SRB 03 2021 Identifying Opportunities Within The Belt Road Initiative

Identifying Opportunities
Within the Belt & Road

Initiative
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About This Guide
Comments by Chris Devonshire-Ellis
Identifying Opportunities
Within the Belt & Road
Initiative
This Guide is not an introduction to the Belt & Road Initiative, and it does not attempt to explain
the myriad routes, projects, or politics behind the BRI. These subjects have been covered in some
depth elsewhere and were in any event dealt with in my previous book, ‘China’s New Economic
Silk Road’ which was published in 2015 and was assigned as required reading for Cambridge
University’s third year undergraduate course, “China in the International Order”. This book can
be found on Amazon.
Things have subsequently moved on. This 2021 Guide is aimed at a business audience and is
designed to take the reader on a descriptive journey as to the component parts of the Belt &
Road Initiative from the opportunity perspective. In this case, at this moment, this Guide is unique.
I claim this as I have a 30-year career in advising foreign investors into China and Asia, handling
billions of dollars’ worth of investments into the region. I have experienced firsthand the rise of
China and seen where opportunities and problems have arisen. I have also invested myself,
establishing the consulting practice Dezan Shira & Associates (www.dezshira.com) back in 1992.
Today we have 28 offices throughout Asia and employ several hundred staff. I am personally
invested in business in the region. I have also travelled - and of the 147 countries and regions
currently making up the BRI, I have spent time and advised clients from about half of them.
This Guide then explains from the business angle how China has not just built project
infrastructure as part of the BRI, but deliberately interconnected this with a massive, global
diplomatic push to install tax treaties, reduce trade barriers, integrate with other national
development plans, and pave the way for increased multilateral commerce. As part of that,
opportunities have arisen for international investors and businesses to exploit what has been
happening and begin to see where returns on investments can be made by riding on the back
of the Belt and Road. China’s New Economic Silk Road:
The Great Eurasian Game & The
Therefore, publication is under the imprint of Dezan Shira & Associates, rather than by me String of Pearls
personally, mainly because my ability to explain the business and commercial aspect of the BRI
has been supported by the firms’ staff, including research personnel, lawyers, tax specialists and
strategic consultants. That shouldn’t put people off; this Guide would not be possible without
that professional infrastructure and it is only right that this is acknowledged. While I have written
the Guide, it has nonetheless been a complete Dezan Shira team effort, and I thank them for it.
I also wish to thank Henry Tillman, Stephen Perry, Shirley Yu, and Bob Savic for their assistance
and advice when putting this Guide together.
Weekly Updates
Mistakes may have crept in from time to time, if so then I apologise in advance. Preparing such
a Guide takes time and effort, and errors can occur; hopefully, they should be fairly obvious! Silk Road Briefing:
The responsibility for these is mine alone. www.silkroadbriefing.com
China Briefing:
Finally, I hope this Guide can spark a yet largely unheard debate about the Belt and Road www.china-briefing.com
Initiative: “Where are the opportunities?” China is just one country of the many making up
the BRI, and I hope this Guide will lead to constructive discussions about where, and how Comments & Questions:
investments may be made to the satisfaction of all concerned parties. silkroad@dezshira.com
IDENTIFYING OPPORTUNITIES WITHIN THE BELT AND ROAD INITIATIVE 3

RUSSIA
CHINA
INDIA
PHILIPPINES
THE PHILIPPINES
THAILAND
VIETNAM
MALAYSIA
SINGAPORE
Dezan Shira & Associates Offices INDONESIA
Dezan Shira Asian Alliance Members
About Dezan Shira & Associates

At Dezan Shira & Associates, our mission is to guide foreign companies through Asia’s complex
regulatory environment and assist them with all aspects of establishing, maintaining and growing
their business operations in the Eurasian region. Since its establishment in 1992, Dezan Shira CONTACT
& Associates has grown into one of Eurasia’s most versatile full-service consultancies with 28
Dezan Shira & Associates
operational offices across China, the ASEAN nations, India and Russia in addition to liaison
silkroad@dezshira.com
offices throughout Europe and the United States. We also have partner firms across the Middle
www.dezshira.com
East, Africa, and South America. Our involvement with assisting global businesses into Eurasia,
and our strong presence along the Maritime and Overland Belt & Road routes allows us a
unique perspective into China’s Belt and Road Initiative. We have been advising Governments,
Institutions and corporates concerning the BRI since its inception eight years ago - one of the
very few firms able to do so.

Preface
China’s Belt & Road Initiative, in now its eighth year of development operations, has at the CHRIS DEVONSHIRE-ELLIS
beginning of 2021 been responsible for a spend of some US$4 trillion dollars, over 3,000 Chairman & Founding Partner
infrastructure projects and now involves 147 countries. Yet it is an enigma, remaining somewhat Director, Belt & Road Initiative Advisory
mysterious in nature and misunderstood by many. While some of the ‘criticisms’ ring true - Dezan Shira & Associates
Chinese State Owned Enterprises getting the bulk of the deals - that’s hardly unexpected when
it is largely a China funded development plan. E: silkroad@dezshira.com
W: www.dezshira.com
It is here that many international businesses lose track - or lose the opportunities - success W: www.silkroadbriefing.com
along the BRI - and ensuring that projects are properly negotiated and managed, require
China business experience. That is especially true when it comes to partnering with Chinese
businesses or the Government, where their understanding of laws and finance, and responsibility
and liability are often very different from those in other countries. Chinese partners will assume
they are dealing with laws as they are understood in China. Belt and Road Initiative partners - in
147 countries - will expect that laws as apply in their own territories are applicable. This can
lead to misunderstandings, and a lack of China business experience can lead to frustrations, ABOUT THE NUMBERS
delays and sometimes, unwanted considerable costs and liabilities. It can even lead to political As from April 2021, 147
damage and the end of careers should those responsible be found wanting. countries and territories
have signed MoU with
This Belt & Road Guide differs from others in that we do not try to explain the BRI or list China concerning the Belt &
infrastructure projects. Instead, we try and educate the reader about how to do business with Road Initiative. This includes
China’s Belt & Road Initiative and identify where the investment opportunities are. territories that are not
countries, such as Hong Kong,
At Dezan Shira & Associates, we have been assisting foreign investors into China since 1992. Macau, and some of the self-
I personally have written numerous books about China and taking advantage of international governing Caribbean Islands.
issues such as Double Tax Treaties, negotiating Joint Ventures, as well as handling Corporate For the sake of convenience,
Finance and Project Management. All these are areas where Chinese laws and interpretations the 147 figures are referred to
differ from those norms elsewhere. as being ‘countries’ to save
pedantry and repetition.
Accordingly, we hope this Guide will be a useful initial platform for both Corporate executives
and Government officials charged with handling China Belt & Road Initiative projects, both in
China, in their own countries or in multiple jurisdictions. Every scenario requires experience
in Chinese laws to permit a fully understood, compliant and transparent project - a real win-
win - to evolve.
We hope this Guide achieves its purpose in pointing out this relatively simple, yet crucial point: CONTACT
negotiating projects with Chinese contractors and officials also requires an understanding of Dezan Shira & Associates
Chinese and International Law and Tax, and that it is possible to both invest in, and profit from silkroad@dezshira.com
the BRI - if you know where the opportunities are and how to access them. www.dezshira.com

Table of Contents
Preface 05
Part 1 | The Belt and Road Initiatives Soft Power 08

Strategy: Global Tax & Trade Reform
Opportunities, Risks & Potential Within the Belt 09

& Road Initiative 2021
China’s Free Trade Agreements 10

Along The Belt & Road Initiative
Rerouting Supply Chains To Reflect Growing 10

Chinese Influence
China’s African Belt & Road Initiative – It’s Not 25

What You Think It Is
The Complete Belt & Road Modus Operandi: 35

Building Infrastructure, Ports, Special Economic
Zones while Negotiating Tax Treaties and Trade
Agreements
BRI Financing Issues 37
China Using Paris Club Creditor Methods To 38

Extend Debt Treatment For Belt and Road
Initiative Repayment Holidays
Hong Kong Opportunities 40
Part 2 | The Belt & Road Initiative - The Legal Structures 43

Understanding The Legal Issues 44
Managing Pitfalls When Handling Belt & Road 52

Initiative Project Contracts
Understanding China Joint Ventures 55
Submitting Trademark Registrations Along 58

The Belt & Road Initiative
Understanding China’s New Foreign Investment Law As 64

Concerns Belt & Road Procurement

Belt And Road Initiative Projects To Be Subject To “Green 69
Light” Eco-Classification Standards
Hong Kong Repositioned As A Belt And Road 72

Arbitration Centre
Part 3 | The China Belt & Road Initiative: 74

Tax Regimes & Rates
Corporate Income, Withholding, & VAT Tax Rates In Countries 75
Along China’s Belt & Road Initiative
Minimum Wage levels & Individual Income Taxes 76
Human Resources Along The Belt & Road Initiative 80
How To Obtain Tax Incentives & Funding For Belt & Road 87
Project Contracts
Part 4 | China’s Western Regions and 93

Part 5 | E-Commerce Along The 108
Belt & Road Initiative
An Introduction to China’s Cross-Border 109
E-Commerce Pilot Zones and Pilot Cities
Part 6 | Profiting From The Belt & Road Initiative 119

Exploiting The Belt & Road Initiative 121
Exploiting The Belt & Road Initiative - A Case Study 122
China To Use REITS To Cash Out Belt & Road 126

Initiative Infrastructure
Investing In China’s Belt & Road Initiative: 128

Regional Stock Markets
Investing In Emerging Belt & Road Initiative 133

Stock Markets: South-East Asia
Executive Summary 139
IDENTIFYING OPPORTUNITIES
AN INTRODUCTION
WITHIN
TO DOING
THE BELT
BUSINESS
AND ROAD
IN CHINA
INITIATIVE
2021 7
1
The Belt and Road Initiatives Soft Power
Strategy: Global Tax & Trade Reform

1
The Belt and Road Initiatives
Soft Power Strategy: Global
Tax & Trade Reform
Opportunities, Risks & Potential Within the Belt

& Road Initiative 2021
China has placed its Belt and Road Initiative at the heart of its Foreign Policy, positioning it at
the center of its updated Foreign Aid Programme and re-stating it is a core pillar of its foreign
trade policies. This comes after years of media criticism about China’s intentions, concerning
the imposition of debt traps and sovereignty issues riding over the trade benefits that the
infrastructure build has given. These can now be discounted, with the UK’s Chatham House,
the United States’ John Hopkins University, and the Atlantic Magazine all recently stating that
there was in fact, no evidence of debt trap burdens being placed on other nations because
of China’s lending.
While China’s BRI is not a Free Trade bloc, countries who have signed off an MoU with China
concerning this have seen some benefits in increased trade and investment. In terms of the
EU, member nations who are also signatories of BRI MoU saw their 2019 exports increase by
5% more than EU members not part of the BRI. Part of this is improved infrastructure, part of
it is China trade.
Within these pages you will learn how integrated the Belt & Road Initiative really is. Much
has been written about the infrastructure build; however, we demonstrate how this has been
combined with strategically positioned ports, roads, railways and related infrastructure, often
tying in with other national strategic plans. We show how these builds have been developed
in tandem with Double Tax Treaties, and Free Trade Agreements, and give examples of how
following what and where the Belt & Road Initiative is being built can lead to foreign investment
opportunities as a result. Exploiting the Belt & Road infrastructure should be a primary investment
strategy for many MNCs, examining where the opportunities are.

China’s Free Trade Agreements
Along The Belt & Road Initiative
Rerouting Supply Chains To Reflect Growing

Chinese Influence
The elimination of tariffs and taxes is always a boom for exporters, and is something that China
has taken advantage of very effectively over the past two decades. When China first began
its journey towards becoming the massive manufacturing giant it is today, it attracted foreign
manufacturers, from which the Chinese could learn, by eliminating or cutting profits tax rates for
up to five years worth of profitable operations. This represented something of a boom time for
foreign businesses in China, and kick-started the Chinese economic growth boom. China has
also been very busy in agreeing Double Tax Treaties, which often contain clauses and reductions
in taxes beneficial to the respective parties’ trade. China has also been active when it comes
to participating in Free Trade Agreements (FTA); it has significant and wide ranging deals with
the likes of ASEAN, Australia, Singapore, South Korea, and New Zealand among others and is
actively engaged in negotiating several more. These are important because they can and do
direct and massively influence bilateral, and in some cases multilateral trade patterns. Taken
overall, FTA impact upon and are the structural support for all global trade.
The current trade and tariff tensions between China and the United States have seen a
resurgence of Chinese interest in developing free trade routes, and especially along the Belt &
Road Initiative. While not all products, and especially IT and hi-tech related components currently
obtained from the US will be available from new suppliers, China will be investing in developing
these, most notably with Russia. Meanwhile, staple items including energy resources, food and
other consumables will increasingly be sourced from markets closer to home.
Consequently, the issue of Free Trade along the Belt & Road Initiative is a matter of keen
interest. In fact, some agreements that impact this are already in position. Others are pending.
This is an overview of how things stand at this moment in time.
The China-ASEAN Free Trade Agreement

This agreement has been in force since 2010 and was expanded in 2015 to incorporate an
extension into the economies of Cambodia, Laos, Myanmar and Vietnam, who had asked for
more time to adjust. This agreement covers both goods and services provided by the above
nations as well as China, Brunei, Indonesia, Malaysia, Philippines, Singapore and Thailand and
essentially eliminates tariffs on some 95% of all traded goods and services. This covers much
of the Belt & Road Maritime Routes.

China, Hong Kong and Macau Closer Economic Partnership
Agreements
Although Hong Kong and Macau are part of China, they have different customs and tax
regimes. To cater for this, and also recognize the status of Hong Kong and Macau, these
CEPA agreements have been entered into between them and China, which in certain cases
provides investment incentives, especially in service areas, that only companies registered in
Hong Kong and Macau can benefit from. These include tax reductions as well as preferential
market access to otherwise restricted investment areas in mainland China.
The China-Pakistan Free Trade Agreement

This came into effect in 2009, and has formed the backbone of Chinese investment into
Pakistan. A direct result of this has been the Chinese development of Pakistan’s Gwadar Port,
as well as the “China-Pakistan Economic Corridor” which ultimately aims to link China rail from
Kashgar in its south-western Xinjiang Province through to Pakistan’s rail networks at Islamabad.
This route will allow Chinese goods to exit via the Arabian sea. To date much of the investment
has been from the Chinese side.
The China-Gulf Co-Operation Council Free Trade Agreement

This deal, between China, and the GCC member states of Bahrain, Kuwait, Oman, Qatar, Saudi
Arabia and the United Arab Emirates, is still under negotiation. It includes details of goods
and services, however, given the nature of the GCC economies is largely focused on energy.
Tourism and services are expected to be a large part of this, especially as the United Arab
Emirates includes Dubai, a popular destination for Chinese tourists and businesses wishing to
reach out into Arabia. The ninth round of discussions were concluded recently in Riyadh, and
it is understood that most major points have been agreed.
The China-Sri Lanka Free Trade Agreement
This agreement is still under negotiation, although China has been investing in Sri Lankan
Ports and road infrastructure for some time now. The country is also a preferred destination
for increasing numbers of Chinese tourists. There has been some resistance to this proposed
FTA in Sri Lanka, due to China wanting elimination of tariffs on 90% of all goods. Sri Lanka is
coveted by both China and India as a base for transshipment, as well as potential for Naval
operations. In truth the Sri Lankans are probably content to play one off against the other. The
fifth round of talks was held in Colombo in January 2017, there have been recent discussions
to restart these. Meanwhile, there have been Chinese investments into the new Hambantota
Free Trade Zone, which offers generous tax incentives and China will possibly be content with
that for the time being.

