Belt and Road Initiative Symposium
July 16 2018
Connecting the Asia-Pacific: Australian participation in China’s regional infrastructure activities
The Australia-China Relations Institute (ACRI) at the University of Technology Sydney (UTS) and Deloitte hosted a Belt and Road Initiative (BRI) Symposium, ‘Connecting the Asia-Pacific: Australian participation in China’s regional infrastructure activities’, on July 17 2018.
The symposium explored how Australia could develop a coherent policy regarding engagement with China-led regional infrastructure projects. Experts provided insights into how the BRI and AIIB can be leveraged to fill the infrastructure gaps in the Asia-Pacific region.
Speakers included Derek Lai, Vice Chair, Deloitte China; James Riddell, Global Leader Infrastructure M&A, Deloitte; and Dr Jeffrey Wilson, Head of Research, Perth USAsia Centre.
Dr Wilson presented the findings of his new report for ACRI, ‘Connecting the Asia-Pacific: Australian participation in China’s regional infrastructure activities’. Speakers then joined a panel discussion moderated by former Sky News reader Nicole Webb and participated in a Q&A session with the audience.
Download the report here.
The text of Dr Wilson's speech is available below.
This event was made possible with the kind support of Deloitte.
Photos by Ben Gorick, Deloitte Australia.
Time: 7:30 am for 8:00 am - 9:00am
'Australian participation in Asia-Pacific infrastructure initiatives - with Jeffrey Wilson', The ACRI Podcast, July 19 2018. Subscribe to the ACRI Podcast on iTunes.
Australia’s participation in China’s regional infrastructure initiatives
Dr Jeffrey Wilson
Keynote speech to Belt and Road Initiative Symposium, Australia-China Relations Institute, University of Technology Sydney
UTS Business School
July 17 2018
Thank you James Riddell for the kind introduction. I would also like to thank James Laurenceson and the Australia-China Relations Institute for publishing this report, Deloitte for supporting our event this morning, and my fellow panellists for offering their views on this timely topic.
This report is motivated by a simple, but critically-important, question: How can Australia play a constructive and engaged role in the transformation of connectivity currently sweeping the Asian region?
As its economies have matured, and liberalisation has seen trade barriers progressively fall, a new challenge has emerged for Asia-Pacific economic integration: connectivity. The physical infrastructure allowing the movement of goods, services, capital, information and people across borders have failed to keep pace with the region’s high-speed growth and industrialisation. In recent years, China has made addressing these so-called ‘infrastructure gaps’ a focal point of its foreign policy in the region. Given Australia’s profound economic, social and political enmeshment with Asia, government and business need strategies for how to engage with the transformations these Chinese connectivity efforts will produce.
The infrastructure gaps plaguing Asia are a widely known problem. The region has a strong set of international institutions connecting its economies: including ASEAN, APEC, their associated policy dialogues, and over fifty bilateral free trade agreements. But when it comes to physical connectivity – the roads, rail, air and sea ports, energy and telecommunications linking economies – there is a worrying undersupply. These infrastructure gaps now have become one of the principal barriers to trade, investment, economic integration and development in the region. Best estimates indicate that Asia-Pacific economies will need to make a staggering $1.5 trillion of infrastructure investments per year, every year, from now until 2030.
In a historic move, China has taken the lead in efforts to close these regional gaps. In late 2013, the Chinese government publicly unveiled two regionally-focused infrastructure initiatives. The first was the Belt and Road Initiative (BRI), which promised to build new infrastructure platforms connecting Europe, Africa and the Middle East to Asia. The second was the Asian Infrastructure Investment Bank (AIIB), the world’s first multilateral bank exclusively dedicated to infrastructure projects.
These initiatives were part of a new phase in Chinese foreign policy, where it intends to go from being an ‘institution taker’ to ‘institution maker’ in global economic governance. China is unique in focusing its foreign policy efforts on infrastructure and connectivity, as this is a domain that other major powers and international organisations in Asia have hitherto not prioritised.
Importantly, the BRI and AIIB offer distinct and functionally-differentiated models. The BRI is a broad mobilising initiative, under which Chinese agencies are supported to develop in regional infrastructure projects through bilateral negotiations with host countries on a case-by-case basis. Conversely, the AIIB is an intergovernmental development bank with sixty-six members, which makes loans to infrastructure projects under a rules-based policy framework with multilateral governance oversight. In essence, the BRI offers a Chinese-led bilateral model, while the AIIB is a regionally-led multilateral organisation. While both initiatives aim to close infrastructure gaps, they offer two different governance models to solve this common problem.
These Chinese initiatives have posed a dilemma for Australian government and businesses: How to balance opportunities against potential risks? On one hand, these are very welcome initiatives: they promise to add at least $140 billion to the Asian infrastructure funding pool, and signal China’s intention to work cooperatively with partners to solve a pressing regional problem. Given the protectionist headwinds sweeping the global economy today, their positive impact should not be understated. But on the other, there are also distinct risks facing Australian participation:
- One concerns project governance, and how the economic, social and environmental risks of complex cross-border infrastructure will be managed.
- Another concerns institutional competition, and the need to ensure these initiatives support rather than detract from the work of other regional governments and organisations.
- A third are geopolitical risks, as these initiatives have become linked to issues of rivalry and conflict between China and other great powers in the region.
Australia is not alone in facing this dilemma. Indeed, practically every country in Asia is currently having a policy debate about how to best engage with China’s new infrastructure initiatives. However, this debate has proven especially challenging in Australia. Viewing the initiatives as an economic opportunity but strategic risk, Australian policy has at times vacillated, and at others been ‘half-in, half-out’.
