from the South China Sea to Gwadar in Pakistan and from Hanbantota in Sri Lanka to Djibouti in the Horn of Africa, all the way to Piraeus in Greece with several others around Africa. The Arctic Silk Road currently goes over Russia but they are seriously looking at our Arctic as a short cut to Europe.
Another key grouping of projects is the China Pakistan Economic Corridor (CPEC), a major initial focus with US$65 billion promised and over US$40 billion already spent. This opens a route from southwest China directly to the Indian Ocean at the newly constructed port of Gwadar. This will dramatically shorten the shipping route to Europe and Africa by by-passing the South China Sea, the Malaysian peninsula and the maritime choke point at The Straits of Malacca.
The “New Eurasia Land Bridge” is essentially a direct rail connection from Yiwu, near Shanghai in China, to Western Europe, including England, Germany and Spain. By 2020 it was carrying around 300 trains a day.
For all the “corridors” to date, China has spent US$500-700 billion under the BRI umbrella, a very elastic title, which has included re-branding of many older projects. The Chinese spending rate continues to be about US$100 billion a year according to the RWR Advisory Group, a research, analysis and advisory group in Washington, D.C., that looks at the risk and threat implications of state-owned enterprises. Of this spending, roughly 20% is investment and 80% is project-support by a range of financial means.
What interests me is how much Canadian companies have accessed this massive global spend.
A recent survey by the Canada-China Business Council, Third country co-operation – Canadian opportunities with the Belt and Road Initiative and beyond, published prior to the pandemic, indicates very little Canadian activity by very few companies and my question is why?
According to estimates by McKinsey and other consulting groups a total of between US$4 trillion and US$8 trillion will be spent on the BRI by 2049, the centenary of the Communist Party. It was anticipated by the Chinese planners that no more than US$1 trillion would be a direct cost to China and the private sector plus international financial institutions would provide the rest. This has not happened. Of the US$500 billion spent in the five years from 2014 to 2018, over 80% was spent on Chinese companies for work both inside and outside China and of those companies, 95% are owned by various levels of government. In the recipient countries, very little is being spent on local enterprises or even non-Chinese multinationals. The big winners have been the major state-owned enterprises (SOEs) such as China Communications Construction Corp., China Harbor Engineering Corp., China Railway Engineering Corp., State Grid Corporation of China, Sinopec, CNOOC, major Chinese banks, and China Mobile, and “public” firms such as Huawei and Alibaba. This has caused significant push-back in many locations.
In the mining sector beneficiaries have been the companies we know well in Canada such as Minmetals, Zijin Mining, MMG, Shandong Gold, Jilin Jian, Jiangxi Copper, Chalco, Jinchuan, China Non-ferrous, Wisco, Metallurgical Corporation of China, among others.
The China Global Investment Tracker of the Washington-based Centre of Strategic and International Studies, (CSIS) and the American Enterprise Institute in 2019 summarized the major recipients of BRI projects over the 2005-2019 period. However, it should be noted that the expenditure in several of the counties in the table below substantially predates the 2013 announcement of the “New Silk Road”.
The ten BRI countries with the largest project commitments (2005-19)
Country Spent in the 15 years
Saudi Arabia 32
A range of values are available for any number in the table due to the generally opaque nature of the BRI contracts. There is also a significant difference between the announced amounts and the actual spending. CSIS estimate that more than 20% of projects announced are not delivered, and the Organization of Economic Cooperation and Development (OECD) estimated over US$100 billion was cancelled in the four years from 2015-2018 due to lack of co-funding, financing terms, corruption, lack of actual need, or strong local resistance. For example, the port at Gwadar in Pakistan has recently been blockaded by locals. This is a problem as the China-Pakistan Corridor is the flagship BRI project and the largest by far at an announced total commitment of US$65 billion.
From the mining industry’s perspective, several of the more than 130 countries under the BRI umbrella have major governance, rule of law, stability, safety and corruption issues, including Western sanctions.
Why should we worry? Canada is not a stated BRI country but that is political optics, not reality. The Chinese investment in Canada from 2016 to 2020 exceeded US$60 billion, putting us, as an investment destination, above all the BRI designated countries for the five years 2015-2019. Of that amount, our minerals and metals sector has received more than US$9 billion, making Canada by far the largest recipient during that period, according to the China-Canada Investment Tracker at the China Institute of the University of Alberta. That alone puts us on a par with Indonesia and ahead of Pakistan. We seem to be a silent part of the BRI, whether we like it or not.