The China-Georgia Free Trade Agreement
This agreement, which gives China access to the Caucasus markets and through to the
Black Sea, was “substantially concluded” as at the end of 2016. The agreement will mean that
“Chinese enterprises and consumers will have greater access to high quality products like
wine and fruits from Georgia, while Georgians will benefit from cheaper China-made industrial
products” according to Chinese Commerce Minster Gao Hucheng. Chinese buyers have already
visited Tbilisi looking at purchasing products. However, a word of warning – the prices offered
have been relayed to me as being so low that there is very little profitability in China trade for
Georgian farmers and producers. It remains to be seen what impact this has on the Georgian
economy – other countries such as Armenia, Azerbaijan and Turkey will be studying this closely.
The China-Eurasian Economic Union Free Trade Agreement

This agreement was signed off in 2018, although the real meat of the deal – which product
categories will be included, is still under negotiation. When agreed, it will effectively bring the
Free Trade of Chinese goods right up to the borders of the European Union. The EAEU is a
trade bloc, rather like ASEAN, but comprising of Armenia, Belarus, Kazakhstan, Kyrgyzstan
and Russia. If the EAEU were a country, it would be the fourth largest global economy, with a
GDP in excess of USD4 trillion (PPP). China is keen to get a deal done as these countries, and
especially Kazakhstan, Russia and Belarus, offer China uninterrupted transportation of goods
from China right up to the borders of the European Union at Brest, in Belarus, next to Poland,
and where rail and road infrastructure leads directly to Germany. This would be a significant
trade development and would change the course of EU supply chains. Singapore signed an
FTA with the EAEU in 2020, with several other ASEAN countries and India at advanced stages
of negotiation. Vietnam and Serbia have already signed agreements. The momentum for trade
development with this particular bloc is highly significant.
The China-EU Preferential Trade Agreement

On December 30, 2020 after seven years of negotiations and despite the uncertainties related
to US-China ties that could have slowed down the negotiation process, the EU and China
were able to conclude a deal in principle on investments. The Comprehensive Agreement on
Investments (“CAI”) is the most ambitious agreement that China has ever concluded with a third
country. As we go to print however, (April 2021) political differences have at present delayed
completion. Should these return to the table, we can expect the CAI to proceed.
This agreement followed a call between Chinese President Xi Jinping and European Commission
President Ursula von der Leyen, European Council President Charles Michel, and German
Chancellor Angela Merkel on behalf of the Presidency of the EU Council, as well as French
President Emmanuel Macron.

The parties to the CAI appear aligned on key milestones and principles that the agreement
will regulate. This means that China has committed to a greater level of market access for
EU investors, including ensuring fair treatment for EU companies so they can compete on a
more level playing field in China. Towards this, the CAI has notified China’s obligations in the
treatment of state-owned enterprises (SOEs), transparency of subsidies, and rules against the
forced transfer of technologies.
Significantly, according to the EU Commission Press Office, China has also agreed to ambitious
provisions on sustainable development, including commitments on forced labor and the
ratification of relevant International Labor Organization (“ILO”) Conventions.
The conclusion – in principle – of the CAI negotiations is a turning point in EU-China relations.
But this is only the first step of the process; the text of the deal has not yet been finalized and
the agreement must be adopted and ratified by all the parties involved.
The outline of the CAI
The EU and China have concluded negotiations and agree to the essential principles that both
parties want reflected in the CAI. Such alignment sets the foundation for a strong development
of international cooperation and for the increase of bilateral investments and may also boost
EU economic growth, especially in the post-COVID-19 recovery period.
The European Commission has issued a document that summarizes the results of the
negotiations between the EU and China, remarking that it needs to be considered ad referendum
– hence subject to finalization of details and further procedures to be implemented by the
parties necessary to be bound by the agreement.
Under the preamble of the above-mentioned document, the parties reaffirm their commitment
to the Charter of the United Nations (26 June 1945) – principles articulated in the Universal
Declaration of Human Rights (10 December 1948) – and agree to promote investment in a
manner that supports environmental protection and labor rights’ protection.
After this, the document reports that the CAI will focus on the following aspects:
• Market access and investment liberalization

• Level playing field (state-owned enterprises, forced technology transfers, transparency in
subsidies)
• Domestic regulation
• Transparency in standard setting
• Financial services
• Sustainable development
• State to state dispute settlement mechanism
• Institutional and final provisions

The principles mentioned in the document seem to positively respond to the EU requests upon
China, thus paving the way for an unprecedented level of access for EU investors in the China
market. EU investors will be allowed to set up new companies in key sectors.
The elimination of quantitative restrictions, equity caps, and/or joint venture requirements in
various sectors will level the playing field for EU companies in China, providing rules to discipline
Chinese SOE behavior, guaranteeing transparency in subsidies, and facilitating sustainable
development.
The CAI, by binding China at the international level, will enhance the protection of foreign
investors’ rights and interests that will be guaranteed by the treaty.
In other words, it makes the conditions of market access for EU companies independent
from China’s internal policies. Also, the parties to the CAI have agreed to establish a dispute
resolution settlement mechanism in case of any breach.
How to read the CAI: Key elements
China’s market access commitments
At the end of the negotiations, China agreed to open-up several manufacturing industries to EU
investors, with limited exclusions – in areas with significant overcapacity. Considering that more
than half of EU investment in China is in the manufacturing sector, this is a huge achievement.
More specifically, EU investments in manufacturing are concentrated 28 percent in the

automotive industry and 22 percent for basic materials, including production of electric cars,
chemicals, telecoms equipment, and health equipment, among others.
Interestingly, China’s market opening commitments in manufacturing include automobiles

(traditional and new energy vehicles), production of transport and health equipment, and
production of chemicals, among others – thereby satisfying EU investor interests. Also, with
reference to services, China’s market opening commitments will affect financial services,
international maritime services, environmental, construction, computer services, auxiliary air
transport services, cloud services, and private health services.
In the non-services sectors, China is making (limited) liberalization commitments in agriculture,

fisheries, mining, and energy.
On the EU side, the market is already open for services sectors under the General Agreement
on Trade in Services (GATS). With reference to EU sensitivities, such as energy, agriculture,
fisheries, audio-visual, public services – the EU Commission declared that these are all
preserved in the CAI.

According to the memo released by the European Commission, we note below some examples
of the market access commitments undertaken by China under the CAI.
Creating a level playing field
During CAI negotiations, the EU reiterated the necessity of ensuring fair competition on the
market. This brought up concerns linked to the power granted to state-owned enterprises
(which contribute to approximately 30 percent of China GDP) and the need to regulate their
behavior. Further, EU negotiators pointed for the need to ensure transparency in several
procedures applicable to foreign investments, including those related to the eligibility for and
distribution of subsidies.
Another fundamental concern discussed related to the forced transfer of technologies, for
example, in joint ventures, that may cause severe damages to EU investors.
Below we identify the main commitments that China will undertake to make investments.
Examples of Market Access Commitments Undertaken by China Under the CAI

• Remove and phase out joint venture requirements.
Automotive sector
• Allow market access for new energy vehicles.
• Continue the liberalization of the financial services sector, which will benefit EU
investors.
Financial services
• Joint venture requirements and foreign equity caps removed for banking, trading in
securities and insurance (including reinsurance), as well as asset management.
• Offer new market opening by lifting joint venture requirements for private hospitals in
Health (private hospitals)
key Chinese cities, such as Beijing, Shanghai, Tianjin, Guangzhou, and Shenzhen.
• Commit to not introduce new restrictions to foreign investments in R&D in biological

R&D (biological resources) resources.
• The EU will benefit from any future relaxation of current restrictions in this area.
• Lift the investment ban on cloud services.

Telecommunication/cloud services
• Set an equity cap of 50% for EU investors in such sectors.
• Bind market access for computer services.

• Include a “technology neutrality” clause, which will ensure that equity caps imposed for
Computer services
value-added telecom services will not be applied to other services, such as financial,
logistics, medical, etc. if they are offered online.
• Allow investment in relevant land-based auxiliary activities, enabling EU companies to

invest without restriction in cargo-handling, container depots and stations, maritime
International maritime transport agencies, etc.
• This will allow EU companies to organize full range of multi-modal door-to-door
transport, including the domestic leg of international maritime transport.
• Open-up key areas of computer reservation systems, ground handling, and selling and
marketing services.
• China has also removed its minimum capital requirement for rental and leasing of
Air transport-related services aircraft without crew, going beyond GATS.
(Air traffic rights are not a subject of the CAI – being
regulated under separate aviation agreements.)

Examples of Market Access Commitments Undertaken by China Under the CAI
• Eliminate joint venture requirements in multiple services, including but not limited to:
- Real estate services
- Rental and leasing services
- Repair and maintenance for transport
Business services
- Advertising
- Market research
- Management consulting and translation services
• Remove joint venture requirements in environmental services, such as:

- Sewage
- Noise abatement
- Solid waste disposal
Environmental services
- Cleaning of exhaust gases
- Nature and landscape protection
- Sanitation
- Other environmental services
Construction services • Eliminate the project limitations currently reserved in China’s GATS commitments.
• Managers and specialists of EU companies will be allowed to work up to three years in

Chinese subsidiaries, without restrictions, such as labor market tests or quotas.
Employees of EU investors • Representatives of EU investors will be allowed to visit freely prior to making an
investment.
Key Commitments by China to Make Investments Fairer

• Under the CAI, SOEs will be subject to specific rules to avoid discrimination in their
State owned enterprises purchases and sales of goods or services.
(SOEs) • China undertakes the obligation to provide, upon request, specific information to allow
for the assessment of whether the behavior of a specific enterprise complies with CAI
obligations.
• The CAI – filling an important gap in the WTO rulebook – will impose transparency
obligations on subsidies in the services sectors.
• The CAI will oblige China to engage in consultations to provide additional information
Transparency in subsidies
on subsidies that could have negative effects on the investment interests of the EU.
• China will also be obliged to engage in consultations with a view to address such
negative effects.
• The CAI will significantly enhance the WTO framework by providing rules on:
- Prohibition of several types of investment requirements that compel transfer of
technology, such as requirements to transfer technology to a joint venture partner.
Forced technology transfers - Prohibition to interfere in contractual freedom in technology licensing.
- Protection of confidential business information collected by
administrative bodies (for instance in the process of certification
of a good or a service) from unauthorized disclosure.
• China will provide equal access to standard setting bodies for EU companies.
• China will also enhance transparency, predictability, and fairness in authorizations.
Standard setting,
• The CAI will include transparency rules for regulatory and administrative measures to
authorizations, transparency
enhance legal certainty and predictability, as well as for procedural fairness and the right
to judicial review, including in competition cases.

Embedding sustainable development in the EU-China investment relationship
Sustainable development was among the most discussed topics during CAI negotiations
due to its vast scope and complexity as well as the different perspectives of the parties. Here
the relevance of the CAI is undeniable as this is the first time that China has agreed to such
ambitious provisions with a trade partner.
The section on sustainable development involves impact on the economy, society, amid which
environment and the parties reached understanding on some fundamental values, as noted
below.
Sustainable Development Provisions in the CAI: Agreement on Fundamental Values

• Unlike other agreements concluded by China, the CAI will bind the parties into
a value-based investment relationship grounded on sustainable development
principles.
Value-based investment relations
• The relevant provisions are subject to a specifically tailored implementation mechanism
to address differences with a high degree of transparency and participation of civil
society.
• China will commit to:

- Not lowering the standards of protection to attract investment.
Labor, corporate social
- Not using labor and environment standards for protectionist purposes.
responsibility, and environment
- Respecting its international obligations in the relevant treaties.
• China will support the uptake of corporate social responsibility by its companies.
Environment and climate • The CAI will include commitments on environment and climate, including to effectively
(The Paris Agreement) implement the Paris Agreement on climate change.
Forced Labor • China commits to working towards the ratification of the outstanding ILO
(International Labor fundamental Conventions and takes specific commitments in relation to the two ILO
Organization – “ILO”) fundamental Conventions on forced labor that it has not yet ratified.
Monitoring implementation and dispute settlement
An essential part of the treaty will be the one dedicated to dispute resolution. During the
negotiations, the parties considered, both, a state-to-state dispute resolution mechanism
and an investor-to-state dispute settlement mechanism (also referred to as Investment Court
System – “ICS”).
The EU insisted on the introduction of the ICS because, under the EU perspective, provisions
on investment protection should ensure a high level of protection for investors, while preserving
governments’ right to regulate.
In this regard, it is worth noting that on the multilateral level, the EU is pursuing the establishment
of a Multilateral Investment Court through intergovernmental discussions at the United Nations
Commission on International Trade Law (“UNCITRAL”). Once established, the Multilateral
Investment Court will replace the existing arbitral tribunal established under current bilateral
investment treaties (BITs) and the ICS.
With reference to CAI, EU and China have agreed to modernize protection standards and a
dispute settlement mechanism that takes into account the work undertaken to establish the
Multilateral Investment Court at the UNCITRAL.

According to the EU Commission press release, the EU and China agreed to complete the
negotiations on investment protection and investment dispute settlement within two years of
signing the CAI.
So far, the parties agreed to include in the CAI provisions on state-to-state dispute settlement
mechanism and an institutional framework to monitor its implementation, that can be
summarized as below.
State-to-State Dispute Settlement Mechanism in the CAI

• China agrees to the state-to-state dispute resolution mechanism suggested by the EU,
Enforcement mechanism
thus meeting the highest standards found in existing EU trade agreements.
• The enforcement mechanism will be coupled with a monitoring mechanism at pre-

litigation phase established at the political level, which will allow the parties to raise
Monitoring mechanism problems as they arise (including via an urgency procedure).
• The CAI will provide for a specific working group to follow the implementation of
sustainable development related matters, including on labor and climate.
The global context and road to implementation
In 2013, EU-China launched negotiations on the CAI with the aim to provide investors on
both sides with predictable, long-term access to the EU and Chinese markets and to protect
investors and their investments.
Interestingly, the parties were debating on market access and sustainable development as late
as the beginning of December 2020. Yet, just days before the end of the year, they managed
to conclude talks and come to political agreement – in principle. Germany, an important EU
member, was highly committed to securing agreement from China on key provisions that would
benefit its companies in China. The EU’s quicker than anticipated agreement – also came in
just weeks before the new Biden administration took over the US presidency. This urgency
seemed to indicate the EU’s decision to have more autonomy in how it engages with China,
the impact of which could spill over into EU-US relations in the near term.
However, regardless of the speculation, the CAI elicits high expectations from the international
business community in the precedents it will set. Once the CAI is fully ratified and comes into
effect, it will replace the 26 existing bilateral investment treaties between 27 individual EU
member states and China, considerably enhancing EU-China investment ties.
EU-China interdependence is significant, mostly in terms of trade. China is the EU’s second-
biggest trading partner after the US, and the EU is China’s biggest trading partner – with a
bilateral trade worth some US$650 billion in 2019.
Compared with trade, the amount of bilateral investment is disproportionately low: cumulative
EU foreign direct investment (FDI) flows from the EU to China over the last 20 years reached
more than €140 billion (US$170.24 billion), while Chinese FDI into the EU amounted to about
€120 billion (US$145.92 billion).
EU FDI in China remains relatively modest with respect to the size and potential of the Chinese
economy and its 1.4 billion-strong consumer market.

The CAI, when implemented, will be a key tool to increase investments between EU states and
China, which in turn could speed up recovery of the global economy. Both foreign investors
and domestic companies will benefit from the innovation facilitated by CAI and its emphasis
on sustainable development and fair practices in the long-term.
The EU and China are now working towards finalizing the text of the agreement, which will
need to be legally reviewed and translated. It is expected to be signed during the French
presidency of the EU in 2022 – before it can be submitted for approval by the EU Council and
the European Parliament.
At this juncture, it is worth remembering that while the EU Parliament plays an active role before
and during the negotiation process, it also has the power to decline or withhold its consent to
an international agreement. Thus, if the EU Parliament refuses to give its consent to the CAI,
the agreement that the parties will have signed onto will be considered legally void.
In other words, the next steps are crucial for CAI’s implementation. We will continue to monitor the
progress made by the parties and keep the business community updated of relevant developments.
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The China-Regional Comprehensive Economic Partnership

Agreement (RCEP)
In November 2020, China and 14 other countries signed the Regional Comprehensive Economic
Partnership (RCEP) Agreement at the virtual-hosted ASEAN Summit, formalizing the largest
free trade agreement (FTA) in history.
After an arduous eight-year negotiation period, a combination of factors such as slowing

global growth, disruption to trade patterns, and US shift away from multilateralism, mobilized
participating governments to push ahead with the pact despite long-standing differences.
India, however, chose not to join the RCEP although the grouping has left the door open for
its future entry.
The landmark agreement consists of 15 countries: 10 member states of the Association of

Southeast Asian Nations (ASEAN), China, Japan, South Korea, Australia, and New Zealand.
While China is party to a number of bilateral trade agreements, this is the first time it has signed
up to a regional multilateral trade pact.
The primary aim of the RCEP is to establish a comprehensive economic partnership – building
on existing bilateral ASEAN agreements within the region with its FTA partners. It will be guided
by a common set of rules and standards, lowered trade barriers, streamlined processes, and
improved market access.

For investors, RCEP will deliver substantial new trade and investment opportunities within the
participating countries – covering roughly 30 percent of the global GDP (US$26.2 trillion) and
30 percent of the world’s population to form Asia’s largest trade bloc to date.
The Chinese Premier, Li Keqiang, described the deal as “a victory of multilateralism and free
trade” and stated that the new agreement is “critical to the region’s response to the COVID-19
pandemic.”
The Regional Comprehensive Economic Partnership, 2021
SOUTH JAPAN
KOREA
CHINA
MYANMAR
(BURMA) LAOS
THAILAND
VIETNAM
CAMBODIA
PHILIPPINES
MALAYSIA
INDONESIA
AUSTRALIA
NEW
ZEALAND
Details of the RCEP agreement

The RCEP agreement includes 20 chapters covering many of the articles typically found in a free
trade agreement. Notably, it makes significant strides by way of harmonizing the rules of origin
and strengthening IP measures. But some critics have pointed to the weaker commitments for
e-commerce and the omission of a labor and environment protection clause, when compared
with the Comprehensive Progressive Trans- Pacific Partnership (CPTPP).

