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An Industry View of the “Belt and Road” Initiative

January 19, 2017

China's “Belt and Road” Initiative is a major strategic initiative aimed at fostering trade and infrastructure development. China Nonferrous Metal Industry’s Foreign Engineering and Construction Co., Ltd (NFC), as a large-scale enterprise engaged in contract engineering and consulting contracting and development of non-ferrous metals resources, is in a unique position to play a role in this program. It has more than two decades of experience operating beyond China's borders, earning a reputation as a reliable builder of roads, bridges and power plants and exploring and exploiting mineral resources.

Wang Hongqian, president and director, maintains that NFC’s success in the international market is due to its ability to deliver on its promises of “win-win” style cooperation. The company executive says NFC lives up to its motto of “doing business together, carrying out construction together and sharing information.” In the following interview with China Forex, the executive discusses the company's experience in the international market and how this is being applied under the “Belt and Road” Initiative.


China Forex: It has been more than three years since the “Belt and Road” initiative was rolled out.In your view, what significance has it had for more than 60 countries that are included in this program? What has been the response from these countries? 

Wang Hongqian: The “Belt and Road” Initiative has long-term strategic significance that has already provided tangible benefits to a large number of countries. In general, it promotes mutual trust and development. It supports practical cooperation that contributes to sustainable economic growth. Our experience over the last three years has demonstrated that countries in the areas covered by the program are gradually shifting from a “wait-and-see” attitude to one of gradual acceptance and active participation. Undoubtedly, the level of acceptance varies considerably from country to country.
 
China's economic development has direct and indirect effects on its neighbors. The “Belt and Road” initiative is a way to help solve financial problems related to infrastructure development and allow these countries to turn their resources into economic advantages. It promotes economic globalization and embraces openness and inclusiveness despite pressures from a trend towards protectionism. Additionally, it increases the understanding of China and Chinese culture.


China Forex: Since the 1990s, NFC has been working on expanding its presence in overseas markets.The “Belt and Road” initiative dovetails nicely with these efforts. Could you give us an idea of what preparations have gone into the effort to expand your presence abroad? 

Wang Hongqian: At present, China's non-ferrous metals industry is competitive in smelting, but it has limited capacity in mining. China's domestic resources are insufficient to meet the government's target of doubling capacity by 2020. China therefore must look outwards in order to reach this goal.

There are two principles in the initiative for the company and they are to deepen cooperation with neighboring countries and make use of complementary strengths. There are two advantages of the “Belt and Road” Initiative and they are geography as well as cultural affinity. The latter is quite important as in many cases we share a common language or customs and cuisine or values. Therefore, countries included in this initiative generally offer a favorable environment for our operations.

The “Belt and Road” Initiative is a carefully constructed strategy that is also very pragmatic. The facts show that our past choices of markets for our foreign operations have generally been in line with the “Belt and Road” Initiative of today.
 
Before we launched our own drive under the “Belt and Road” initiative, we had been exploring international cooperation with companies in more than 20 countries and regions included in this strategic program. NFC therefore had a first mover advantage and was able to benefit from government support very quickly.


China Forex: What new opportunities can the initiative bring to the development of NFC? What  achievements have you made so far? 

Wang Hongqian: NFC actively pursues opportunities under the “Belt and Road” initiative. In 2015, the company's income from international engineering contracting rose more than 80% and related gross profit increased over 60%. In production cooperation, NFC was not supplying surplus or obsolete products and equipment. It supplied its most advanced products and services, and that showed it was taking its responsibilities as a business partner seriously. Chinese enterprises have a good track record in the international arena, and their technology and equipment have been widely accepted. Chinese companies have made a contribution to economic and social development in many parts of the world.


China ForexCooperation in production is an important way to realize potential from the“Belt and Road” initiative. What kinds of experience can NFC bring to the initiative?

Wang Hongqian: NFC’s experience in cooperative production is consistent with the core values of the “Belt and Road” initiative. The key is ensuring that we stay true to attaining our “win-win” objective. International cooperation cannot be just a one-way benefit.

The advantage of this cooperative win-win concept is that under the guidance of national policy, NFC can make full use of the friendly relations between China and its foreign partners. In recent years, NFC has strengthened its ties with Kazakhstan, Mongolia, Iran, India, Vietnam, Egypt and other countries by adhering to this "win-win” principle in non-ferrous metals, petrochemicals and other areas.

NFC began its international cooperation in production with Iran in the 1990s. For more than 20 years, NFC has helped Iran lay the foundation for its non-ferrous metals industry. Instead of viewing the country as an export market for its equipment, NFC has helped Iran build up its domestic industry. Despite Western sanctions, Iranians have seen some stability in their lives. The NFC brand has also won recognition from the Iranian government and industry.Kazakhstan was where some of the initial efforts under the “Belt and Road” initiative were made, and it is uniquely suited to NFC.

Kazakhstan has resources and NFC has technology, equipment and financial resources. These are complementary advantages. As early as in 2005, NFC, as a general contractor, built an electrolytic aluminum plant in Kazakhstan. The Kazakhstan project was the country's first in aluminum production, and our participation in this project has been an effective calling card for us. The NFC arm in Kazakhstan is now the country's biggest engineering contractor and it plays an important role in trade. The project displays not only the superior level of China's technology and equipment, but also the good faith between the two countries in their “win-win” style cooperation.


