This article is authored by Edwin Leow (Tax Director)
China’s One Belt One Road policy could become the single biggest economic development exercise in history. Singapore is ideally positioned from a strategic, economic and cultural standpoint to play an important part.
Encompassing more than 68 countries, 4.4 billion people and more than 40% of global GDP, China’s One Belt One Road is staggering in its scale and ambition – on a par with the huge post-war reconstruction effort undertaken to rebuild Western Europe through the Marshall Plan.
One Belt One Road, more often referred to now as the Belt and Road Initiative (BRI), is in fact a collection of interlinking trade deals and infrastructure projects throughout Eurasia and the Pacific designed to smooth the passage of goods and services across borders.
The result will be a China-centric economic and trading area that can potentially rival the existing American dominated transatlantic and transpacific ones.
BRI presents China with an unprecedented opportunity to achieve some of its most pressing objectives, most notably the opportunity to export its excess industrial capacity overseas while extending the global reach of its currency. It will create new markets for enterprises such as China’s high-speed rail firms and more profitable opportunities for its vast foreign exchange reserves.
BRI is ultimately a flow of people, goods, trade, capital and ideas. It offers tremendous opportunities for financial institutions and private enterprises across Asia.
Asia will require vast infrastructure spending over the next decade – in excess of US$1.7trn annually. With the Asian Infrastructure Investment Bank (AIIB) committing US$100bn of capital in conjunction with a separate US$40bn Silk Road Fund, there is a good chance that the regional infrastructure funding crunch may at long last be alleviated.
Singapore could play a vital role in this initiative. Its strategic location makes it an ideal Asian infrastructure hub, with a strong cluster of companies in the infrastructure development space. Key to this is its leading position as a global financial centre – the world’s second largest wealth management centre, third largest financial market and a thriving commodities hub.
This puts it in a unique sweet spot for intermediating capital and trade flows linked to BRI.
Singapore hosts many financial institutions and specialists with the expertise to undertake infrastructure project structuring and financing. They are in a strong position to complement and augment the funding being provided by multilateral organisations like the AIIB.
Singapore companies have also developed niche expertise across the infrastructure value chain such as in master-planning, engineering, design, procurement, construction and operations.
Singapore companies can provide a proven international track record and market knowledge to complement the Chinese companies spearheading the envisaged infrastructure projects.
Given the complex geopolitical dimensions to BRI, Singapore can also put its strong credentials as an impartial intermediary to use. In a world of changing international alliances, Singapore is ideally suited to play the role of honest broker, using its reputation for clean, efficient and corruption-free governance to ensure that these same standards of transparency and accountability are engendered within the initiative.
There are strong measures in place locally to support and encourage the participation of Singapore firms in BRI. The S$600m International Partnership Fund announced in this year’s Budget aims to help Singapore firms to scale-up and internationalise, particularly in Asian markets, by co-investing. The existing International Finance Scheme (IFS) has been enhanced to provide project financing and promote risk sharing to enable enterprises to take on more overseas projects. The Global Innovation Alliance (GIA) aims to deepen and diversify Singapore’s international links.
In addition, enhancements to existing tax measures such as the Mergers & Acquisition (M&A) Allowance for share acquisitions of up to S$40m are a timely boost to companies pursuing internationalisation efforts.
All of this places Singapore firms in a strong position to capitalise on any opportunities arising from BRI.
For more information, please contact:
Mr Edwin Leow