Common rules of origin
One of the most significant changes under RCEP is that the rules of origin will be unified for the
entire bloc. This will mean that investors will only require one certificate of origin for trading in
the region and can bypass the tedious processes of checking and adjusting to the specific rule
of origin criteria in each country. When implemented, investors can expect lower costs, added
flexibility, and regional supply chains streamlined.
Trade in goods – reduced tariffs

Under RCEP, tariffs will be eliminated on around 92 percent of goods implemented progressively
over the next 20 years, in accordance with each party’s Schedule of Tariff Commitments. This will
allow participating countries to gain preferential market access with each other. However, some
agricultural and sensitive goods will be excluded from these tariff reductions.
Trade in goods – simplified customs procedure

Simplified customs procedures and enhanced trade facilitation provisions will allow efficient
administration of procedures and expeditious clearance of goods, including the release of express
consignments and perishable goods within six hours of arrival.
Trade in services
Under RCEP, at least 65 percent of the services sectors will be fully open to foreign investors,
with commitments to raise the ceiling for foreign shareholding limits in various industries, such as
professional services, telecommunications, financial services, computer services, and distribution
and logistics services.
Not unlike the negative list system in China, RCEP will also take on a ‘negative-list’ approach
where the market will be fully open to foreign service suppliers, unless it appears on the list. This
ensures transparency of regulations and measures which will allow greater certainty for businesses.
Investment
RCEP eases the process required of investors entering, expanding, or operating in RCEP countries.
It also prevents the adoption of further restrictive measures and includes a built-in investor-state
dispute settlement mechanism that can be invoked by the member states.
Intellectual protection
RCEP raises the standards of IP protection and enforcement in all participating countries. Aside
from securing the protection rights for copyright, and trademark in the normal sense, it also goes
further to protect non-traditional trademarks (sound marks, wider range of industrial designs) and
forms of digital copyright, which goes beyond what was included in the CPTPP.
E-commerce
The agreement covers areas, such as online consumer protection, online personal information
protection, transparency, paperless trading, and acceptance of electronic signatures. It also
includes commitments on cross border data flows. This provides a more conducive digital trade
environment for businesses and provides for greater access to RCEP markets.

Government procurement
Participating RCEP countries have committed to publish laws, regulations, and procedures
regarding government procurement, as well as tender opportunities if available. This allows greater
transparency for businesses to pursue government procurement market opportunities in the
region. RCEP member states have also committed to a review aimed at improving this in future.
The significance of RCEP for investors in China

RCEP holds great significance for the region, for China, and for foreign investors. Once concluded
it will create the largest trade bloc in Asia, with China and Thailand ratifying the agreement at
the end of March 2021, calling for ‘swift implementation’.
In the region, the pact is monumental not only because it amasses 15 vastly disparate Asian
economies and manages to find a common working ground, but it also offers a way to coherently
amalgamate multiple bilateral and trilateral trade agreements already in existence – for example,
linking together some of the benefits of RCEP, CPTPP, and the New Zealand-Australia-Japan-India
New Supply Chain Pact.
Framework of Major Asia-Pacific Trade Deals
New supply chain pact Withdrew
CPTPP
India
New Zealand Australia Japan
Chile Canada
RCEP
Peru Mexico Vietnam Malaysia Singapore Brunei
South Korea
Indonesia Philippines Thailand Laos
US UK
Withdrew To join?
Myanmar Cambodia ASEAN China
Source: Compiled by Nikkei Asia

FTAs Among RCEP Participating Countries
ASEAN Australia China Japan Korea New Zealand
ASEAN*
Australia
China
Japan
Korea
New Zealand
Key
FTA concluded, signed and in force
Negotiations paused
Source: Australian Government, Department of Foreign Affairs and Trade
For investors operating across ASEAN, China, and other regions – RCEP offers good news.
Streamlined customs procedures, unified rules of origin, and improved market access will make
investing in multiple locations – a much more viable and attractive investment strategy and
likely bring “China + 1” business models to the fore. The common rules of origin will lower costs
for companies with supply chains that span across Asia and may encourage multinationals
to RCEP countries to establish supply chains across the bloc, thus growing the global value
chain activity in the region.
This new trading bloc will also see a larger flow of goods from countries where production costs
are high, such as Australia, Japan, New Zealand, South Korea, and Singapore to countries with
lower labor costs, such as Cambodia, Laos, and Myanmar. The benefit of cheaper goods will
spread throughout ASEAN and the other RCEP members as well as filter through to consumers
in Europe and the United States.
However, as many RCEP countries already have existing bilateral free trade agreements, the
biggest trade impact will be on countries that do not currently have a bilateral agreement
between them such as: Japan-China, Japan-South Korea, and Japan-New Zealand.
For China, Japan is its second largest trading partner, after the US, and holds a share of six
percent in overall exports and eight percent in imports. According to an analysis by DBS Bank,
for China, tariff savings on imports from Japan will amount to a significant US$ 7.3 billion across

the segments of transportation equipment, machinery & electrical equipment, chemicals,
plastics & rubbers, and metals. However, taking into account China’s size, this will translate to
a relatively net impact of 0.05 percent of GDP.
According to estimates by economists at Johns Hopkins University, RCEP will add US$186
billion to the size of the global economy and 0.2 percent to the gross domestic product of its
members.
If ratified by six ASEAN countries and three non-ASEAN countries, the pact will formally enter
into force, as early as the second half of 2021
Khorgos Gate Free Trade Zone, Kazakhstan

China’s African Belt & Road Initiative – It’s Not
What You Think It Is
A Case Study Of China-Continental Trade Development
China’s moves into Africa are in fact a great case study into how the Belt & Road Initiative
actually works. While most of the media commentary has been on the infrastructure, there is
rather a lot more at play. In this article, I will demonstrate how China is putting in hard – and
soft – infrastructure to boost its supply chains and trade.
The Belt & Road Initiative Is Not What You Think It Is: Ports
Many Belt & Road Initiative maps produced elsewhere are often overly simplified. Several that
we have seen for example show just one China route to Eastern Africa. In fact, China has now
almost completely encircled the continent in Port developments.

China has invested in 74 African Ports, either as developers or operators, or both. In this map,
we illustrate 28 of the larger ones. Seven have deep water capabilities.
Primary Belt & Road Initiative Ports In Africa
Nouadhibou, Mauritania AFRICA Port Sudan, Sudan

Mindelo,
Capo Verde Nauakchott, Mauritania
Massawa, Eritrea
Dolareh, Djibouti Tadjourah, Djibouti
Lome, Damerjog,
Pepel, Sierra Leone Togo Djibouti
Tema, Ghana Lekki, Nigeria
Douala, Cameroon
Pointe Noire,
Farnao Dias, Republic of Congo Lamu, Kenya
Mombasa, Kenya
Sao Tome
Bagamoyo, Tanzania Mpiga-Duri, Tanzania
Caio, Angola Dar es Salaam, Tanzania
Lobito, Angola Ambodifotatra,

Madagascar
Beria, Mozambique Tamatave,

Walvis Bay, Madagascar
Namibia
Matutuine,
Mozambique
What can be ascertained is that from the Ports mentioned above, China is developing an entire
coastal infrastructure around Africa to service shipping supply chains. But to do that, you need
to connect ports with inland supplies, and that takes additional hard infrastructure.

The Belt & Road Initiative Is Not What You Think It Is: Hard
Infrastructure
As of April last year, China had invested in BRI projects in 42 different African countries (from
a total of 54).
Chinese Foreign Minister Wang Yi’s 5 nation tour of Africa in early January 2021 was another
strong indicator of how seriously China views Africa and its commitments to the continent.
As we can see, China is building Ports, road, rail, and other hard infrastructure to gain access
to essential supplies. But to do that efficiently, you need localized processing facilities and
ideally, special economic zones.
The Belt & Road Initiative Is Not What You Think It Is: Special
Economic Zones
China didn’t invent the Special Economic Zone (SEZ) but it has made the most use of the facility.
SEZs come in differing formats, but all follow similar patterns, foreign investment is allowed
into a country, with goods, typically component parts, able to enter zones duty free. These can
then be married with locally sourced products, and either re-exported, therefore negating VAT
or other charges, or can be sold onto the local markets, at which point import duty and VAT
apply. In this way, foreign investors can access inexpensive labor, other components, avoid
immediate duty and other taxes, and either use the facility as a manufacturing and export base
or, over time, develop production to fit the local market too.

China's Industrial Parks & Free Trade Zones In Africa
Algeria Mozambique
China Jiangling Economic and Trade Cooperation Zone Wanbao Mozambique rice farm
Egypt Manga-Mungassa Special Economic Zone
China-Egypt TEDA Suez Economic and Trade Cooperation Zone Sudan
Ethiopia China-Sudan Agricultural Cooperation Development Zone
Ethiopia Eastern Industry Zone Sierra Leone
Ethiopian Industrial Park (Jimma Industrial Park) Sierra Leone Agricultural Industrial Park
Ethiopia-Hunan Industrial Park Tanzania
Djibouti Tanzania Bagamoyo Special Economic Zone
Djibouti International Free Trade Zone Jiangsu-Shinyanga Industry and Trade Modern Industrial Park
Mauritius Zimbabwe
Mauritius JinFei Economic and Trade Cooperation Zone China-Zimbabwe Economic and Trade Cooperation Zone
(Jinfei Zone) Uganda
South Africa Uganda Liaoshen Industrial Park
Atlantis Industrial Park African (Uganda) Shandong Industrial Park
Nigeria Zambia
Yuemei (Nigeria) Textile Industrial Park Zhong Ken African Agricultural Industrial Park
Ningbo Industrial Park Zambia-China Economic and Trade Cooperation Zone
Calabar Huihong Development Zone/Calabar Free Trade Zone Zambia Building Materials Industrial Park
Lekki Free Trade Zone
Nigeria Ogun Guangdong Free Trade Zone

Chinese companies have, over the years, established, after negotiations with national and
regional Governments over tax concessions, multiple SEZ or similar zones throughout Africa.
However, SEZ only deal with import duty and VAT. What about services?
The Belt & Road Initiative Is Not What You Think: Double Tax
Treaties
Double Tax Treaties offer mutual protection from being taxed twice in cross-border trade, and
unlike Free Trade Agreements, which deal with goods and products, often contain low tax
provisions for services industries, and local profit minimizing tactics such as the ability to charge
royalties (at a lower rate) to your own subsidiary as a buffer against corporate income tax rates
(which are higher). Such techniques can save up to 15% of profitable income.
Mombasa Container Port. China is now Africa’s largest trade partner

China's Double Tax Treaties With African Nations
Tunisia
Morocco
Algeria
Egypt
Sudan
Nigeria Ethiopia
Uganda
Seychelles
Zambia
Zimbabwe Mauritius
Botswana
South Africa

China is not yet an especially service oriented economy, but it is becoming more so. We
can expect to see more Chinese DTA agreements with African nations come into effect as
Chinese companies start to provide more service-related industries such as architects, medical,
educational, and other professional experts. But what about Free Trade?
The Belt & Road Initiative Is Not What You Think It Is: African
Free Trade
A continental African issue that has, until recently hindered some of these ‘initiatives’ (now you
know why it’s called the Belt & Road Initiative) has been the independent development, amongst
the 54 different African nations, of their respective tax systems. In many ways, this has hindered
Africa’s development as a unified continent, with the taxing of imports and exports between them
interfering with regional trade flows and making the sourcing of different component parts both
time-consuming, and expensive. That has not fitted in with China’s agenda and ambitions to
source from Africa. Consequently, huge amounts of coordinated Chinese diplomatic efforts went
into getting all African countries on board to agree Free Trade between them. That manifested
itself in the African Continental Free Trade Agreement (AfCFTA), which commenced trading
from January 1 this year. Only Eritrea has not signed the deal.
The agreement initially requires members to remove tariffs from 90% of goods, allowing free
access to commodities, goods, and services across the continent. The general objectives of
AfCFTA are to:
• Create a single market, deepening the economic integration of the continent;

• Establish a liberalized market through multiple rounds of negotiations;
• Aid the movement of capital and people, facilitating investment;
• Move towards the establishment of a future continental customs union;
• Achieve sustainable and inclusive socio-economic development, gender equality and
structural transformations within member states;
• Enhance competitiveness of member states within Africa and in the global market;
• Encourage industrial development through diversification and regional value chain
development, agricultural development and food security;
• Resolve challenges of multiple and overlapping memberships.
The economic impact will be profound. AfCFTA connects 1.3 billion people across 54 countries
with a combined GDP valued at US$3.4 trillion. But money like that requires financial services.
The Belt & Road Initiative Is Not What You Think It Is: Offshore
Finance
All this African investment and trade requires offshore financing and structuring to optimize the
best ways of moving money around in the most effective manner. Mauritius has long been an
offshore financial centre – in fact Dezan Shira & Associates produced the first translations of
Mauritian company law and articles of association into Chinese. Mauritius is well known as an
offshore financial centre servicing lndian companies, via the Mauritius-lndia Double Tax Treaty.
China, already has a DTA with Mauritius, however, has gone one better by signing off a Free Trade
Agreement too. The FTA gives Mauritius duty-free access to about 8,547 products, representing
96 percent of Chinese tariff lines, and covers more than 40 service sectors, including financial
services, telecommunications, ICT, professional services, construction, and health.
Where Mauritius will really benefit is to become a base for Chinese exports to Africa, not in

terms of goods because the manufacturing base is too narrow but in services. This is where
the strategic part of China’s Belt & Road Initiative makes itself clear; it is no coincidence that
the African Continental Free Trade Agreement has also come into effect in the same period
as the China-Mauritius FTA.
Mauritius’ future then is to perform a similar function as it does for India, an offshore gateway
to and from Africa, and to some extent how Hong Kong services China. That in turn provides
foreign and local investors in Mauritius with opportunities to service the Africa-China trade –
including professional services, lawyers, accountants, translators, and import-export agents.
But to do that efficiently across Africa, you need digital connectivity.
The Belt & Road Initiative Is Not What You Think It Is: Digital
Connectivity
Chinese companies are also involved in better connecting Africa to Asia and Europe. (similar
projects are also underway between South America and Asia).
The Chinese company HNM is involved in the Pakistan and East Africa Connecting Europe
(PEACE) submarine cable project, which will connect China to Africa and Europe and is 15,000
km in length.
Running South from Pakistan to Kenya and the Seychelles with plans to land in South Africa, and
then up north through the Mediterranean into France, the PEACE cable is 15,000km (9,320mi)
long and capable of a transmitting capacity of 16Tbps per fiber pair. Development began in
2017 and aims to offer a low latency route from Asia into Africa & Europe, landing at Pakistan,
Djibouti, Egypt, Kenya, and France. The cable is due to go live for commercial use in 2021.
The Pakistan-East Africa-Europe Cable System
FRANCE
PAKISTAN
EGYPT
DJIBOUTI
SOMALIA
KENYA
SEYCHELLES
SOUTH AFRICA
Graphic© Asia Briefing Ltd.

Chinese technologies and SOEs have also been involved with the West Africa Cable System
(WACS) that links South Africa with the UK along the west coast of Africa. The cable consists
of four fibre pairs and is 14,530 km in length, running from Yzerfontein in the Western Cape to
London. It has 14 African landing points, including Namibia, Angola, DR Congo, the Republic of
Congo, Cameroon, Nigeria, Togo, Ghana, Ivory Coast, Cape Verde and the Canary Islands and
2 in Europe (Portugal and England). The total cost for the cable system was US$650 million,
with the network already operational.
Several major state level initiatives support China’s push into submarine networks, with the
Digital Silk Road to increase connectivity between China and participating countries.
The West Africa Cable System - South Africa to London
London
United Kingdom
Portugal
Canary Islands
Cape Verde Islands

NIGERIA
TOGO
GHANA
Ivory Coast
Cameroon
Congo
DRC
Angola
Zambia
Namibia
South Africa

The Belt & Road Initiative Is Not What You Think It Is: Summary
As can be seen, China’s Belt & Road Initiatives in Africa are not restricted to just a few ports, or
purely to infrastructure. The entire African continent has been the focus of much coordinated
thought and combined activity by the Chinese. Nothing has been left to chance that is not
out of their control. Africa therefore is an excellent case study of how the Belt & Road Initiative
really operates – as a multi-layered, multi-component structure all working towards the same
end goal. Whether or not one believes China is doing this purely for its own purposes or not is
a bit of a moot point, and of course China has its own interests at heart. However, the legacy
of the BRI will undoubtedly be a boom in regional trade, the development of new, emerging
economies and the establishing of new global markets and commerce. It is the same situation
elsewhere – across Central Asia, Russia, Latin America, the Middle East, and Southeast Asia:
infrastructure, ports, roads, rail, special economic zones, double tax, and free trade agreements.
The Belt & Road Initiative is a global, diplomatic coordinated dance on an unprecedented scale.
The great news is that although China has dreamed up the scheme and built large parts of
it – like the ancient Roman roads across Europe, and indeed parts of North Africa, they can
be used by everyone – if you are open to the opportunities.

