Where China’s Belt & Road initiative might enjoy early success

I was recently sitting in a Karachi hotel listening to a conversation at a neighboring table between a Chinese business delegation and the hotel manager. When told that the hotel had 60 security staff, the head of the Chinese delegation replied, “That’s not enough. We want more and money is no object.”

It was a nice illustration of how Chinese companies are making the most of the country’s Belt and Road strategy to bulldoze through Pakistan’s security risks in the hope of finding commercial opportunities.

I heard similarly optimistic views from local industrialists and Chinese business owners in the city. Two months earlier I had visited Kazakhstan where few had heard of China’s plans to rebuild the Silk Road. By contrast, everyone in Pakistan seemed to be talking about it, from taxi drivers to senior executives.

It helps of course that China’s Belt and Road strategy has its own sub-brand in Pakistan, otherwise known as the China-Pakistan Economic Corridor; that President Xi visited the country in April 2015 announcing some $46 billion worth of projects; and that China is a longstanding ally of Pakistan.

But there’s also more to the story than that and China’s experience in Pakistan sheds some light on where the country may, or may not, succeed as it looks to opportunities in other Silk Road countries.

When leaders agree, it cuts through red tape

I have long been a skeptic about China’s ability to accelerate infrastructure construction in the Silk Road region largely because it’s not just a question of capital, but also corruption, red tape, and land rights. And yet Pakistan’s experience illustrates what happens when national interests align.

That the Pakistani military is a big supporter of the China-Pakistan corridor matters. Local industrialists speak of this as a key reason why they are so optimistic. Support at the top helps to cut through red tape and accelerate investment approvals. In this, the situation in Pakistan echoes that of Kazakhstan.

Chinese entrepreneurs in Pakistan are also seeing changes. “We now have a green lane,” remarked one factory owner when I asked how her situation had changed when applying for licenses or permits at local agencies and national ministries. “I used to have to line up with everyone else. Now I’m taken right to the front,” she said.

It’s all about solving an energy shortage, and rightly so

It is China’s solutions to Pakistan’s energy crisis that are especially striking. It’s not enough that Chinese companies are bringing capital and expertise to the table. The largest companies are also bringing an integrated solution; specifically, tapping Pakistan’s extensive coal deposits to reduce generation costs.

That solution doesn’t apply to every project. But it illustrates that China’s infrastructure capabilities are as much about delivering the entire value chain, from coal mining to power generation. That might be viewed by some as a lack of business discipline. But in Pakistan it’s a strength.

To be fair, it’s not enough to produce power. You also need firms to use it. And as one local industrialist cautioned, “All those plants could end up being idle if our manufacturing sector doesn’t make the most of it.” It's especially a concern should more affordable Chinese imports continue to displace locally manufactured products.

But will the Pakistan example be repeated?

There are also limits to using Pakistan as a useful proxy for China’s Silk Road strategy. Few countries enjoy the same strength of relations as do China and Pakistan. Witness how Bangladesh and Myanmar, for instance, are as happy to deal with a Korean or Japanese company, as a Chinese competitor.

Pakistan is also unusual because foreign companies are less active in the country. Most global retailers I deal with, for instance, still don’t permit their buyers to visit the country and deal directly with factories. At some point, that will be an issue for those Pakistani textile mills looking to tap a more regular power supply.

It also helps explain the success of Chinese companies. I heard of one infrastructure tender in Karachi that a Chinese company effectively won by default. There were no local bidders and the only other foreign bidders were Chinese. That wouldn’t be the case in India or Malaysia, for example.

In short, China’s Pakistan experience is important for the country and the region. But it also underscores how China’s Silk Road strategy will differ in application by country and even sector. There simply isn’t a single country template to benchmark whether the policy will be a success or not across the region.

Better then to ‘follow-the-money’ and focus on company-specific opportunities that result from China's Belt and Road policy. If you are a competitor, partner, or supplier of a Chinese company in any of the Silk Road markets, now is a good time to engage with them, find out what they are up to, and see where the opportunities might lie.