China Forex: Can you elaborate on how this kind of "win-win cooperation" works in practical terms? 

Wang Hongqian: NFC’s cooperation with Mongolia is a good example of how this works. Political instability and shifts in policy have been a major problem for foreign investors in Mongolia. In some instances Chinese enterprises have decided to pull out of the country entirely. But NFC’s operations in Mongolia have proved to be models of trust and an ability to work together in a smooth manner. This is because of our strict compliance with local laws and regulations and the importance we put in fulfilling our social commitments.

In Mongolia, NFC sticks to the core value of ensuring "win-win cooperation." Since we formed Xindu Mining, the joint venture has been operated as a Mongolian enterprise, strictly complying with Mongolian accounting rules as well as tax and labor laws among other requirements.

This kind of production cooperation can promote “best practices” and bring tangible benefits to the living standards of the local people. An enterprise can drive development in its surrounding area, and the company's Aobao Zinc Mine. This project was located in an area that mainly relies on agriculture and animal husbandry. It has a weak industrial base. NFC brought two important changes. For one, it brought a greener environment with the introduction trees from China. Now there are tens of thousands of trees in this area. Second, it brought vegetables. NFC built a greenhouse where up to 50 varieties of vegetables are grown.

With infrastructure gradually completed, the area has taken on a modern look. Our employees moved from yurts to permanent buildings, changing from a nomadic life to one more suited to an industrial workforce. .China and Mongolia agree that Xindu mining has been a model for future cooperation.


China Forex: Surely there are failures as well as successes. What lessons have been learned?

Wang Hongqian: The international cooperation in the area of production capacity is divided into investment and engineering contracting. For investment in mineral resources, we first need to consider the national environment and then we look at the project itself. The “Belt and Road” initiative aims to use China's funds to help countries participating in this strategic program. The key to satisfactory investment returns is in making a careful choice of the country or region for the investment in question. The investment also depends on resource exploration and infrastructure. Some projects have very good resources, but there is no infrastructure. If putting in infrastructure requires investment that exceeds the cost of the project itself, there could be substantial losses. But the biggest potential problem is the customer's ability to pay. It is important to choose projects with full guarantees and cooperation between two governments.

And yes, you are correct to say that there are failures as well as successes. What NFC has achieved is the result of much effort and the gradual winning of trust and recognition from governments and enterprises. In the process of cooperating under the “Belt and Road” initiative, NFC has followed market rules and international practices, and it has won international recognition for its competitiveness. With the establishment of its brand, naturally there will be more customers in future.

NFC lost a bid on a global tender for the construction of copper mills in Kazakhstan in 2012. Its bid was US$200 million over that of a Turkish company that submitted the winning bid. However, in 2014 the Turkish company was forced to withdraw from the project after lengthy delays. NFC took over the construction, agreeing to complete the project in two years. Under such a tight schedule, NFC managed to strictly comply with European and American standards for engineering design, construction and operation. The owners employed a Western management team and strict health, safety and environmental protection management. This has been an engineering management model of the highest standards which have won high praise.

The strategy under the “Belt and Road” initiative has faced many challenges in terms of different regulations as well as customs, religious practices, cultural issues and social responsibility. This has forced us to pay attention, understand and adapt. Countries in the areas covered under the initiative, despite cultural similarities, also have different national conditions. In some countries, the risks are significant, particularly from political turmoil and a weak legal system. In order to take on projects with these kinds of risks, the company needs branding, management, technology and the ability to protect against risk.


China Forex: You spoke earlier about getting government support for projects in order to limit risk. What else can Chinese enterprises do to prevent risk as they participate in the “Belt and Road” initiative?

Wang Hongqian: The introduction of the “Belt and Road” initiative started with bilateral, multilateral and regional cooperation at the state level. The initiative should make full use of existing mechanisms, institutions and policies. When enterprises seek opportunities abroad, they should cooperate in a unified and coordinated fashion. The cooperation between Chinese enterprises and neighboring countries should be targeted on development that contributes to people's livelihood. It should first look to building up basic infrastructure before moving on to other areas. Additionally, if Chinese enterprises disregard market rules and regulations and insist on participating in price wars, this will result in vicious competition which will harm the economic interests of Chinese enterprises and damage their image as well.
 
Chinese enterprises need to guard against political and legal risks, market risks, social and cultural risks and environmental risks as they look for opportunities abroad. When the interests of Chinese enterprises and those of the host country are in conflict, the sovereign state may modify its laws by eliminating preferential policies or adjusting tax rules. It may even bar foreign enterprises from continued operation in the host country. In order to avoid such risks, Chinese companies must find good local partners, pay attention to local political and legal changes and maintain close communication with Chinese institutions based abroad so that they can respond to changes in the operating environment. To prevent risk, Chinese companies must collect and analyze market data and perform careful due diligence in the early stages of these projects. In order to avoid social and cultural risks, Chinese enterprises need to abide by the laws of the host countries and the rules of local trade unions as well as respect local religions and understand the habits and customs of people in the local area.
Source: China Forex


 

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