The Complete Belt & Road Modus Operandi:
Building Infrastructure, Ports, Special Economic
Zones while Negotiating Tax Treaties and Trade
Agreements
As we saw in the previous pages, varying types of hard and soft infrastructure is being put in
place across the Belt and Road Initiative.
Russia too, is building its own Free Trade structures across Africa and Asia, has a huge network of
them stretching across Russia from China to Europe and has the Trans-Siberian rail infrastructure
to deliver along those routes. These have been put in place now to service what is expected
to become a massive China-Russia manufacturing dynamic servicing Europe and Asia.
It is clear the soft power that is being developed along the Belt and Road Initiative is also being
put in place and is ushering in a new era of reduced tariffs and taxes wwhile also providing
investment incentives. Sri Lanka’s Free Trade Zone at Hambantota is offering profits tax at
zero rates for ten years to secure foreign investment. It is a similar story in many other areas
too – from Pakistan and Iran through to Hainan and Karnataka where Elon Musk’s Tesla is busy
installing a factory for manufacturing electric vehicles.
This explosion of Free Trade Zones, Free Trade Agreements and Tax Incentives are another, soft
power example of China’s trade and manufacturing exports – China itself began these very same
policies when it began its own opening up and development back in the late 1980’s. We have
seen what has happened since. Russia, with its landmass running from Asia to Europe, is doing
the same. The opportunities are there.
Free Trade & Special Economic Zones In Russia
Murmansk
Kaliningrad
Pskov St.Petersburg
RUSSIA
Zelenograd Tver
Lyudinovo Moscow
Kaluga Tula
Lipetsk Innopolis
Ulyanovsk Yelabuga
Togliatti Sverdlovsk Sovetskaya
Samara Gavan
Tomsk
Astrakhan
Irkutsk
Vladivostok

Also, there are double tax treaties that impact upon applicable domestic tax rates, these can be
used to mitigate against profits tax levels. All this needs to be understood before any investment
is made. The first thing any business interested in looking at investing in a second country
should do is examine the local foreign investment laws, applicable tax treaties and the local
regulatory environment and examine the operational aspect of handling financial transactions.
For South-East Asia, and the ASEAN bloc which includes Brunei, Cambodia, Indonesia, Laos,
Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam all these countries have
differing foreign investment laws, different currencies, and levels of banking capabilities. All
are part of the BRI and there are huge opportunities for exploiting the infrastructure build that
is taking place across the ASEAN region. It can be very difficult for foreign investors based
from overseas to establish meaningful relations from the US or EU with local banks in ASEAN.
However, Singapore is the de facto financial capital of ASEAN and numerous Singapore banks
have relations with their ASEAN counterparts. Using Singapore as a base for handling ASEAN
investments is sound corporate practice.
There are similar trade blocs in other parts of Asia, the Middle East, South America, Africa, and
Eurasia. So, the good news is the regulatory aspect is defined. What needs to be conducted
is the local regulatory research.
Risk Assessment
There are additional risks that corporate treasury departments must navigate regarding BRI
projects, many of which will be familiar to Treasury professionals:
Political risks – the stability of the local government and its credit rating.
Currency risks – especially during these times, assessing currency risks, inflation, devaluation,
exchange rate fluctuations and so on all need to be assessed.
Due diligence – checking out the local bank’s viability, the imposition of any sanctions, and
operational ability to conduct business – some countries, including China, are extremely
reluctant to process banking arrangements with even legitimate businesses due to the extent
of US sanctions.
Ability to repatriate funds

The ability to access professional firms at standards able to fold local accounts into consolidated
reports to Head Office regulatory standards is also an issue. High quality local knowledge and
experience in respective tax laws equates to better managed profitability standards. Dezan
Shira & Associates are members of the Leading Edge Alliance, a global network of tax firms
operating in 100 countries, including 2,056 partners and 23,090 staff members. Email us at
silkroad@dezshira.com if you need BRI tax advisory.

While the immediate momentum, scale and long-term timeline driving BRI projects has slowed
due to the Covid-19 pandemic, Multinationals will increasingly want to take advantage of
China’s more pragmatic view on international involvement and constrained ability to be the
sole financier of all things BRI. There may have been a slowing of BRI investment right now,
but it’s here to stay. China judges the short term by decades, and the BRI is an opportunity for
businesses with a longer-term development view. Globally minded companies and investors
have plenty to consider.
China and its Belt and Road Initiative have changed over the past 12 months, with the Belt
& Road infrastructure and soft power in the form of tax treaties and free trade agreements
changing the global supply chain. This has coincided – and not accidentally – with China
stating it is changing to a consumer economy. Xi Jinping in February 2021, addressing the
17+1 grouping of China and the Central & Eastern European Countries told them that from
their region alone, China wished to purchase US$170 billion worth of goods in the next five
years. lt is time to re-evaluate the potential, the wide ranging, multi-lateral connections, and
new supply chains, and assess where the potential in your business’s ability to exploit the Belt
& Road Initiative really lies.
BRI Financing Issues

A common question often asked these days concerns the Chinese slowdown of overseas
financing of the BRI. To which there is a very simple explanation: it’s nearly finished. China’s
ODI and foreign policy for 2021 have in fact already been laid out in statements made by Xi
Jinping at the recent United Nations summit, by Foreign Minister Wang Yi at the recent Belt &
Road Forum and by new Minister of Commerce Wang Wentao at the recent Central Economic
Work Conference. All quite clearly state China’s intentions: to focus ODI on more strategic
investments, such as healthcare and technology, to take more strategic positions within foreign
companies in specific sectors, including minority positions, and to rebalance the Chinese
economy by moving it away from manufacturing to a consumer base.

China Using Paris Club Creditor Methods To
Extend Debt Treatment For Belt and Road
Initiative Repayment Holidays
China has reportedly been following Paris Club creditors mechanisms to provide appropriate
debt treatment for countries struggling with Belt & Road infrastructure build debt repayments.
The Paris Club is a group of officials from major creditor countries whose role is to find co-
ordinated and sustainable solutions to the payment difficulties experienced by debtor countries.
As debtor countries undertake reforms to stabilize and restore their macroeconomic and
financial situation, Paris Club creditors provide an appropriate debt treatment. This takes the
form of rescheduling, which is debt relief by postponement or, in the case of concessional
rescheduling, reduction in debt service obligations during a defined period (flow treatment) or
as of a set date (stock treatment).
The Paris Club was created in 1956, when the first negotiation between Argentina and its
public creditors took place in Paris. Members include Australia, Austria, Belgium, Brazil, Canada,
Denmark, Finland, France, Germany, Ireland Israel, Italy, Japan, Netherlands, Norway, Russia,
South Korea, Spain, Sweden, Switzerland, United Kingdom and the United States. China is not
a member.
Kenya has just rescheduled US$245 million of debt repayable to China, a week after the Paris
Club of creditors offered the same debt-service suspension worth USD300 million, with debts
by both extended until the end of June 2021. Kenya has been struggling to meet repayments,
including for the Standard Gauge Railway project, built under the Belt and Road Initiative,

because the route is not currently generating enough income from pre-Covid expected travel
volumes to pay for the loan. Kenya was set to make its first repayment on a US$1.48 billion
loan from the Export-Import Bank of China (Exim Bank) that was used to build a railway line
from the capital Nairobi to Naivasha in the Central Rift Valley.
Under the China rescheduling deal, Kenya will have the next six years to make payments on
the suspended debt service costs including a one-year grace period after June 2021. The
Paris Club creditors negotiated six months of debt-service suspension of US$300 million due
to them, also until the end of June 2021.
The disclosure comes as China has been criticized for ‘debt-trap diplomacy’ in the past for Belt
& Road projects, with these claims now having been discounted, most recently in an article in
the Atlantic. China’s apparent adoption of debt restructuring models based upon those used
by the Paris Club effectively further discounts such allegations as Beijing appears to be using
Western debt renegotiation standards – and even improve upon them – specifically to avoid
such criticism.

Hong Kong Opportunities
RELATED READINGS
Hong Kong also remains viable, although the market is changing. As Dezan Shira & Associates’
Managing Director Alberto Vettoretti has recently stated:
“Hong Kong’s geographical location and status (one country – two systems are still in place until
2047) are its biggest advantages. If taken as a single bloc, the Greater Bay Area would be the
12th largest economy in the world, made from 11 cities with a combined population of over 70
million and an economy which has a US$2 trillion GDP target in sight (larger than Italy). Hong
Kong’s GDP accounted for 20% of China’s in 1997, this has now shrunk to around 3%. Over the
same period, China’s growth has been nothing less than extraordinary and while Hong Kong
has also played and is still playing an important role in China’s success story, it is now time to
forget about past glories and start a new phase of proactive engagement across the border.”
The integration of the cities and economic clusters within the Pearl River Delta is not a new
subject. Discussion on how to achieve this challenging goal started many years ago but only Investing in China’s
recently, following a top-down executive decision by Beijing, the agenda is more coordinated Greater Bay Area
at the very top and this has translated into better communication and projects implementation China Briefing Magazine
amongst the different governments of the Greater Bay Area. While the 11 cities in the region February, 2021
will also fiercely compete to attract best companies, talents and projects, Hong Kong could
carve out a fundamental role based on its privileged status.
AVAILABLE HERE
Hong Kong is the de-facto international aviation hub and offshore financial center (also the
largest global RMB clearing center) of choice for the region. While the 5 international airports
in the GBA will always expand their international routes, only Hong Kong will be the hub with
more global connections and networks. The recent investment into the Zhuhai airport is a
clear indication of Hong Kong trying to cater for a better and faster integration with Chinese
internal routes and provide a seamless experience and journey to those global travelers doing
business in this part of the world, particularly with China.
As we have seen, China has spent US$4 trillion on BRI infrastructure – and much of that part of
the investment is nearing completion. China has also followed this up by making three strategic
changes, introducing a revised foreign investment law last year, relaxing foreign investment
in various industry sectors, and introducing a new ‘dual circulation strategy’ designed to spur
consumer demand.
It is an irony that the political situation between Washington, London and to some extent
the EU has deteriorated at the same moment that China market access has been the best it
has ever been. Therefore, there are many good reasons why international companies should
continue to look to China, for both the growing consumer market, and access to an extensive
Free Trade Agreement Network. That re-positioning also impacts upon Hong Kong, which is
to become a financial and professional services centre for China, and the BRI.

After the recent economic and political challenges in the city, promoting an integrated GBA
brand and “concept” would help the whole region grow stronger. City rivalry will still be there
and would also be beneficial to the overall GBA development but the sooner each city will
play to its strengths under a synchronized agenda the sooner the bay will become a model of
sustainable growth for other regions around the world.
Hong Kong’s new status as an Arbitration Centre for handling Belt & Road Initiative disputes
is covered later in this guide, while our 2021 Guide to Hong Kong and the Greater Bay Area
can be obtained gratis, from the Asia Briefing bookstore under the magazine section at
www.asiabriefing.com
Hong Kong. The city is changing its focus and will become a key player in BRI
services and the Greater Bay Area.

CHINA’S BELT & ROAD INITIATIVE:
BUSINESS INTELLIGENCE REPORTS
Our wide regional knowledge and editorial research, combined with Dezan Shira
& Associates professional expertise, are available for the production of bespoke
business reports and market intelligence services. We regularly produce reports
and studies about the impact of China’s Belt & Road Initiative for Governments,
Chambers of Commerce, Professional Institutions and Corporate businesses.
Please contact us at silkroad@dezshira.com to discuss your requirements.

2
The Belt & Road Initiative -
The Legal Structures
Understanding The Legal Issues
Understanding the legal issues when dealing with projects part of China’s Belt & Road Initiative
requires several attributes: legal knowledge of the ownership and participation in the project, the
law of the land of the country concerned, and an understanding of the Chinese legal thinking
and structures, as these will heavily influence the Chinese thinking as concerns the project.
Then there is the exploiting of the infrastructure - putting in place businesses that may not be
part of the BRI itself but are investments (such as property development) that take advantage
of other commercial benefits a BRI projects may bring.
In this chapter we examine the differing types of legal systems, and engaging counsel.
New Investment Opportunities Emerging In Belt & Road Countries

These range from both exporting products from these nations to China, to taking advantage
of the new opportunities the infrastructure build in the various Belt & Road countries will bring.
Sri Lanka, for example, having had the basic infrastructure build completed is now offering
significant returns on investment in property acquisition as well as opportunities in the service
sector. The CPC is being developed as a commercial business centre and is well placed to
attract investors and businesses from around South-East Asia as it sits between the giant
markets of India and China and can deal with both in the same time zone. That makes it prime
for back office operations, and will spur investment from all the types of service industries
that can service those employees. That means investors from general stores, to computer
and IT retailers and service centres, restaurants, and all the types of products and services
office employees require. This is happening now, and is fast developing in other Belt & Road
infrastructure hubs around the world.
The Belt And Road Legal Knowledge Gap

However, there is a problem: countries such as Sri Lanka – and in fact many of the 147 countries
of the Belt & Road Initiative do not have especially well established, reliable or familiar legal
systems that are comprehensible to the average business lawyer. Local legal services and
knowledge can be perfunctory or even misleading in emerging nations, where domestic
laws might be well understood but the foreign investment legal structures far less so. A lack
of familiarity of different legal systems in use, coupled with a local lack of foreign investment
regulations can create problems for international legal counsel in advising clients. This applies
to trade, contractual law, dispute resolution, corporate establishment, and tax and accounting
protocols. As can be seen from the map below, the global spread of differing legal systems
is a huge, yet often misunderstood issue, and it is no good trying to fit an American or British
qualified lawyer into a differing legal protocol developed under different standards and with
vastly different codes and implications.

Comparative Law Along The Belt And Road Initiative
Today’s contemporary national legal systems are generally based on one of four basic legal
systems: Civil Law, Common Law, Statutory Law and Religious Law. Some countries have
evolved combinations of these. However, the legal system of each country is shaped by its
unique history and so incorporates individual variations. The science that studies law at the
level of legal systems is called comparative law.
Both Civil and Common law systems can be considered the most widespread in the world: Civil
Law because it is the most widespread by landmass and by population overall, and Common
Law because it is employed by the greatest number of people compared to any single civil
law system.
Global Legal Systems Impacting The Belt & Road Initiative
Civil Law
Common Law
Customary Law
Religious Law
Common and Civil Law

Civil Law Influence On The Belt And Road Initiative
The key to civil law is understanding that the source of law recognized as authoritative are
codifications written either in a constitution or statute passed by legislature in law or either
as an amendment. Civil law systems date back to the Roman Empire and, specifically the
Corpus Juris Civilis issued by the Emperor Justinian (where we obtain the word ‘justice’) in AD
529. This was an extensive reform of the law in the Byzantine Empire, bringing it together into
codified documents. Civil law was also partly influenced by religious laws such as Canon and
Islamic laws. Civil law today, in theory, is interpreted rather than developed or made by judges.
Only legislative enactments (rather than legal precedents, as in common law) are considered
legally binding.
Scholars of comparative law and economists usually subdivide civil law into four distinct groups:
French Civil Law: in France, the Benelux countries, Italy, Romania, Spain and former colonies
of those countries;
German Civil Law: in Germany, Austria, Russia, Switzerland, Estonia, Latvia, Bosnia and
Herzegovina, Croatia, Kosovo, North Macedonia, Montenegro, Slovenia, Serbia, Greece, Portugal
and its former colonies, Turkey, and East Asian countries including Japan, South Korea and
Taiwan.
Scandinavian Civil Law: in Denmark, Norway and Sweden. As historically integrated in the
Scandinavian cultural sphere, Finland and Iceland also inherited the system.
Chinese Law: a mixture of civil law and socialist law in use in the People’s Republic of China.
However, some of these legal systems have become hybridized, and resulted in mixtures,
such as the Italian Civil Law, which in 1942 replaced the original one of 1865, and introduced
German Civil Law elements due to the geopolitical alliances of the time. The Italian approach
has been imitated by other countries including Portugal, The Netherlands, Lithuania, Brazil
and Argentina. Most of them have innovations introduced by the Italian legislation, including
the unification of the civil and commercial codes. Swiss Civil Law is mainly influenced by the
German civil code and partly influenced by the French civil code. Turkish Civil Law is a slightly
modified version of the Swiss code.
Belt & Road Countries Following Civil Law Codes

Albania, Angola, Armenia, Austria, Azerbaijan, Belarus, Benin, Bolivia, Bosnia & Herzegovina,
Cambodia, Cape Verde, Chad, Chile, D.R. Congo, Costa Rica, Cote d’Ivorie, Croatia, Cuba, Czech
Republic, Ecuador, El Salvador, Equatorial Guinea, Estonia, Ethiopia, Gabon, Georgia, Greece,
Hungary, Italy, Latvia, Lebanon, Libya, Lithuania, Luxembourg, Macau, Mongolia, Morocco,
Mozambique, Nepal, Panama, Peru, Poland, Portugal, Romania, Russia, Rwanda, Serbia, Slovakia,
Slovenia, Timor-Leste, Turkey, Ukraine, Uruguay, Venezuela, Vietnam.

