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Finding Opportunities in China’s Digital Belt and Road

July 23, 2018
Fiber optic cables crossing in cloudy sky over city representing digital Belt and Road
China's Belt and Road project is considered to be one of the largest projects of the century. (Photo credit): Lund

How SMEs can leverage opportunities in China’s digital Belt and Road initiative.

China’s “One Belt, One Road” initiative (now largely known as the “Belt and Road”) is touted as one of the most ambitious infrastructure projects in the world. According to Business Insider, China has already invested at least $900 billion on projects along the belt and road—the former follows China’s historically important trade route, the Silk Road, while the latter is actually a maritime route—mainly in infrastructure, transportation and energy. However, the Belt and Road presents opportunities beyond just physical infrastructure and goes into the digital sphere.

From 2014 to 2016, China had $38 billion in outbound venture capital investment, making up 14 percent of global venture capital investment outside of China; in that same period, China’s top three Internet companies made 35 overseas deals, compared to 20 by the United States’ top three. Chinese tech companies are expanding overseas, sharing knowledge with their foreign partners, and fostering innovation abroad. However, just because the digital Belt and Road is China’s initiative, doesn’t mean that U.S. companies can’t also benefit.

The purpose of China’s digital Belt and Road

Jeffrey Williamson, statewide director at the California Center for International Trade Development, says the initiative is the biggest global undertaking since the United States’ Marshall Plan, which channeled over $13 billion to finance Western Europe’s post-World War II recovery. “[The Belt and Road] is about creating a whole system, end-to-end, that’s going to certainly spread China’s influence, but also make trade much more efficient for China,” says Williamson.

Williamson adds that China is also using the Belt and Road to expand and develop its own technological capabilities to complement the physical infrastructure aspects, such as developing last-mile solutions for cross-border e-commerce. China hopes to gain more resources through the Belt and Road, as well as open up new markets to domestic firms. “As [China’s] firms start to develop those markets, and those markets become big consumers of these innovations, those consumers will build their own capabilities and technologies,” adds Williamson. “Soon, they’ll be creating innovations that can be shared back with China.”

Areas of interest for the digital Belt and Road

China’s digital Belt and Road goes hand-in-hand with its “Made in China 2025” plan, which aims to upgrade key industries like information technology, automation, new energy vehicles and equipment, and high-tech shipping—areas that are ripe with opportunity for foreign companies.

E-commerce is one of China’s largest investments, mainly through its private enterprises like e-commerce giants Alibaba and Recently, Thai media reported that Alibaba was planning to invest about 11 billion Thai baht, or more than $330 million USD, in Thailand’s Eastern Economic Corridor to develop a “smart digital hub.” Williamson points out that “[the companies] are using e-commerce in two ways: one, to sell Chinese product, and, two, to access the products that they want.”

However, in order to establish an efficient and technologically advanced e-commerce system, China also needs to make sure the right infrastructure is in place to ensure deliveries. That’s where smart cities come in. China has launched several smart city projects as part of its Belt and Road initiative, in places such as the Philippines and Malaysia. Smart cities offer opportunities beyond just e-commerce; businesses in clean energy and artificial intelligence can also jump on the bandwagon.

"We feel strongly that U.S. companies that have high-tech solutions to bring smart technologies into China—I think there’s an enormous platform through the Belt and Road initiative to make that a reality."

- Gordon Hinkle

Asian businessman sitting and using the laptop with Network graphic over the world map dot and cityscape background at night time
(Photo credit): is my life.

“Smart cities encompass everything from air, water, sensors, predictive technology,” says Gordon Hinkle, vice president at the California Center, an organization that helps connect U.S. businesses to opportunities in China. “We feel strongly that U.S. companies that have…high-tech solutions to bring smart technologies into China—I think there’s an enormous platform through the Belt and Road initiative to make that a reality.”

How small and medium-sized enterprises can participate

It’s not just large multinational companies that can get a slice of the digital Belt and Road pie—small and medium-sized enterprises (SMEs) can also take advantage of these opportunities.

The key is to develop and leverage relationships with larger enterprises. “Now, for the small company that maybe is not present in the market, they may be able to piggyback on the infrastructure of firms that are already in the market,” advises Williamson. If these large international companies are the primary contractor for a project, they will sometimes seek out suppliers as subcontractors.

For smaller companies, Williamson recommends that they have contact with U.S. Consulates in the markets they are interested in to keep a pulse on the latest business opportunities. “They’ll get information about major projects that are being undertaken, and the Consulate can provide information about who the prime contractor is, the technologies, products and materials they’re looking for,” he explains.

Hinkle suggests that smaller businesses have dedicated personnel for developing relationships in China. “Most of them, even the smaller companies, have a representative dedicated to the China market…to seek out what those opportunities might look like and to forge the contracts,” he says.

Trade shows and business summits are also a valuable platform for businesses looking to develop relationships. Not only will they receive updates on the latest market trends, they also have the opportunity to mingle with government officials and companies working in the space. “You’ve got to forge those relationships firsthand, so you know what they’re expecting and what they’re looking to accomplish on a bigger scale within their cities,” says Hinkle. “Then you work in conjunction with the businesses within those cities to create relationships that are long-lasting. That’s where you get meaningful contracts and business down the road.”

Challenges of working in the Belt and Road

In addition to the U.S. and Chinese governments levying $34 billion worth of tariffs against each other, with Trump threatening tariffs on all $500 billion worth of Chinese goods, the United States also reportedly wants to restrict Chinese access to American technology. The environment for U.S.-China business deals seems hostile, but Williamson believes it is business as usual, since U.S. companies are already accustomed to working with tight restrictions. “There are always export control issues for technology,” he says. “There are products on the commerce control list that deal with communications technologies, computing technologies—that’s a problem not just for the Belt and Road, but always a challenge for U.S. companies.”

However, Williamson does advise companies to thoroughly weigh whether jumping through all those regulatory hurdles is worth it. “They have to evaluate the opportunities in the context of the Export Administration Regulations and ITAR (International Traffic in Arms Regulations) and other regulations,” he says. “Their limitations won’t change—they’ll pretty much remain the same—but it doesn’t cover all their products.”

Hinkle sees intellectual property protection as the biggest challenge U.S. companies face while working in the digital Belt and Road. “In order for U.S. companies to feel like they can participate in those opportunities, there has to be some kind of promise of protection of their technology,” he states. “China is encouraging more and more U.S. companies to come set up shop for production and manufacturing in China, but if they want more U.S. companies to set up base in China, they’ve got to offer protection on their intellectual property and patents.”

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