So what can we do as exploration and mining companies or suppliers?
A key starting point is that the Chinese mining companies need our resources and our rule of law to protect ownership and contracts, which is very attractive to any explorer or mine developer.
Secondly, China has realized over the last decade that buying prospective properties and junior exploration companies is a very long way from actually putting concentrate on a boat to China. They need our help, particularly with ESG and permitting issues, in many regions of the world.
Thirdly, we need to be in the lowest cost curve of producers globally, because, if China chooses, it can shut us down. Remember the magnesium price manipulation in the early 2000s that put Magnola — Noranda’s magnesium from asbestos tailings project in Quebec — out of business. And consider seaborn coal and iron ore. There is concern about China’s dominant position in global purchasing of both commodities, along with many other resources. According to the U.S. Bureau of Mines, China held a dominant production position globally last year in a range of critical minerals: rare earth elements (58%), gallium (97%), germanium (66%), tungsten (82%), tellurium (61%), graphite (59%), and silicon (68%).
Recognizing this, the Canada-U.S. agreement on Strategic Minerals, which was signed last year, is a good start, assuming it includes cobalt, nickel and lithium required for Canadian-based battery production aspirations. The supply chain issues are critical but where will the enormous amount of investment come from to develop the required mines and refining facilities? It won’t be from traditional venture capital firms or investment banks with little stomach for the time scales normal in our business. Will it be Chinese investment and control? Following the recent non-review of the Zijin-Neo Lithium transaction, it is not clear that our government takes these issues seriously enough.
As a practical way forward, “If you can’t beat them, join them”. This is hard as many readers will know. It is especially hard on the BRI opportunities, a huge cash flow flowing from China, but as already discussed flowing mostly to the Chinese. However, there are approaches that have worked including, joint-ventures with state-owned enterprises, sales of technology that China requires, or a generally easier approach, co-operating with local actors in the recipient countries to help interface with and manage the Chinese activities.
By way of examples of joint ventures, Barrick Gold has a successful joint-venture with Zijin to operate the Pogera mine in Papua New Guinea, where the Canadian gold miner’s local knowledge and operating excellence were a value to Zijin. In other sectors, Husky Oil has a joint-venture with CNOOC for a gas field in Indonesia and SNC-Lavalin has a joint-venture with China National Nuclear Corporation for nuclear technology.
In the mining services sector, Hatch is providing operational support to China’s MMG at Las Bambas in Peru, based on expertise and local resources. There are very few other Canadians benefiting in the mining and exploration sectors as the Chinese do not want help. However, there are many other Canadian companies working across the globe on BRI projects in other sectors, such as HiSel Power in solar energy in Pakistan, Refraction Asset Management on a 10.7 MW solar project in Ukraine, and a very large SkyPower Solar greenfield project in Uzbekistan. But there should be many more. Opportunities include Owners Engineer roles, as Hatch is doing for a Turkish power plant proposed by the Chinese, or advisory services to the Asian Infrastructure Investment Bank.
Supplying directly to the BRI projects is hard, but companies with local operations in recipient countries or technological advantages have a real leg up and major multinationals such as Siemens, GE, Honeywell, Caterpillar, ABB and many others, have all had significant success potentially opening sub-contracting opportunities for Canadian suppliers.
In a world of rapidly evolving geopolitical tensions, Canada has been dealt a weak hand. We do, however, have two strengths: intellect and resources. Our intellectual property has been and continues to be copied or stolen. Some examples, from a great number, include HPAL technology, carbonyl technology and furnace technology in the production of nickel and ferro-nickel.
Let’s try to resist the same fate for our resources.
–Chris Twigge-Molecey is a senior advisor to Hatch Ltd., a global multidisciplinary management, engineering and development consulting firm. During his 49-year career at Hatch he has been a global managing director, managing director of China, of technology development, president of Hatch Chile and vice president of business development. He also initiated Hatch’s environmental and technology development business units as well as the company’s activities in Russia, Chile, Kazakhstan, and Peru. He has a mechanical sciences degree from the University of Cambridge and a Ph.D. in fluid mechanics from the University of Toronto.