Common Law Influence On The Belt & Road Initiative
Common Law and Equity are systems of law whose sources are the decisions in cases by
judges. In addition, every system will have a legislature that passes new laws and statutes. The
relationships between statutes and judicial decisions can be complex. In some jurisdictions, such
statutes may overrule judicial decisions or codify the topic covered by several contradictory
or ambiguous decisions. In some jurisdictions, judicial decisions may decide whether the
jurisdiction’s constitution allowed a particular statute or statutory provision to be made or what
meaning is contained within the statutory provisions. Statutes were allowed to be made by
the government. Common law developed in England, is commonly referred to as the ‘British
Based Legal System’. It is in turn based on ancient Anglo-Saxon laws, and to a much lesser
extent by the Norman conquest of England, which introduced legal concepts from Norman
and Salic law. Common law was later inherited by the Commonwealth of Nations, and almost
every former colony of the British Empire excepting Malta. The doctrine of stare decisis, also
known as case law or precedent by courts, is the major difference to codified civil law systems.
Common Law is currently in practice in Australia, Canada, India (except Goa, which is based
on Portuguese civil law) Ireland, New Zealand, the United Kingdom (except Scotland) and the
United States (except Louisiana, based on French civil law). For this reason Common Law tends
to be the preferred method of law practiced by British, Australian and American lawyers as their
legal system educates the profession within these concepts. However there are limitations of
practical application when it comes to the numerous Belt & Road countries practicing different
legal systems, in which case additional counsel should be sought.
In addition to these countries, several others have adapted the common law system into a mixed
system. For example, Nigeria operates a common law system in the southern states and at the
federal level, but also incorporates religious law in the northern states. In the European Union,
the Court of Justice takes an approach mixing civil law (based on its treaties with member
states) with an attachment to the importance of case law.
Belt & Road Countries Following Common Law Systems

Antigua & Barbuda, Bangladesh, Barbados, Belize, Dominica, Fiji, Ghana, Grenada, Hong Kong,
Jamaica, Liberia, Myanmar, Nepal, Pakistan, Singapore, Tonga, Trinidad & Tobago, and Uganda.
Statutory Law
Statutory law or statute law is written law passed by a body of legislature. This is as opposed to
oral, customary, or regulatory law, or regulatory law promulgated by the executive or common
law of the judiciary. Statues may originate with national, state legislatures or local municipalities
as is the case in mainland China and numerous other Communist or ex-Communist states.

Legislation is law which has been promulgated (or “enacted”) by a legislature or other governing
body, or the process of making it. Before an item of legislation becomes law it may be known
as a bill, or a decree and may be broadly referred to as “legislation”, while it remains under
consideration to distinguish it from other business. Legislation can have many purposes:
to regulate, to authorize, to outlaw, to provide (funds), to sanction, to grant, to declare or to
restrict. It may be contrasted with a non-legislative act which is adopted by an executive or
administrative body under the authority of a legislative act or for implementing a legislative act.
Statutory law is often mixed with other types of legal systems, most notably Common Law.
The ultimate authority over Statutory Law in Communist and more Autocratic systems tends
to lie with the Government and its Legislative Body rather than a fully independent judiciary.
Belt And Road Countries With Statutory Law Protocols

Bangladesh, China, Chile, Greece, Hong Kong, Iraq, Lithuania, Malaysia, Pakistan, Peru,
Philippines, Russia, Singapore, South Africa, Sri Lanka, Thailand, Tunisia, Vanuatu, Zimbabwe
Religious Law
Religious law refers to the notion of a religious system or document being used as a legal
source, though the methodology used varies. For example, the use of Jewish and Halakha for
public law has a static and unalterable quality, precluding amendment through legislative acts
of government or development through judicial precedent; Christian Canon Law is more similar
to Civil Law in its use of Codes, and Islamic Sharia Law and Fiqh jurisprudence is based on
legal precedent and reasoning by analogy, (Qiyas), and is considered similar to Common Law.
The main kinds of religious law are Sharia in Islam, Halakha in Judaism, and Canon Law in
some Christian groups. In some cases these are intended purely as individual moral guidance,
whereas in other cases they are intended and may be used as the basis for a country’s legal
system. The latter was particularly common during the Middle Ages.
The Halakha is followed by orthodox and conservative Jews in both ecclesiastical and civil
relations. No country is fully governed by Halakha, but two Jewish people may decide, because
of personal belief, to have a dispute heard by a Jewish court, and be bound by its rulings.
The Islamic legal system of Sharia (Islamic law) and Fiqh (Islamic jurisprudence) is the most
widely used Religious Law, and one of the three most common legal systems in the world
alongside common law and civil law. It is based on both Divine Law, derived from the Qu’ran
and Sunnah, together with the rulings of Ulema (jurists), who use Consensus (Ijma), Analogical
Deduction (Qiyas), Research (Jtihad) and Common Practice (Url) to derive Legal Opinions
(Fatwa). An Ulema is required to qualify for a Legal Doctorate (Ljazah) at a Madrasa (Law
School) before they may issue a Fatwā.

Classical Islamic law has had an influence on the development of common law and other civil
law institutions. Sharia law governs a number of Islamic countries, including Saudi Arabia and
Iran, though most countries use Sharia law only as a supplement to national law. It can relate
to all aspects of civil law, including property rights, contracts and public law.
Belt & Road Countries Following Religious Law Codes

Gambia, Iran, Libya, Mauritania, Nigeria, Saudi Arabia, Sudan, Yemen.
As has been discussed, some countries have evolved hybrid legal systems taking aspects
from Civil, Common, Religious and other legal sources. These are known as Pluralistic Legal
Systems. The most common of these combine either Civil & Common Laws, Civil Law & Sharia
Law, or Common Law & Sharia Law. We can examine these as follows:
Belt & Road Countries Following Civil & Common Pluralistic

Laws
Cameroon, Cyprus, Guyana, Kenya, Lesotho, Malta, Mongolia, Namibia, Philippines, Seychelles,
South Africa, Sri Lanka, Thailand, Vanuatu, Zimbabwe
Belt & Road Countries Following Civil & Sharia Pluralistic Laws
Afghanistan, Algeria, Bahrain, Comoros, Egypt, Kazakhstan, Kyrgyzstan, Morocco, Oman, Qatar,
Syria, Tajikistan, Turkmenistan, United Arab Emirates, Uzbekistan
Belt & Road Countries Following Common & Sharia Pluralistic

Laws
Brunei, Malaysia, United Arab Emirates (financial laws only).
Customary Law
A legal custom is the established pattern of behavior that can be objectively verified within a
particular social setting. A claim can be carried out in defense of “what has always been done
and accepted by law”. Related is the idea of prescription; a right enjoyed through long custom
rather than positive law.
Customary law (also, consuetudinary or unofficial law) exists where:
• a certain legal practice is observed and

• the relevant actors consider it to be law (opinio juris)

Most customary laws deal with standards of community that have been long-established in
a given locale. In many, though not all instances, customary laws will have supportive court
rulings and case law that has evolved over time to give additional weight to their rule as law
and also to demonstrate the trajectory of evolution (if any) in the interpretation of such law by
relevant courts.
Consideration to Customary Law must be given to certain sections of the Belt & Road Initiative,
where it can be immensely influential. This includes tribal and aborginal areas within several
Southern African and Latin American countries, Central Asia, India, Indonesia and Malaysia.
Professional Difficulties In Handling Cross-Jurisdictional Legal

Structures
As can be seen, the impact of differing global legal systems is far wider spread and can create
business regulatory and compliance issues to a greater extent in global investment than is
commonly acknowledged. Many American, Australian, British and certain European lawyers
may well be experts in and familiar with the Civil and Common law regimes in their respective
jurisdictions, however planned corporate investments and even initial negotiations overseas
can deteriorate quickly if this is not sufficiently balanced with sound local legal knowledge.
In-house counsel and certain ‘international’ lawyers (there is actually no such thing) can also
develop strong egos based on domestic successes that may not always translate well when
attempting to fit their legal protocols and standards into alternative systems. This can impact
upon the legal and compliance integrity of overseas investments.
Combining Regionally Specific Lawyers With Domestic

Counsel When Investing Overseas
In-house counsel and lawyers familiar with your home territory should play a prominent part
in handling any overseas investment and especially when it comes to those being made in
countries that operate a differing legal system. This is because domestic laws must be upheld
and any investment made overseas checked to be compliant with those standards. However,
underneath that must be a layer of legal advice from the target market country, whose own
way of doing things, and especially administrative procedures, may be rather different. Other
areas that can widely differ between legal systems are as follows:
• Concept and Proof of Ownership

• Finance & Banking
• Access to IT and Communications
• Corporate Authorization & Responsibility
• Culpability & Criminal Definitions
• Trademarks and Patents
• Tax & Accounting

• Dispute Resolution, Litigation & Court Procedures
• Ultimate Legal Authority
The development of the Belt & Road Initiative as an international, interconnected series of trade
corridors, and its subsequent maturing into a huge selection of countries now offers additional
investment opportunities as a result of completed infrastructure builds. However, this presents a
major business and administrative challenge during the decade. Well organized and well known
international business and legal administration protocols do not cover the sheer scale of the BRI,
meaning that business owners, lawyers and tax advisors need to spread their wings rather further
than has until now been the norm in global engagement.
Belt, Road And Global Legal Advisory

Dezan Shira & Associates are members of several international business advisory, legal and
accounting networks, and although we as a practice do not have a global presence, have professional
relationships with other firms in 136 countries and territories. For businesses requiring assistance with
legal and related issues across the Belt & Road Initiative, we will be happy to introduce our Partner
firms for assistance. These include firms across the African continent, the Middle East, Central Asia,
and Central and South America. Please contact us at silkroad@dezshira.com.
Dezan Shira & Associates does however provide services itself throughout Asia, including
China, Hong Kong, Bangladesh, India, Russia, and the ASEAN region, including Cambodia,
Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam. We have
legal professionals on hand in each who can assist with local legal, tax and related trade and
investment matters.

Managing Pitfalls When
Handling Belt & Road
Initiative Project Contracts
Negotiating with Chinese entities be it Government, State-Owned or Private enterprises
requires an understanding of Chinese laws, regulatory systems, and culture. This then needs
to be married to local laws and regulations in the projects domicile as well as the respective
laws and regulations that may govern other interested parties.
It is unwise to lead negotiations without China experienced personnel. The Chinese will approach
negotiations from their regulatory, legal and tax perspective; not yours. That gap needs to be
overcome to avoid any future dispute, conflict, or unnecessary financial expense.
Far too often we have seen foreign government officials place themselves in charge for
negotiating or handling items they are not qualified or experienced enough to fully understand.
Ego can often take the place of common business good sense and practice. The results can
be expensive, as well as career and politically damaging. The hiring of third-party consultants
with deep China experience is to be recommended. I outline some of the common issues that
need to be addressed as follows:
Domicile of the Contract

Where and how the contract is signed can have an impact on whose regulatory regime governs
it. Contracts signed in China are deemed subject to Chinese laws. While e-commerce is now
making the physical part of contractual domicile less apparent, contracts should clearly state
which domicile laws shall apply.
This also applies to arbitration clauses. China has established a series of Belt & Road Arbitration
courts, however there is still some question concerning the impartiality of these. There are
options to this in terms of placing arbitration clauses in mutually neutral jurisdictions and
identifying the conditions under which a dispute should be referred.
Non-Disclosure Agreements
Some projects may be sensitive and/or contain elements of Government secrecy. In which
case non-disclosure agreements (NDA) should be signed off by all personnel with access to
sensitive information.
Sanctions
Some Chinese SOEs and officials have been placed under United States and EU sanctions.
This needs to be examined for any future difficulties that may (or may not) arise to avoid the
future potential for punishments meted out at a later stage. Sanctions risk avoidance should be
undertaken.

Project Management
Under Chinese law, certain positions, such as the ‘General Manager’ possess wide ranging
legal powers. It is necessary to understand the implications of appointing personnel and to
establish specific reporting lines for them. Who manages the project, the project financing, and
internal checks and balances is a key issue.
Labour
Many BRI projects include Chinese labor, often included as part of an overall package. Labour
costs vary across China – are you aware of the local China employment rates, making sure
you are not being overcharged? Labour also impacts upon technical local issues such as
visa issuance. There have been numerous cases of Chinese labor arriving on tourist visas for
example. Is Chinese labor subject to local income tax? Can waivers be obtained? Who will
provide housing, food, medical insurance and services, repatriation? All these issues require
clarification.
Financing
How is the project to be financed? Under what terms? This requires decisions concerning the
financing mechanisms and structuring, banks to be used, reporting, compliance, and audit. Are
any penalties for non-compliance or delays required? Should project incentives be built in for
completion by a specific date?
We have seen problems for example where applicable interest & exchange rates were not
properly described, leading to the foreign government facing unforeseen forex charges when
currency values altered. Arbitration and renegotiation of repayment clauses need to be built in.
As we have recently seen, the Covid-19 pandemic saw many Governments run out of capital.
Dealing with issues such as these is easier if a pre-determined path to negotiation and under
what terms has been previously agreed upon as force majeure and the qualifying of this.
Applicable Taxes, Free Trade & Double Tax Treaty Agreements

Will the nature of the project trigger any local tax or duty exposure? How will this be dealt
with and by whom? Are any Bilateral Investment Treaty, Double Tax or Free Trade Agreements
already in place that can mitigate against any tax burden?
Third Party Relationships

What are the considerations flowing from other, perhaps neighboring, countries also participating
in the project? What Regional Cooperation Agreements, alignment of technology, access,
competition, confidentiality, purchasing issues need to be addressed? Quality Control Standards.

Environmental Issues
Who will manage the QC aspect and environmental considerations and compliance? Getting
this wrong can have serious political consequences. How will QC be managed and by whom?
Who will examine the ecological impact? China has established an advisory board to assist
with greening the Belt & Road Initiative. Do you need to refer to them? What local standards
and regulations need to be considered?
Import-Export
The Chinese party will probably import large quantities of equipment, some will be repatriated
after the project completion. Are you being charged for depreciation? Others will form part of
the project itself. Again, who will conduct QC and how will applicable duties and waivers be
handled?
Press Office / PR
It may be wise to establish a media or specific PR desk to handle media enquiries about the
project. This is especially true in democratic countries. Likewise, should any problems arise
on site, media or opposition political forces may wish to exploit this. Having contingencies in
place to deal with such circumstances is wise.
Local Security
Some projects take place in dangerous or unstable regions, while theft of equipment or onsite
assets also needs to be considered. Who will provide this? Under what terms and conditions
and use of equipment and authorization in the case of arms?
Summary
It is key to ensure someone within your negotiating team is familiar with Chinese law and
Chinese expectations. This means ensuring due diligence and ideally a third-party overview
on your side should be a pre-requisite. Getting these contracts wrong, given the very nature
of them, can have highly damaging career, financial and political consequences for unwary or
naive governments and their officials. It is wise to take the subject seriously.

Understanding China
Joint Ventures
Joint ventures by their very nature are intensely idiosyncratic creatures, differing so much depending
on circumstances that the area of contractual negotiations is really best dealt with professionally
on a case by case basis. They also attract a great deal of opinion; however often this is simply
put, and relates to just one experience, good or bad. In dealing with Joint Ventures however our
firm over the years has established numerous such entities and the comments below are taken
from a median pool of JV experience, dictating what tends to work best. However this may not be
applicable to all circumstances.
In providing these basic guidelines, we also make the assumption that the joint venture partner has
been fully subjected to proper due diligence tests, and that his business integrity has been assured
as much as possible especially in the financial due diligence modeling.
Equal equity positions

We are not big fans of equality in equity for JVs. We have seen too many eventually grind to a
halt because a decision cannot be effectively taken. Depending upon the circumstances, the
actual future business performance of the JV needs to be taken into consideration as primary
objective, not necessarily the ownership of the company. Can the company reach its objectives
without the foreign partner exercising full control? If so, then the equity issue assumes less
significant status, yet many lawyers insist of dangers within. Concerns over the management
of the company at such a juncture in our view demonstrate a lack of trust or knowledge of the
partner – indicating insufficient due diligence has been undertaken.
If the local management of the business has stood up to due diligence testing, and the primary
goals of the JV do not require a majority shareholding, then there is no reason to insist on
50-50 ownership.
The Role of the Chairman

The chairman is regarded as the figurehead; however in JVs where the equity is equal, deciding
votes can be cast by him when the equity voting rights have demonstrated a division of opinion
at the equity and board level. Our comments above apply; the very nature of the JV comes
into question. If the JV relies on the Chinese domestic market for its performance, it makes
sense for the chairman to fulfill his role as a local Chinese “ambassador” for the company.
Having such stature may well assist him in complicated local business decisions or contractual
negotiations with third parties. On the other hand, should the primary sales be overseas markets,
then the question of who initiated these crops up. The role of the chairman, in our experience,
should he be in a position of final say should reflect the balance of the strategic value of the
business. If that value is on the Chinese side, it makes sense to appoint the Chinese partner
as chairman. If not, then the foreign investor should take precedence. It is possible to rotate
the roles, and have chairmen from either side sitting in for consistent, two year periods in a
revolving chairmanship, however, we have never seen much added value in such arrangements.
But if it helps solve the 50-50 equity position it may be a suitable solution.

