China’s Belt & Road Initiative: Opportunities and Risks for Singapore and ASEAN

The Belt & Road (B&R) Initiative, a development strategy proposed by Chinese President Xi Jinping that focuses on connectivity and cooperation – with an investment of many billions in railway lines, pipelines, and ports, could provide a boost for international trade – and also for insurance.

However, the opportunities that the B&R initiative brings also result in some risks and challenges. B&R will pass through diverse countries spanning Africa, Asia, and Europe, exposing participating companies to political, credit, and security risks. Numerous countries receiving Chinese financing already bear elevated debt levels and B&R will weaken their sovereign credit position further. The Fitch ratings agency warns that the creditworthiness of many countries along the B&R are rated as extremely low. This significantly raises the risks for Chinese banks that are financing parts of the project. Moreover, China’s growing regional influence will elevate geopolitical risks, as it encroaches into India’s traditional sphere of influence. We have already seen the recent confrontation between the two countries on their disputed border.

China says it will invest US$4 trillion in B&R countries (although it has not given a timeframe for that investment), a significant proportion of which will be in infrastructure such as roads, railways, and airports. B&R will bring plenty of new opportunities to Asian companies, and also present great opportunities for the insurance sector. This is where international insurance brokers and risk advisors like Marsh are uniquely positioned to assist both Chinese and other firms in the B&R markets to assess risks and design effective and cost-efficient risk mitigation and transfer solutions.