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OBOR formalises work in South and South East Asia

One of the major routes identified under China's One Belt One Road (OBOR) policy is the China Pakistan Cooperation Corridor, which is also one of the main areas where Chinese contractors are already operating overseas.22 Aug 2016

This is part of our series analysing China's One Belt One Road infrastructure investment programme. For more, sign up to request Pinsent Masons detailed region by region guide to OBOR.

The One Belt One Road (OBOR) initiative is an ambitious policy, but to a large extent in South and South East Asia it simply gives official sanction to work that is currently happening.

Overseas investment projects are now being badged as OBOR, which puts more of a government push behind the work, and new funding bodies have been set up to ease access to finance. We will potentially see more collaboration between the Chinese government and the other countries along the routes identified in the OBOR policy.

In Pakistan, major projects are being discussed and others are already underway. An estimated $47 billion worth of projects is being planned in Pakistan, including massive coal-fired and renewable power deals.

In India, too, the OBOR policy is being invoked and China has signed more than $22bn in trade and economic agreements as the country spends heavily on infrastructure improvements. India has also joined the Chinese-led New Development Bank and Asia Infrastructure Investment Bank.

According to the Economist report produced for Pinsent Masons, India has 213 new and upcoming infrastructure developments with a total identified value of $83.6bn. The country's road network and other transportation projects covering rail and sea and airports will be the main beneficiaries of this new spending on infrastructure.

Outside Pakistan and India, Chinese companies are pursuing opportunities elsewhere in South Asia including in Sri Lanka, Nepal and Bangladesh.

South East Asia is a more complex story. Many of the nations in the region need serous investment in infrastructure and a general policy such as OBOR will have an effect, but it is only one factor. Political relationships between China and the individual countries and the competing agendas of the Japanese and South Korean investors and their governments will also have an impact.   

China's main South East Asian market in the near future is likely to be Indonesia, where the government has prioritised infrastructure development but has a limited ability to invest. China has been prepared to give more generous terms, in terms of the support it expects from the Indonesian government on infrastructure projects, than has Japan or South Korea. Indonesia also needs huge investment in coal-fired power stations: a market where the Europeans and Americans will not compete for environmental reasons, where the future direction of Japanese policy is uncertain, and where China has extensive experience.

Chinese contractors have been looking abroad for years now, looking to redeploy the huge capacity that they built up during China's own recent infrastructure boom. The OBOR initiative can only help, making more funding available and providing a supportive policy for projects to be pushed forward.

Singapore-based David Platt is a project finance expert with Pinsent Masons, the law firm behind Out-Law.com.

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