Navigating BRI opportunities and risks with Deloitte's Index Report

Published: 6 August 2019

Deloitte and the Shanghai Municipal Commission of Commerce (SMCC) jointly issued the second Belt and Road Countries Investment Index Report (the Report), highlighting the latest trends in Belt and Road Initiative (BRI) investment during 2017-18, and presenting the latest hotspots and changes in BRI countries and regions through comparative analysis.

The Report indicates that the overall investment attractiveness of the BRI countries has risen, particularly in Southeast Asia, but that overall investment risks have also increased. Furthermore, the Report notes, China plays an increasingly important role in facilitating BRI countries' economic development by deepening trade ties, improving cooperation mechanisms and expanding areas of cooperation.           

The Report also points out that Chinese enterprises' investment in BRI countries will maintain steady growth in investment flow and diversify its areas of cooperation. Apart from traditional industries such as power, oil and petrochemicals, and transportation construction, the investment focus of Chinese enterprises will extend to sectors including leasing and business services, financial services, wholesale and retail, and new and high technology. Meanwhile, regional differences in investment in BRI countries will gradually emerge with increasing investment in key countries and sectors.                  

In 2017, Deloitte issued the first Belt and Road Countries Investment Index Report with the SMCC's support, attracting widespread attention. With substantial changes in the economic, commercial and investment environment in 2018, there was substantial progress in BRI cooperation. In view of this, Deloitte continued its collaboration with the SMCC for this new Report, which improves on the 2017 research framework and expands its scope to present BRI countries' latest trends and changes in a more objective and comprehensive way. In addition to improving frameworks for macroeconomic attractiveness and risk assessment, and fine-tuning industry indicators, the new report also covers 80 countries involved in deep cooperation with China, including new entrants New Zealand, East Timor, Panama and Madagascar, which recently joined the BRI.

"2018 marked the fifth year of the Belt and Road Initiative. China's non-financial investment in BRI countries increased by 9% and trade volume was up 13% from 2017. Four diplomatic events hosted in China also expanded the BRI's influence on the international stage. China has played an increasingly important role in facilitating BRI countries' economic development, says Deloitte Global Belt & Road Initiative (BRI) Leader and Deloitte China Vice Chairman Derek Lai.

"In 2018, Chinese investors facilitated transportation and logistics infrastructure development, fostering key local industries including agriculture, industrial parks, information technology and energy. Among the BRI destinations, most of the 20 countries with the highest investment attractiveness are in Southeast Asia and the Middle East. Singapore and India show high growth potential. Nevertheless, companies need to be aware of increasing political and foreign exchange risks, as well as heightened political risk in Middle Eastern countries as a result of security threats such as war and terrorism."

Addressing cooperation between China and the BRI countries, Deloitte China Global Chinese Services Group Partner Johnny Zhang adds, "The Chinese government has actively strengthened cooperation with BRI countries in science and technology, education, culture and public health. For instance, they have set up Unimpeded Trade Working Groups with Thailand and Kenya and Investment Cooperation Working Groups with Kuwait and Jordan under the framework of the Bilateral Economic and Trade Commission and Joint Committee on the Economy. They have also signed new FTAs, cut customs duties, relaxed rules on FDI inflows, promoted cross-border e-commerce and built regional economic cooperation zones."      

Based on comparable indicators and indices, a dynamic and forward-looking approach and a comprehensive evaluation framework, the Report assesses the investment attractiveness, overall investment risks and development of five key industries across BRI countries.

"Data was collected widely from internationally recognized sources including the World Bank, International Monetary Fund, Moody's and the Ministry of Commerce of the People's Republic of China. Through 11 primary indicators and 34 secondary indicators, the Report assesses each BRI country's macroeconomic environment and overall investment risk, and provides an in-depth analysis of the featured indicators of the five key industries to build a complete, comprehensive investment evaluation system, helping enterprises make more scientific investment decisions," says Deloitte China Financial Advisory Partner Amy Cao.

The Report also ranks the investment attractiveness of key industries in BRI countries. In the manufacturing sector, the rankings of Mongolia and Tajikistan rose sharply as a result of their active cooperation with China to enhance industrial technology. Other noteworthy trends identified in the Report include: resource-rich countries have focused on sustainable energy strategies with a focus on exploring the transition to natural gas and renewable energy; the rankings of Vietnam, Poland and Indonesia improved substantially as domestic infrastructure construction enhanced logistics and transportation capacities.