The Role of the General Manager
The GM is a powerful position in the JV and often effectively controls the company. Attention
to detail must be paid to the quality of this candidate and to the contractual terms of their
employment, which are often detailed in the JV contract itself as well as by the labor law. The
role is usually technical and, given the control the GM wields, carries with it a political aspect.
We prefer the GM to either be a highly trusted local qualified Chinese national known to the
foreign investor, or preferably a hire from the foreign investor.
Other Managerial Positions

In larger JVs, politics and temptation invariably raise their heads. Foreign investors should either
appoint local management known to them in key positions such as procurement, sales, HR,
finance and accounting, and even warehousing, or have competent company personnel on
hand to inject into these positions. At a minimum, regular checks on each of these aspects of
the business management should be conducted by an outside agent. It is relatively common
for related persons to be injected into the supply chain and for the JV to purchase equipment
at inflated prices above market norms, to the Chinese partner’s benefit. Such procurement
matters need to be regularly tested, as do sales and inventory monitoring and consolidation.
Dispute Resolution
This is always a matter of debate among lawyers and also within the JV contractual negotiation.
In some industries such as shipping or maritime, arbitration can be fixed with a specific Chinese
arbitration body. However, in most cases, the contractual parties are free to decide. Problems
have occurred in the past with arbitration in China being partial to the Chinese partner; though
in reality, such cases are rare. It does make sense for disputes generally to be heard in China
if the JV is based there and the business operations are concentrated in China. However the
foreign party may require arbitration overseas or to international standards.
By way of a compromise, we usually will recommend arbitration be heard by the Chinese

International Chamber of Commerce, which is based in Beijing. The CICC is part of the
International Chamber of Commerce, headquartered in Paris, and follows arbitration guidelines
to international standards.
Employment of Staff
It is important when inheriting staff from the JV partner that these are assessed for suitability
and labor law contractual issues. Employees can carry with them termination liabilities not from
the date they joined the JV, but backdated from the date they originally began work for the
Chinese partner. This can have serious implications in terms of inherent liabilities if downsizing

is required later. Also to be checked off are issues pertinent to their pension funds and so on
if these have previously been administered by the Chinese partner. You don’t want to inherit
any problems with staff acquisition. RELATED READINGS
Exit Strategy
Businesses can and do go wrong, and it is sometimes necessary to admit defeat and exit.
Usually this will be sales related, so it makes sense to instigate a liquidation trigger clause
into the contract by linking the performance of the company output, which is also part of the
contractual agreement, to the exit clauses. If production or profitability fall below a certain level,
then the liquidation clause can, if required, be enacted.
Professional Advice
These are just some of the contractual and managerial issues that need to be addressed when
considering a joint venture in China; they vary depending upon each specific case and this An Introduction to Doing
can be especially true in Belt & Road contracts where other foreign expertise may need to be Business in China 2021
part of the package. A good professional firm will be able to discuss all the issues with you, China Briefing Guide
assess what needs to be checked through, and allocate dedicated on-the-ground staff to look January, 2021
into the specific contractual implications, assess these against known due diligence modeling
and report back. Successful foreign investors understand this and get it right. We also do not
AVAILABLE HERE
recommend using any services firm that subcontracts out such legal and advisory work and
only recommend using firms with a proven track record in handling joint ventures and with
applicable resources and offices in China.
Dezan Shira & Associates ‘Doing Business In China 2021’ Guide is a complimentary,
downloadable publication covering all aspects of China establishment, law, compliance, and
related operational issues. It may be obtained from the Asia Briefing publication store under
the ‘Publications From Dezan Shira & Associates’ section at www.asiabriefing.com/store

Submitting Trademark
Registrations Along The
147 countries have signed MoUs recognizing China’s Belt & Road Initiative, which as infrastructure
projects now near completion, offer investment and trade opportunities for other foreign investors.
These range from both exporting products from these nations to China, to taking advantage of the
new opportunities the infrastructure build in the various Belt & Road countries will bring. But how can
businesses protect their brands when investing in and selling to China and the Belt & Road countries?
The Madrid Agreement – Member States

The majority of international trademark applications are lodged under the Madrid Agreement,
administered by the World Intellectual Property Organisation (WIPO), where trademark
applicants can submit one application to protect their work within a coalition of 122 countries.
These include China, the European Union and the United States among many others that
recognize these international trademarks. They all follow similar application protocols and
procedures to allow mutual recognition and operational filing standards.
However, while the Madrid Agreement should offer practical and easy assistance in both filing
and protecting your brand, it is good business practice to ensure that this remains the case by
filing in other countries as well, even if the target market is a signatory to the Madrid protocol.
This is an inexpensive practice, however negates the ability for any other third party to register
your brand, a situation that in theory should not happen but in practice does. Illegal trademark
appropriation and infringements unfortunately occur far too often; and solving the problem is
difficult, expensive, and disruptive. This makes it desirable to go the extra mile and get brands
registered wherever you intend to develop a market.

China Trademark Registration
It is important to register your trademark especially when selling overseas, and this includes
China. It should be noted that even with the Madrid Agreement in place, problems can occur if
marks are not registered in other signatory countries. If this simple, inexpensive legal procedure
is not carried out, the small cost involved can backfire if not completed by your business – as
unscrupulous businesses could register your mark as belonging to them. That can create all
sorts of legal problems, be extremely expensive to sort out, and lose you a complete market.
With China’s middle class alone reaching 550 million consumers and continuing to grow, a
trademark problem is not an issue you want to have to deal with. China amended its Trademark
laws last year, and is constantly updating their IP. It requires local firms to keep up to date with
changes.
Fanny Zhang, in Dezan Shira & Associates Beijing office, regularly advises and files trademarks in
China on behalf of international clients; for advice on the issue contact her at beijing@dezshira.
com to ensure you are fully aware of the risks and can take appropriate measures to protect
your business. We stress: trademark registration is not an expensive process, but it is absolutely
necessary when selling branded products too, or conducting business in overseas markets.
Other International Trademark Protocols

The African Intellectual Property Organization (OAPI) & the
Madrid Agreement
While OAPI as a bloc follows the Madrid protocols, it only includes the following African
countries: Benin, Burkina Faso, Cameroon, the Central African Republic, Chad, the Comoros,
the Congo, Côte d’Ivoire, Equatorial Guinea, Gabon, Guinea, Guinea-Bissau, Mali, Mauritania,
the Niger, Senegal, and Togo.
Non-Madrid Agreement Countries

However, this still leaves numerous nations who have signed up to China’s BRI but who are not
part of the Madrid Agreement on International Trademarks. They may be members of WIPO
however have not agreed to the Madrid international protection protocols. These include:
Angola, Bangladesh, Burundi, Cape Verde, Chile, Cook Islands, Costa Rica, Djibouti, Dominica,
Ecuador, El Salvador, Ethiopia, Fiji, Grenada, Guyana, Iraq, Jamaica, Kiribati, Kuwait, Lebanon,
Libya, Maldives, Micronesia, Myanmar, Nepal, Nigeria, Niue, Pakistan, Panama, Papua New
Guinea, Peru, Qatar, Saudi Arabia, Seychelles, Solomon Islands, South Africa, South Sudan,
Sri Lanka, Suriname, Tanzania, Timor-Leste, Tonga, Trinidad, Uganda, UAE, Uruguay, Vanuatu,
Venezuela & Yemen.

This means that significant countries and markets in Africa, the Middle East, Asia and Latin
America require specific treatments when looking at protecting trademarks.
Africa
African countries not part of the Madrid Agreement each require individual filing in their
respective countries. This includes important markets such as Ethiopia, Nigeria, South Africa
and Tanzania.
Middle East
Middle Eastern countries not part of the Madrid Agreement require individual trademark filings
in their respective markets, including Iraq, Lebanon, Libya, Qatar (important for the upcoming
2022 World Cup Soccer Finals), Saudi Arabia, the UAE (although one registration covers all
the seven emirates) and Yemen.
Asia
Important emerging Asian markets such as Bangladesh, Myanmar, Pakistan, Sri Lanka and
Nepal all require individual in-country filings.
Central & South America

Costa Rica, Panama and many of the Caribbean Islands such as Jamaica require individual
filings. Several South American countries also require individual filings including important
markets such as Chile, Ecuador, Peru, Uruguay and Venezuela.
There can be significant differences between both the concept of marking and the protocols
of doing so in these countries. We can look at these as follows:
The First To File Concept

Many countries adopt a ‘first-to-file’ principle, whoever files the trademark application first
acquires the ownership rights. This is in stark contrast to the USA approach. This means that
it is essential to register well in advance of the effective start of business activity in order to
ensure such use is protected.
The First To Use Principle

This differs from the above as under this concept, the owner of a brand is the first to use it,
not the first to register it. According to this principle, the bona fide use of an unregistered mark
may be invoked against third-party holders of a subsequent registration, thereby vetoing any
of the subsequent company’s rights.
Timescales
Due to the lengthy waiting periods to obtain trademark protection (anywhere from 18 months
to three years), and the fact that protection only subsists once registration has been obtained,
it is advised that businesses wishing to register a mark allow plenty of time for protection to
arise before entering the market.
Translations
Many countries require a translation if the mark is in a foreign language. When doing so, it is
strongly advised to register a corresponding version using a translation, both to avoid risks
of counterfeit competitors and excluding your mark from a share of the market and therefore
potential customers.
Numerous countries also use specific language scripts, such as Arabic, Brahmi, Characters
and other stylized lettering and numerals. These may also require additional marking in specific
territories to protect not just the global mark but also a regional one.
Separate Applications
Many other countries also require that a separate application is made for each class of goods
or services the trademark is to be registered with regards to. This requirement increases both
the time (see above) and expenditure for registration of a mark.
Term Limitations
The Madrid Protocol specifies that marks expire if not used after ten years, in other systems
it can be far less. It makes sense to work out how to maintain your brand ownership in other
non-Madrid Agreement markets.
Obligations Of Use
Some countries (including the United States) require obligations to be fulfilled after the
registration application is filed, with regards to the actual use of the trademark. Companies
are under an obligation to maintain use of their mark if they intend to keep the brand active
and avoid revocation. Ownership, therefore, does not rest merely upon registration, but hinges
upon the actual use of the brand.
Unintentionally Offensive Or Deceptive Marks

Due to the multitude of religions and beliefs present throughout certain areas (such as Asia),
marks which are considered by the authorities to be contrary to public order or good morals,

are deceptive or offensive are not capable of registration. This could be unintentional, however
it is advisable that businesses wishing to register their brands in such territories carry out prior
analysis in this vein. Use of the Buddha, Ganesh or certain symbols as a brand or mark in some
countries for example could be problematic.
Handling International Trademark Registrations

Standard Filing Requirements
The following administration documents are typically required to file trademark applications:
• Logo (.png or .jpg, minimum 250×250 pixels)

• A specification of any Pantone colors
• A full description of goods/services, usually but not always as per the Nice Classification
• The full name and address of the applicant
• An International Power of Attorney legalized with Apostille
• Companies must provide business registration certificates
Professional Trademark Filing Agents

Dezan Shira & Associates are members of several international business advisory, legal and
accounting networks, and although we as a practice do not have a global presence, have
professional relationships with other firms in 136 countries and territories. For businesses
requiring assistance with trademark or other IP issues across the Belt & Road Initiative, we will
be happy to introduce our Partner firms for assistance. These include firms across the African
continent, the Middle East, Central Asia, and Central and South America. Please contact us
at silkroad@dezshira.com.
Dezan Shira & Associates does however provide services itself throughout Asia, including
China, Hong Kong, Bangladesh, India, Russia, and the ASEAN region which includes Cambodia,
Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam. We have IP
professionals on hand in each who can assist with local filings.
The development of the Belt & Road Initiative as an international, interconnected series of trade
corridors, and its subsequent maturing into a huge selection of countries now offers additional
investment opportunities as a result of completed infrastructure builds. However, this presents
a major business and administrative challenge at this time. Well organized and well known
international business administration protocols do not cover the sheer scale of the BRI, meaning
that business owners, lawyers and tax advisors need to spread their wings rather further than
has until now been the norm in global engagement.

While national markets have tended to remain fairly static, stable and predictable the past
twenty years, the impact of Covid-19, the advent of new IT solutions and the development of the
Belt & Road infrastructure now offers potential in previously far off, neglected and undeveloped
markets around the world. Many of these will be unfamiliar. Yet future growth projections are
in exactly these areas. According to the EU Strategy & Policy Analysis System by 2030, on a
global scale, the global middle class will reach 4.9 billion people, literacy rates will be above
90 percent, and more than half of the world will have access to the internet. This will lead to
an explosion of trade opportunities – and is already doing so. This will become more apparent
post-Covid.
We can expect new strategic alliances to form, and for existing ones such as South America’s
Mercosur, Central Asia’s Eurasian Economic Union and the Pan-African Free Trade Agreement
to all develop or support administrative systems to better service and satisfy business protection
needs. I would expect then further developments through these and similar trading blocs to
tidy up the current large amounts of blank areas in global trademark registrations that the new
emerging market opportunities are throwing up. Until now however, much remains to be done.
Global businesses looking at the newly accessible regional markets the Belt & Road Initiative
is ushering in will need to apply the first rule of business in novel markets – brand – meaning
trademark – protection.

Understanding China’s New
Foreign Investment Law As
Concerns Belt & Road Procurement
China’s new foreign investment law kicked in from 1st January 2020 – and promises equality
for foreign investors in China when it comes to competing with China’s domestic companies for
procurement contracts. In doing so it has changed the landscape for foreign investment in China
by offering foreign investors a more level playing field “equal” to Chinese companies. There will be
doubters that this will be implemented, however there are also reasons for this shift – academic
studies globally have shown that fairer procurement results in better end results, and lessens the
opportunity for corruption. It also upgrades engineering and other applicable standards. This is of
importance to Beijing, embarrassed by shoddy Chinese works overseas resulting in several collapsed
buildings, bridges and towers. Getting foreign investment into China’s overseas infrastructure build
is seen by Beijing as minimizing risk.
Why Get Involved In Belt & Road Procurement?

The Belt & Road Initiative, coupled with the new FIE law, provide significant opportunities for
Foreign Investors in China, as estimates of the impact of the Belt & Road last year suggested
it increased global trade by US$117 billion. The overall impact on Global trade since the Belt &
Road Initiative was announced has been an estimated US$460 billion since 2013. That figure
is not going to slow down any time soon. Foreign Investors can get involved by providing
products and services to the myriad of projects that are being undertaken around the world.
Although the spectre of unfair competition will always raise its head when domestic money is
being made available in procurement, at present just under 40% of all procurement contracts
linked to the Belt & Road Initiative do go to foreign companies. The new FIE law can be expected
to increase that, and it specifically states in its Article 16: “The State protects foreign-funded
enterprises’ participation in government procurement activities through fair competition.
Products produced and services provided by foreign-funded enterprises within the territory
of China shall be equally treated in government procurement according to law.”
What Does China’s Procurement Law Say?

We have cross-referenced the new Article 16 in the FIE against the existing Chinese laws
regulating Government Procurement (“GP”), and can deduce the following:
According to the “Government Procurement Law of the People’s Republic of China” (amended
in 2014), legally speaking, GP shall abide by the principles of transparency, fair competition,
impartiality and good faith.
The law says, suppliers engaging in GP in China activities shall fulfill the following criteria:
• Have the capacity to independently bear civil liability;

Note: The “Independent capacity to bear civil liability” is a legal concept. All limited liability
Foreign invested enterprises in China possess this capacity.