This is not an outcome that will allow Australia to engage with these transformative initiatives, or have an effective voice to shape their future development in ways compatible with its national interests. Australia would benefit from a clear, coherent and externally-communicable policy on participation in China-led infrastructure initiatives.
The core contention of this report is that the AIIB provides such a mechanism for Australian government and businesses. The AIIB can function as a ‘governance guarantee’ which reduces the risks facing regional infrastructure projects. This is due to the unique features which distinguish the AIIB from the BRI:
- The AIIB has a well-defined and transparent set of governance policies, which ensures international best practices are maintained and evaluated for all funded projects.
- It has formal partnerships with several other development banks – particularly the Asian Development Bank and World Bank – which brings in trusted and high-capacity partners.
- As a multilateral, rather than Chinese-led, institution, its projects have a degree of legitimacy and regional buy-in that reduces the risk of political tensions.
In this way, the involvement of the AIIB in an infrastructure project functions offers a guarantee involved parties that it will be subject to good governance, involve reliable partners, and is less likely to be a source of geopolitical risk. The AIIB provides an ideal mechanism for Australian actors to confidently participate in China-backed infrastructure in the region.
There are several steps Australia can take to make use of the AIIB in this manner:
First, Australia needs a clear policy on engagement with Chinese infrastructure projects, which can be communicated to external parties. There exists considerable ambiguity – both in the region, and in China – over where Australia sits. This ambiguity prevents Australia participating in, let alone shaping, the future of regional connectivity schemes.
Second, Australia should leverage its founding membership of the AIIB to augment the role of the new bank. A key area is the AIIB’s ‘Project Preparation Special Fund’, where Australian technical capacity in project design could make a major impact.
Third, Australia can work with third parties – particularly Indonesia, Vietnam and India – to develop and pitch projects to the AIIB. This will ensure the bank has a ready pipeline of well-designed projects, as well as improve Australia’s bilateral economic relations with these key partners in the region.
Importantly, we must remember the policy stakes are high. In the last five years, efforts to transform connectivity in Asia have rapidly gathered pace. And for the first time in its history, China is taking the lead to help address a key regional economic problem. This is a positive development, and one Australia cannot afford to sit out. Yet transformative infrastructure projects inherently pose risks. Australian government and businesses need to find ways to participate in a manner that reflects the country’s commitment to transparency, good governance and a rules-based regional order. An AIIB-based strategy provides the governance guarantees that make such Australian engagement possible.
About the speakers:
Derek Lai, Vice Chair, Deloitte China
Derek Lai is the Vice Chair of Deloitte China, the Global FA Belt and Road Leader and a director of Deloitte Advisory (Hong Kong) Limited. Mr Lai was the Managing Partner of Deloitte China Southern Region and the National Leader of Financial Advisory Services, Deloitte China. He was also the past President (2006/07) and Honorary Adviser of CPA Australia Hong Kong China Division.
Mr Lai is an Adjunct Professor at City University of Hong Kong and also an Honorary Advisor to the Business and Economics Association of the University of Hong Kong. He is a frequent speaker at numerous courses organised by universities and professional organisations.
James Riddell, Global Leader of Infrastructure M&A, Deloitte
James Riddell is the global leader of Infrastructure M&A for Deloitte. He has deep advisory relationships with financial investors in infrastructure including infrastructure funds, direct investing pension funds and sovereign wealth funds and he advises them on M&A transactions of energy and transport infrastructure assets in OECD countries. Mr Riddell has over 28 years professional experience and 18 years as a partner of Deloitte in both Australia and the United Kingdom. He has deep experience in all infrastructure asset classes including, airports, toll roads, rail (rolling stock and high speed rail), ports, car parks, water utilities, gas pipelines and electricity distribution assets.
Jeffrey Wilson, Head of Research, Perth USAsia Centre
Dr Jeffrey Wilson is a widely sought-after expert analyst and commentator on regional economic issues in Asia. He has consulted for government and businesses in Australia on trade policy issues, with a focus on bilateral and multilateral free trade agreements in the region. His work has been featured in many high-profile media outlets and he has given many invited addresses to a range of business, government and academic audiences in the region.
Dr Wilson is currently the Head of Research for the Perth USAsia Centre – an independent think-tank dedicated to fostering stronger relations between Australia, the US and the wider Indo-Pacific region. He is also a faculty member of the Asia Research Centre at Murdoch University: one of Australia’s longest-standing and internationally-recognised academic research centres on contemporary Asia.
Nicole Webb, Journalist, Writer, Presenter and Media Consultant
Journalist, Writer, Presenter, Media Consultant and Master of Ceremonies, Nicole spent 20 years in Australian television as a reporter, producer and presenter. A key player at 24-hour news channel Sky News for a decade, Nicole and her hotelier husband moved to Hong Kong in 2010, then Xi’an, Northwest China in 2014, where Nicole established herself as the creative go-to-girl for anything media related across the Asia-Pacific region.
With communications her specialty, Nicole's work has included hosting/facilitating premier events in Hong Kong, China, the Philippines and Sydney, as well as presenting corporate videos, media training and consulting. Nicole's wide-ranging articles from lifestyle to political pieces are regularly published in newspapers, magazines and online publications around the globe.
Nicole is currently knee-deep in writing her memoir on life in China, showcasing her personal stories with the warmth and humour that’s seen her blog Mint Mocha Musings: The hotelier’s wife, an expat affair in Asia become critically acclaimed. Nicole has a basic command of Mandarin and continues to study Chinese.