China is the oldest continuously existing civilization, the world’s largest by population, the fastest growing, and it is on the move. This subject of this review is a new work about the Belt and Road Initiative.
The Belt and Road Initiative (BRI) is an outbound investment strategy the Chinese government launched in 2013 as an official policy to stimulate economic development along an overland “Silk Road Economic Belt” and a maritime “21st Century Maritime Silk Road”. The Initiative seeks to develop integrated trade corridors across Asia, the Middle East, Africa and Europe, originally covering more than 65 countries which together host over half of the world’s population. According to the government’s web portal, https://eng.yidaiyilu.gov.cn, as of October 2019, 137 countries and 30 international organizations have entered into cooperation agreements with China for BRI projects. Although the estimates vary depending on who is speaking, the consensus view is well over US $1 trillion will be invested in, primarily, large-scale construction and infrastructure projects.
In the West there is considerable concern about the use of debt to finance the work, the implications of increasing Chinese control over ports and communication facilities, China’s growing ability to project power beyond its shores, along with many other aspects and consequences of what will be the largest infrastructure construction program in world history. I may address each of these concerns and potential changes to the architecture of the international financial system at a later date.
Meanwhile, the nuts and bolts of how these projects will be built is known to only a few participants and a timely new treatise assembled by the Permanent Forum of China Construction Law (PFCCL), “The Belt and Road Initiative, Legal Risks and Opportunities Facing Chinese Engineering Contractors Operating Overseas” (Wolters Kluwer 2019) begins to shed light on most of the practical on the ground issues arising from a BRI project.
The treatise’s contributors are senior executives and legal counsel to some of the largest Chinese based contractors and engineering firms, members of law firms from the UK, Hong Kong, Sweden, Switzerland, Egypt, Austria, Jordan, France, the US, and Nigeria, British and Australian consultancies and engineering firms, and the Singapore judiciary. Unfortunately, the authors of each chapter are not separately identified.
The BRI will generate significant commercial and investment opportunities in many countries and across many sectors including transportation, logistics, maritime, financing, telecommunications and information technology. The contracting parties will be Chinese investors, often as project financers, public and private entities of host States, and other third-country participants likely including multinational corporations. The extent to which any of the prime designers, contractors and suppliers will be domiciled outside China remains to be seen.
Significant risks will accompany the significant opportunities generated by the BRI.
Many of the BRI projects will be complex, high-value, high-public interest, long-term, capital intensive, multi-party, multi-contract, cross-border transactions. They will involve entities from countries at different stages of development and with widely varying legal, political and economic systems. Many of the host states rank high for operational risk including security, political stability, government effectiveness, the legal and regulatory environment, macroeconomic risks, foreign trade and payments issues, labor markets, financial risks, tax policy, the standard of local infrastructure, and credit risk including sovereign debt issues, currency devaluation, and banking sector risk. And large sums of money changing hands creates the potential for corruption.
This new treatise should be on the desk of every lawyer and project manager with one of the Belt and Road projects in his or her portfolio of work. A forward by Alexis Mourré, President of the ICC International Court of Arbitration, says the book comprehensively covers the political, social, market, and legal environments of the host countries. Michael E. Schneider, Co-Chair of the Expert Advisory Committee of the PFCCL that assembled the chapters, writes the book is “a valuable and important tool not only for Chinese contractors but also for all players engaged in international engineering projects, as contractors, employers, engineers, lenders, and insurers.”
Mercifully limited to 228 pages, this book can provide only a brief introduction to the many issues that confront any BRI project participant.
Chapter 1 introduces the political, social and market environments to be aware of in the host countries with a discussion of issues like trade and economic sanctions, religious and cultural differences, market risks and more. Chapter 2 addresses the legal environment of host countries, a very broad category including visas, licenses, the form of entity, taxation, labor issues, workplace and environmental protection laws and more. Chapter 3 is directed to the risks of the project stakeholders. These risks prompt suggestions of contract issues facing employers, financers, joint venture partners, subcontractors and suppliers. Chapter 4 is entitled “Project Risks” and these include project feasibility, climate, geology, land acquisition, pricing, design, transportation, delay, guarantees, defects liability, insurance, liquidated damages, and timeliness of claims. Chapter 5 discusses the internal risks of contractors such as management strengths and compliance with government and lender fraud and anti-corruption rules.
In some cases specific information is provided; for example, the work permit systems in Kazakhstan and Thailand are summarized, but as a general approach the book alerts the reader to the need to inquire further about an issue that might arise. While experienced international construction counsel will be familiar with most of these issues, the book serves as a useful form of checklist of issues that should be examined each time a project crosses an international frontier.
As one of the Ambassadors of the ICC’s Belt and Road Initiative Commission, I would be remiss if I did not alert you to the discussion of dispute resolution in Chapter 2.09. Almost all of the BRI countries are signatories to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, and that means arbitration awards are enforceable world-wide making arbitration the dispute resolution mechanism of choice. The ICC is well situated to administer arbitrations arising from any of the BRI projects and I encourage counsel reviewing project contracts to designate the ICC as the administering institution in any well drafted dispute resolution clause.
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