• Have a good commercial reputation and sound financial accounting systems;
Note: Normally the commercial reputation could be checked on China Government
Procurement Website (http://www.ccgp.gov.cn/), and the financial audit report of the last
year issued by a third party is required to prove a “sound financial accounting system.”
• Possess the equipment and professional and technical competence required for performance
of the contract;
Note: Concerning the equipment, normally the equipment list is required; for the technology,
the relevant certificates shall be provided, including but not limited to, the qualification
certificate, relevant personnel certificate, and cases/experiences. As GP, there is no uniform
standard. The requirements/measurements depend on the services/products in the GP.
• Have a good record of paying taxes and social insurance premiums in accordance with
the law;
Note: This requires providing copies of relevant audit documents, checks may also be
conducted.
• Have no record of major violations in its business activities for the three years prior to
participation in GP activities;
Note: Background checks would be conducted with the PSB and local courts.
Other criteria stipulated in laws and administrative regulations.
Foreign Investors in China should also take note of the “Bidding Law of the People’s Republic
of China” and “Implementation Regulations for the Law of the People’s Republic of China on
Tenders and Bids”.
Elements To Consider When Looking At Foreign

Invested Belt & Road Procurement
In addition to these, buyers may, in accordance with special requirements of procurement
projects, specify particular requirements for the supplier, such as providing the relevant
qualification certificates and information on commercial achievements. In addition, GP shall
assist the realization of national policies on economic and social development, including
environmental protection, support for undeveloped and ethnic minority regions, and promotion
of small and medium-sized enterprises on so on – China’s way of asking you to show you
are an upstanding business in the Chinese community. Meanwhile, when engaging in GP
activities, commercial interests such as a procurement price lower than the average market
price, procurement efficiency and high quality are also considered.
That said, Beijing has an eye on Chinese contractors providing shoddy work and has
been embarrassed by several Belt & Road Initiative projects built to sub-standards. This is
embarrassing for the Government and they want it stopped – hence the reason to encourage
foreign investment in this area. Xi Jinping doesn’t want his Belt & Road legacy to go down in a
mound of collapsed buildings and bridges, as has happened recently in numerous countries.
The new FIL encourages foreign investors to come in and help – investors that can provide the
required due diligence, a rise in standards, and better operational and QC standards being put
in place. There is an obvious stress between China’s requests for “lower than market average
prices” and “high quality”. Its the latter that will become the more important in upcoming
projects, and the tendering of materials for them.
Other factors to consider when competing are elements such as whether or not your country
of business origin has signed off a Belt & Road MoU with China, or is a significant investor in
the Asian Infrastructure Investment Bank or New Development Bank. If so, it would be helpful to
mention this in the qualifying documents. A list of countries who have signed MoU with China
concerning the Belt & Road Initiative and also have a Double Tax Treaty with China is here:

Belt and Road Countries with a China DTA
A-G H-N O-S T-Z
Albania Hungary Oman Tajikistan
Algeria Indonesia Pakistan Thailand
Armenia Iran Papua New Guinea Togo
Armenia Israel Philippines Trinidad & Tobago
Austria Italy Poland Tunisia
Azerbaijan Kazakhstan Portugal Turkey
Bahrain Kuwait Qatar Turkmenistan
Bangladesh Kyrgyzstan Romania Uganda
Belarus Laos Russia Ukraine
Bolivia Latvia Saudi Arabia United Arab Emirates
Bosnia-Herzegovina Lithuania Serbia Uzbekistan
Brunei Luxemborg Seychelles Venezuela
Bulgaria Malaysia Singapore Vietnam
Cambodia Maldives Slovakia Zambia
Chile Malta Slovenia Zimbabwe
Croatia Moldova South Africa
Cuba Mongolia South Korea
Cyprus Montenegro South Sudan
Czech Republic Morocco Sri Lanka
Ecuador Nepal Sudan
Egypt New Zealand Syria
Estonia Nigeria
Ethiopia North Macedonia
Georgia
Greece

Other Forms Of General Procurement In China
Concerning the general GP process, in addition to Public Invitation, Foreign Invested Enterprises
can be expected to encounter several other forms of GP:
• Private invitation of bids;

• Competitive negotiations;
• Single-source procurement;
• Requests for quotations.
In terms of becoming aware of Public or other GP, a complaint many Foreign Investors (FIE)
have is that they find it difficult to obtain any information about them. In actual fact, this is often
a sign of local weakness in the FIE itself as they simply do not have, or have not instructed staff
to look out for notices of invitation for bids in Chinese publications, information networks and
other media designated by the State. This needs to be corrected. There is no point in complaining
about not receiving information of tenders if your company isn’t looking for them in the local
language – Chinese.
It is also possible for foreign investors to form a Joint Venture with other legal entities in China to
take part in GP as a single supplier and therefore combine resources. FIEs also have the right to
file complaints about and report violations of laws in the course of GP activities.
Becoming Part Of The Procurement Process

In China’s Belt & Road Initiative Procurement
Intelligence
The obvious starting point when analyzing is whether there is demand for your businesses
products and/or services. Large MNC’s may already be aware if they have an existing on-the-
ground presence in China, companies that are yet to enter the China market will instead need
to conduct research, and especially of the type of procurement projects that have already been
awarded. Our firm has an effective Business Intelligence division, spread across China and
several Eurasian countries, and can provide this background. Websites such as this one are in
fact part of our Business Intelligence division. We can also keep you updated on upcoming or
just announced General Procurement requirements as they are announced in the Chinese media
and state organizations. We also keep tabs on Procurement activities in other Belt & Road nations
and have an idea of what is coming down the pipeline.
Getting Established In China

There are several different options, although to take part in GP a limited liability corporation is
a must. As many of the Belt & Road Initiative projects are overseas, it makes a lot of sense to

place your business in a Free Trade Zone in China, as these permit the importation of products
duty free into the zone. Component parts from China can then be added (and VAT claimed
back on those) and processing carried out within the zone. When the applicable final product
is finished, it can then be shipped to the project destination. China has many such zones, right
across the country and in different industry sectors. Many also offer investment incentives.
Contact us with descriptions of what you want to do and the feasibility of it and we’ll provide
advice on the best solution for your business.
Partnering With Chinese Companies

It will be possible from next year to establish short term Joint Ventures with Chinese partners
for the purpose of combining expertise and materials in order to provide a single face when
looking to bid for Procurement contracts.
Due Diligence & Contracts

The Chinese are very familiar with the legalities of their own contractual system, foreign investors
may not be so well informed. Due diligence should be carried out first on any intended partners
– legal, financial and operational, the latter requiring site visits and document inspection to
ensure they can do what they say they are capable of. We have teams on the ground that can
conduct this, and have had for nearly three decades. Contracts will be in Chinese law and
need examining and negotiating to bring them to Foreign Investors understanding. Our legal
team can assist.
Belt & Road Project Profit Repatriation

This is a tax issue and needs to be dealt with as part of the incorporation process. An important
aspect to this is whether or not your business country of origin has a Double Tax Treaty (DTA)
with China and if so, its contents. These often provide for tax relief, corporation taxes, and
even reductions in standard profits taxes by 5-10%. We maintain a database of Double Tax
Agreements and have a large tax advisory team familiar with bilateral work. Making your China
operations tax efficient and maximizing the profits that can be made is an important part of
the establishment process.
China’s Belt & Road Initiative changes again the dynamics of Foreign Investment into China.
29 years ago, when our firm began operations, it was all about inexpensive production for
sending back home. 17 years ago, the ability to sell produce in China and sell to China was
introduced. Now the changes involve using China as a Manufacturing and Services base from
which Global infrastructure projects can be managed. Companies already operational in China
should be looking to gathering intelligence concerning participation in procurement contracts
and especially as China is now more than ready to welcome foreign technical participation
and quality standards.

Belt And Road Initiative Projects
To Be Subject To “Green Light”
Eco-Classification Standards
China’s Ministry of Ecology has released a “Classification System Report” as part of the BRI
International Green Development Coalition (BRIGC). The BRIGC was established after the
second Belt and Road Forum in April 2019, is supervised by the Chinese Ministry of Ecology
and Environment (MEE) and has its own secretariat.
The report states: “A green BRI will provide a platform for all countries to share in a resilient,
inclusive, and sustainable development mechanism, and to implement the UN 2030 Agenda
for Sustainable Development.”
Chinese policymakers have also recently been stressing the “continual consolidation and
deepening Green BRI implementation” under the 14th Five-Year Plan, which was released
recently.
China has an estimated US$4 trillion of assets invested across the Belt and Road Initiative,
with an estimated 50% of those in nations facing global warming issues.
The Classification System would mean that investments for developing roads, ports, bridges,
power plants and mining would be placed under positive and negative lists based on pollution,
release of climate harming gases, deforestation and loss of wildlife. The system would help
categorize projects as green, yellow and red based on ecological damages caused and
measures taken to prevent it.
While projects using fossil fuels like coal-fired power plants known for emitting a large amount
of greenhouse gases would be placed under the red category, those using renewable energy,
causing negligible environmental damage, would get a green tag. The yellow category would
comprise of projects having a moderate impact on the environment.
The system will help curb pollution, climate change and biodiversity loss caused by the mega
infrastructure projects associated with the BRI. The report also recommends downgrading

the classification of projects directly to the red category if it “infringes on areas of ecological
importance.”
The classification will also help understand the full lifecycle of environmental management,
suggest exclusion of environmentally harmful projects, and differentiate management for
projects based on their categories.
Green Light System

The BRI Green Development Institute-a think tank launched by the BRI Green Development
Coalition is an international team of experts who will advise on projects. The Green Light System
aims to explore the formulation of guidelines on the assessment and classification of BRI projects
and provide guidance for stakeholders to further recognize and address environmental risks
in overseas investment.
The report suggested establishing a sound incentive and punishment mechanism to

guide financial institutions in terms of management of projects in accordance with their
environmental risks and impacts, and called on the government to classify BRI projects based
on their environmental impact in an effort to encourage financial institutions, investors, project
implementers and government agencies to shift investments to green endeavors.
Erik Solheim, former executive director of the United Nations Environment Programme, said he
expects the new institute to play a role in promoting the Green Light System.
“We want a dialogue as to what is the best environmental practice and how it can be achieved,”
said Solheim, who is also convener of the coalition’s advisory committee.
Solheim said he also hopes the institute will help “promote all the fantastic practices from China”.
“Over the last few years, China has developed first-class experience in many environmental
fields,” he said, citing examples including the achievement the country has made in air pollution
control.
Marco Lambertini, director-general of World Wildlife Fund for Nature and also co-chair of the
coalition, said the WWF is glad to see the progress that has been made in the Ecological
Conservation Red Lines in China, from delineation to management.
Mapping high environmental value regions and identifying no-go zones where investment
should not be made, as well as high risk areas where investments should be well-regulated
are important to guide investments, he said. The Green Light System will be an important
tool for the stakeholders in China and other BRI countries to better identify and address the
environmental risks in overseas investment, he added.

With more than 150 partners from 43 countries, the coalition has organized 10 seminars on
green BRI as the COVID-19 pandemic continues to exert a negative impact on many parts of
the world, said Zhao Yingmin, vice-minister of ecology and environment.
Wang Ye, a green financial analyst with World Resource Institute (WRI) has stated that “The
positive and negative list will provide a foundation for governmental bodies to make sure
overseas investment is in line with climate and environmental goals. We also hope it will help
improve green finance practice for overseas projects.”
The intent to issue Classification ratings for BRI projects will also mean that opportunities for
supplying eco-friendly products to Chinese and other local contractors will significantly increase.
We discussed issues related to Belt and Road Procurement contracts here, and concerning
trademark registrations in BRI countries here. Investors interested in participating in BRI projects
will now need to adhere to the Green Light standards.
China Pulls Out Of Polluting Belt & Road

Initiative Projects
In March, 2021, China’s Ambassador to Bangladesh informed the local Ministry of Finance
that “the Chinese side shall no longer consider projects with high pollution and high energy
consumption, such as coal mining, and coal-fired power stations”.
The turn away from financing polluting projects, even overseas, comes as Bangladesh and
China are renegotiating US$3.6 billion in infrastructure loans agreed in 2016 that Dhaka now
wants to repurpose. It is a welcome sign of Beijing’s new hesitation in funding polluting coal
projects as part of the Belt and Road Initiative, as Beijing has been taking steps to fulfill recent
promises of sustainable and green Belt and Road investment.
China has repeatedly stated that new BRI projects would be based on “pro green development”.
A study backed by China’s Ministry of Ecology and Environment released in December called for
a negative list of polluting projects to discourage environmentally harmful investments. In 2020,
Chinese companies for the first time committed most of their energy investment to renewable
projects. There are opportunities for companies selling eco and pollution-management solutions
to supply China and Belt & Road Initiative projects.

Hong Kong Repositioned
As A Belt And Road
Arbitration Centre
In November last year, China’s Supreme People’s Court and the Hong Kong Government
signed the ”Supplemental Arrangement Concerning the Mutual Enforcement of Arbitral Awards
between the Mainland and Hong Kong SAR”. The agreement is widely expected to enhance
the enforcement process and serve as an expansion of the 2000 Arrangement Concerning
Mutual Enforcement of Arbitral Awards between the Mainland and Hong Kong.
It will assist with the development of the Belt and Road Initiative, as China recognizes that
increasing imports, trade and multilateral investments this is facilitating will invariably increase the
number of disputes between Chinese and Foreign businesses. Consequently, China is making
efforts to align its arbitration practice and procedures with internationally acceptable standards.
The Supplemental Arrangement serves as a refinement of the existing Arrangement Concerning

Mutual Enforcement of Arbitral Awards between the Mainland and the HKSAR, while functioning with
fewer grey areas, providing clarity and certainty to parties looking to enforce their arbitral awards.
It clarifies that, apart from ‘enforcement, the existing Arrangement also covers the ‘recognition’
of the award. Recognition of an arbitral award gives it effect, whereas enforcement of an
arbitral award sees to the execution of the terms of the award. The Supplemental Arrangement
eliminates the uncertainty of whether an award made in Hong Kong must be recognized before
it is enforceable in Mainland China.
The Supplemental Arrangement also allows for simultaneous enforcement applications in

both Hong Kong and Mainland China, a major step forward, as it deals with the risk of delay of
enforcement in the second jurisdiction and effectively addresses the concern that the award
debtor’s assets in that jurisdiction may no longer be sufficient to satisfy the arbitral award. It
strengthens the ties between Hong Kong and Mainland China for international arbitration.
Lawyers working in both Mainland China and Hong Kong are expected to see an uptick in PRC-
related arbitrations along with an opportunity to leverage their expertise in both jurisdictions
to the benefit of their clients.

With the Supplemental Arrangement, Hong Kong is placed in a unique position as a seat
of arbitration. This is so because the enhanced enforcement regime not only introduces a
simultaneous enforcement mechanism allowing the application for enforcement to be made
in both Hong Kong and China, but also empowers the Mainland courts to grant interim relief
against the award debtor throughout the arbitral process.
Dispute resolution lawyers especially will now have additional options in strategizing cross-
border enforcement across Hong Kong and Mainland China. Transaction lawyers pre-planning
dispute resolution and arbitration clauses in contracts will now be able to better manage risks
and protect their clients’ interests in the event of a subsequent dispute. This is significant, since
many China-foreign cross-border disputes are resolved by arbitration seated in Hong Kong. In
particular sectors, Mainland China-based businesses may also tend to have Hong Kong-based
assets and holding companies.
Mainland China has liberalized the types of disputes that are eligible for arbitration outside
the Mainland, including certain disputes between wholly foreign-owned enterprises registered
in Free Trade Zones. The Supplemental Arrangement is yet another strong signal that co-
ordination and co-operation in arbitration between authorities in Mainland China and Hong
Kong will continue to be strengthened.
This adds the legal cross-border China-Hong Kong infrastructure that has been inherited with
the ‘One Country Two Systems’ framework to the Belt and Road Initiative and allows the more
internationally used British-based legal system that Hong Kong possesses to assess disputes
involving mainland Chinese entities. It is a significant development that mainland China has
allowed a separate legal system arbitration allowances over its own laws.
There will be other impacts as well. Hong Kong is being repositioned as a financial services
centre for China, with access to US$3 trillion of mainland China private wealth, and is a key
element in the Greater Bay Area (GBA).
International financial institutions will be far happier exposing themselves to mainland China
clients with the benefit of an agreed arbitration mechanism and enforcement between mainland
China and Hong Kong, and far more willing to invest and be part of Hong Kong’s new career as
wealth manager for China. This is especially relevant as clients will be able to operate cross-
border bank accounts in the GBA as part of the ‘Wealth Connect’ scheme to allow mainland
Chinese access to international financial planning.
It also appears to limit the roles of the Belt & Road Dispute Resolution Centres that China had
established in Beijing, Xi’an and Shenzhen to dealing with Chinese, rather than international
clients.

3
The China Belt & Road Initiative:
Tax Regimes & Rates
Corporate Income, Withholding,
& VAT Tax Rates In Countries
Along China’s Belt & Road
Initiative
China has signed Belt & Road agreements with 147 countries and territories globally. The
majority of these are emerging economies, yet collectively useful to China as they present
the future trading patterns China wishes to see develop. In this list therefore is ‘something
for everyone.’
Yet assessing which of these 147 areas are more likely to produce rewards for investors, is
to some extent, a tax question. In this article we have listed Corporate Income Tax rates,
Withholding Tax rates and applicable Sales Tax rates.
Corporate Income Tax applies to all investors establishing a business. Rates can vary,
dependent upon regional geography, types of business activity, and turnover. Yet all investors
need to plan. However, these rates, especially for the services industries, can be reduced
through deft application of royalties and other services charged from an overseas parent to
its subsidiary, which is why we identify:
Withholding Taxes are charged on mainly services provided by a non-resident company to

a resident company (which can be its own subsidiary). As a non-resident company cannot be
charged for Corporate Income Tax (CIT), Withholding Taxes are applied instead. As can be
seen, these are often lower than the prevailing CIT, and can be reduced still further according
to the terms of any pertinent Double Tax Treaty (DTA) that exists. In this case we provide a list
of Belt & Road countries with a China DTA. But others, for example between Armenia as a Belt
& Road nation, and the United States may also be applicable – these two nations have a DTA
between them. It pays to research when considering an investment into a Belt and Road nation
whether a DTA between that country and your investing nation is applicable. Substituting a lower,
DTA applied withholding tax for services between parent and subsidiary, such as royalties for
trademark, patent and technology transfers can reduce the profits tax bill by between 10-25%.
Applicable Withholding Tax rates are important.
Sales Taxes, VAT and GST are applicable on imported goods, and occasionally services,
although these amounts can differ depending on the product. Obviously it pays to know what
rates are applicable to the importer before they can resale your product to their domestic
market. In circumstances where the goods are imported (maybe as component parts), finished
and re-exported, claims may be made to reimburse some or all of the original tax. These taxes
are identified per item by internationally used ‘Harmonized System’ (HS) codes which customs
officials use to identify the actual product and subsequently determine local dutiable value.
When looking at importing or exporting to these areas, it is important to know the pertinent
HS code and applicable local import duty.

Minimum Wage Levels &
Individual Income Taxes
In this section we compare corporate income taxes (CIT) as apply to standard trading, processing
and manufacturing businesses. In some cases, CIT rates may be staggered according to levels
of income or types of industry. In certain mining, energy and financial sectors, higher CIT rates
than illustrated may apply.
Withholding Tax rates apply to non-resident companies billing for services from overseas. Some
are trade bloc specific. Rates can vary dependent upon service and be reduced under applicable
DTA conditions. GST/VAT and Sales Tax rates can vary from service and product provided.
Rates are subject to change, for specific clarifications please contact your professional advisers
or email us at silkroad@dezshira.com
Corporate Income
Country Withholding Tax Rate GST/VAT/Sales Tax
Tax Rate
Albania 0-15 15 20
Angola 30 6.5 14
Armenia 20 5-20 20
Austria 25 25-27.5 20
Azerbaijan 20 10 18
Bahrain zero zero 5
Bangladesh 25 20 15
Belarus 18 6-15 20
Bolivia 25 12.5 15
Bosnia & Herzegovina 10 5-10 17
Brunei 18.5 10-15 zero
Bulgaria 10 5 20
Cambodia 20 10-15 10
Chile 25-27 35 19
Croatia 12-18 24 5-25
Cuba 15-22.5 10-37 2-10
Cyprus 12.5 5-10 9-19

Corporate Income
Tax Rate
Czech Republic 15-19 15-35 15-21
Ecuador 22-25 1-10 12
Egypt 22.5 5-10 14
Estonia 20 4-15 9-20
Ethiopia 30 5-10 15
Georgia 15 4-15 18
Greece 28 15 24
Hungary 9 zero 5-27
Indonesia 25 20 5-10
Iran 25 2-5 9
Israel 23 23-25 17
Italy 24 12.5-26 4-22
Kazakhstan 20 15-20 12
Kuwait 15 zero 5
Kyrgyzstan 10 5-10 12
Laos 20-35 5-10 10
Latvia 20 0-20 12-21
Lithuania 15 15 5-21
Luxembourg 17-25 15-20 3-15
Malaysia 25 10 6
Maldives 15 10 10-12
Malta 35 0-15 7-18
Moldova 12 6-15 20
Mongolia 10-25 20 10
Montenegro 9 9 7-9

Corporate Income
Tax Rate
Morocco 10-31 10 20
Nepal 25 0-15 13
New Zealand 28 20 13
Niger 45 7-20 19
North Macedonia 10 10 5-18
Oman 15 10 5 (from 2021)
Pakistan 28 0.3-0.6 13-17
Papua New Guinea 30 15 10
Philippines 30 1-2 12
Poland 19 19-20 5-23
Portugal 21 25-35 6-23
Qatar 10 5-7 5
Romania 16 16 5-19
Russia 20 10-20 10-20
Saudi Arabia 20 5-20 5
Serbia 15 20-25 10-20
Seychelles 25 15-33 15
Singapore 17 10-22 7
Slovakia 21 7-35 10-20
Slovenia 19 15 9.5-22
South Africa 28 7.5-15 15
South Sudan 10-20 10 18
South Korea 10-25 14-24 10
Sri Lanka 10-40 14 8
Sudan 35 10-20 18

Corporate Income
Tax Rate
Syria 28 7.5-15 1.5-40
Tajikistan 15 12-15 18
Thailand 20 1-15 7-10
Togo 29 20 18
Trinidad & Tobago 25 5-15 12.5
Tunisia 30 15 13-19
Turkey 22 15 18
Turkmenistan 8-20 6-15 15
Uganda 30 6 18
Ukraine 18 15 7-20
United Arab Emirates zero zero 5
Uzbekistan 14 5-10 15
Venezuela 34 34 16
Vietnam 20 5 10
Zambia 35 10 16
Zimbabwe 24.72 15 14.5

Human Resources Along
Available Workforce, Minimum Wages & Income
Tax Rates Of All Countries Part Of China’s BRI
The Belt & Road explosion of projects around the world has resulted in a massive
redevelopment and infrastructure push by Beijing, both to secure future supply lines and to
develop new markets. China has been able to take this massive task on due to three major
reasons:
• It possesses the world’s largest foreign exchange reserves, valued at over US$3 trillion. (By
comparison, the United States is 22nd)
• China can afford to borrow money at very low rates. Via the BRI, it has been passing these
rates on, together with a small mark up, to nations with poor credit ratings and who otherwise
would not be able to afford development cost interest repayments.
• China (and most recipient nations) understand that the infrastructure build itself, rather than
the cost, will secure future fiscal growth in trade and wealth creation.
This will, and is, creating additional development opportunities, and especially as infrastructure
build reaches conclusion in many countries affiliated to the BRI. Those with completed projects
will start to see this infrastructure being utilized, facilitating the development of new trade
routes and new market opportunities. These may be city to city, or city to port, or cross-
border, or a combination of each; there are thousands of such projects underway on a global
basis. Taking advantage of that is the key element for international MNCs to keep an eye
on when looking around for opportunities. Getting involved in China’s Belt & Road Initiative
is rather more than than seeking project contracts. It is looking where the opportunities lie,
post-build, contributing to that wealth creation, and profiting from it.
In this section we provide details of the available workforces, minimum wage levels and the
pertinent individual income tax rates in each country associated with China’s BRI. This allows
global MNCs to begin an initial assessment of where the developing opportunities are as a
local cost of business exercise.
Note: Minimum wages can be dependent upon location or position and may not include
other mandatory payable allowances.
Income Tax rates may vary dependent upon location, region, residency, and salary progression
issues. For exact details contact your professional adviser or email us at silkroad@dezshira.com

Available Workforce Individual Income Tax Rates
Country Minimum Wage (USD)
(millions of people) (Percentage of salary)
Afghanistan 14.5 779 20
Albania 13.2 234 0-23
Algeria 12.21 170 35
Angola 7.6 67.5 10.5-17
Antigua & Barbuda 0.03 526 0-25
Armenia 13.8 140 20-23
Austria 3.7 1,289 0-55
Azerbaijan 5.07 146 14-25
Bahrain 1.0 none zero
Bangladesh 69.7 19-95 0-30
Barbados 0.15 542 12.5-33.5
Belarus 4.97 171 13
Benin 4.86 69 0-35
Bhutan 0.38 58 25
Bolivia 5.42 307 13
Bosnia & Herzegovina 1.3 233 10
Brunei 0.21 none zero
Bulgaria 3.28 367 10
Burundi none 30 4.97
Cambodia 9.23 182 20
Cameroon 11.34 62 33
Cape Verde 0.27 141 4
Chad 6.0 110 0-30
Chile 9.53 389 0-35.5
Comoros 0.007 129 0-30
Republic of Congo 31.64 170 20
Cook Islands 0.006 1,206 0-30
Costa Rica 2.17 528 15
C’Ote D’Ivorie 8.5 72 0-10
Croatia 1.79 566 0-36

Cuba 5.3 9 10-50
Cyprus 0.62 1,006 0-35
Czech Republic 5.37 571 15
Djibouti 0.43 none 2-30
Dominica 0.025 256 15-35
Dominican Republic 4.5 166 0-25
Ecuador 8.67 467 0-35
Egypt 31.96 68 0-22.5
El Salvador 2.7 304 0-30
Equatorial Guinea 0.389 224 0-35
Estonia 0.693 634 20
Ethiopia 53.74 18 0-35
Fiji 0.359 269 0-20
Gabon 0.608 255 0-35
Gambia 0.781 26 0-30
Georgia 2.01 120 20
Ghana 12.84 48 0-30
Greece 5.0 794 22-45
Grenada 0.042 267 0-30
Guinea 4.39 62 0-40
Guyana 0.031 168 0-40
Hong Kong 3.9 773 2-17
Hungary 4.3 587 15
Indonesia 133.56 121-303 5-30
Iran 27.35 133 0-20
Iraq 8.2 214 15
Israel 4.16 1,472 10-47
Italy 23.22 collective bargaining 23-43
Jamaica 0.722 192 0-30
Jordan 1.72 450 5-30

Kazakhstan 9.26 78 10
Kenya 21.19 62 30
Kuwait 2.43 216 zero
Kyrgyzstan 2.65 14 10
Laos 3.80 100 0-24
Latvia 1.0 507 20-31.4
Lebanon 2.41 466 2-25
Lesotho 1.0 102 20-30
Liberia 1.64 114 15-25
Libya 2.31 325 5-10
Lithuania 1.6 716 15-20
Luxembourg 0.28 2,443 8-42
Madagascar 9.5 39 0-23
Malaysia 15.28 224 0-30
Maldives 0.278 242 0-15
Mali 6.45 57 3-30
Malta 918 35 0.156
Mauritania 0.879 84 15-30
Macau 0.39 640 12
Micronesia 0.016 424 10
Moldova 1.24 50 12
Mongolia 1.27 155 20
Montenegro 0.60 215 9-11
Morocco 12.04 310 0-34
Mozambique 6.92 51 0-32
Myanmar 24.74 63 30-35
Namibia 0.963 collective bargaining 0-37
Nepal 10.35 129 1-36
New Zealand 2.50 2,175 10.5-33
Niger 9.20 60 1-35

Nigeria 62.447 58 7-24
Niue 0.006 none 10-35
North Macedonia 1.0 306 10-18
Oman 1.6 592 15
Pakistan 1 0-35 57.2
Palestine 1.0 403 5-15
Panama 1.49 318 0-25
Papua New Guinea 3.19 191 0-42
Peru 10.58 294 15-30
Philippines 45.4 230 0-35
Poland 18.18 688 18-32
Portugal 5.6 708 14.5-48
Qatar 2.12 none zero
Romania 9.16 522 16
Russia 76.3 195 13
Rwanda 6.34 17 0-30
Samoa 0.038 137 0-27
Saudi Arabia 12.92 none 0-20
Senegal 4.32 55 0-40
Serbia 3.16 274 10
Seychelles 0.047 339 15
Sierra Leone 2.68 57 0-35
Singapore 3.74 none 0-22
Slovakia 2.74 613 19-25
Slovenia 1.02 887 16-50
Solomon Islands 0.286 79 11-40
Somalia 3.84 none 10
South Africa 23.1 293 18-45
South Sudan 4.72 none 0-15
South Korea 28.44 1,578 0-42

Sri Lanka 8.64 71 4-24
Sudan 12.06 70 0-15
Suriname 0.210 180 38
Syria 4.79 176 5-22
Tajikistan 3.4 31 13
Tanzania 23.51 17 0-30
Thailand 38.91 253 0-25
Timor-Leste 0.314 115 10
Togo 3.69 70 0-35
Tonga 0.405 none 0-25
Trinidad & Tobago 0.669 354 25-30
Tunisia 4.10 120 0-35
Turkey 28.169 498 15-35
Turkmenistan 2.67 156 10
Uganda 16.83 35 0-40
Ukraine 20.03 200 0-18
United Arab Emirates 0.006 none zero
Uruguay 1.64 436 0-36
Uzbekistan 15.55 35 12
Vanuatu 0.129 323 none
Venezuela 12.85 4 6-34
Vietnam 53.7 127 20-35
Yemen 6.81 100 10-20
Zambia 7.46 81 0-37.5
Zimbabwe 7.08 227 0-45

As can be seen, China has covered a lot of bases in its Belt & Road Initiative spread. At
present most, but not all of the Belt & Road infrastructure projects being built engage exported
Chinese labor and construction workers. This is because they can be provided on a project
basis, have their wages paid by the contractual terms to the relevant Chinese SOE in foreign
currency yet be paid by their employer back in China, alleviating the need for any localized
individual calculations on a workforce base that often numbers into thousands. Additionally,
Chinese workers are relatively well disciplined.
However, at the same time, Chinese contractors have been building relations with managers,
local contractors and partnering businesses, who have access to domestic labor forces.
In future years, China will be able to utilize offshore, low cost labor to facilitate trade and
production at far lower cost levels than may be achievable back in the PRC. This development
of a relationship with employers of Chinese workforces that themselves run to an estimated
811 million in total, and the increasing influence China will have over them is a major asset
for China and the on-going ability for it to reach its trade and supply chain needs.

How To Obtain Tax Incentives &
Funding For Belt & Road Project
Contracts
Tax Reductions & Financing Await For Belt &

Road Investors – If You Know Where To Look
And Who To Ask
With 147 countries and territories now part of China’s Belt & Road Initiative, the task of
analyzing available tax incentives along the routes becomes somewhat complex. This means
referring to the available bilateral and multilateral agreements that are either in place between
a company in a Belt & Road nation such as Italy, Russia, Estonia, Hong Kong, or anywhere
else, and the country in which the work is being conducted. This could be China, Kazakhstan,
Serbia, Singapore, or any permutation of 147 tax regimes conducting business in any other
147 countries and territories or more. That is a potential calculation of some 21,609 different
tax applications right there, and far too many to deal with in just one article. So where to start?
Belt & Road Free Trade And Double

Tax Reducing Mechanisms
For Belt & Road companies operating in China, the answer is fairly straight forward: take a
look at the applicable fiscal incentives offered by Free Trade Agreements (FTA) and Double
Tax Treaties between China and your country or region of origin. For example, China has FTA
with several regional blocs including ASEAN and the Eurasian Economic Union. These outline
a whole raft of products that may be imported at preferential or even zero rates – important
to know if part of the contract involves equipment supplies. FTA also apply to services, so it
is well worth examining specific categories within them and see what can be included under
which category. This has two benefits – making tender processes more competitive – and
reducing overheads. Examining the potential of existing FTA should be part of any costings
process. It is also important to have a strategy for dealing with customs and the tax bureau in
any applicable country to make sure they know you intend to apply FTA status to parts of your
contractual supplies. This is especially true in China. It is the duty of the foreign party to know
their tax structures and rights, and is not the tax bureau’s job to act as tax reducing advisors
to foreign investors. Being well prepared and well armed is an essential part of knowing how
much things are going to cost and how much you can expect from revenues. Having advisors
let you know what can be permissible (note I used the word “can” and not “is”) should be part
of any Belt & Road investors due diligence in terms of pre-project tax structuring and costing.

Reducing Profits By Using Withholding
Tax Clauses In Double Tax Agreements RELATED READINGS
In terms of Double Tax Agreements (DTA) these are arranged on a bilateral basis, are rather
more specific and cover areas to ensure both individuals and businesses operating between
two countries are not taxed twice for the same liability (ie: incurring a profits tax bill in both
countries). They may also lower tax thresholds in certain areas, including VAT, import duties,
and so on. A good way to reduce profits taxes of income earned under DTA applications is
to insert agreements into contracts that the supplier intends to charge royalties for the use of
brands, trademarks or patents to be used in any Belt & Road project contract. This does require
legal and tax advisory advice to fully understand the considerations to be met, however this
can typically be done in a manner that doesn’t impact upon the overall amount to be paid by
the vendor. What it does do though is shift the onus of part of the contract away from a pure
profits tax base and onto a withholding tax base. As the tax rates due on these are different
(withholding taxes are lower than profits taxes) clever structuring of contracts can allow the
supplier to manipulate the contract terms in a manner that allows them to strip money out An Introduction to Doing
via royalties (attracting withholding tax) rather than income (which attracts profits tax). Such Business in China 2021
contractual structuring requires not just input concerning the relevant contractual laws, but China Briefing Guide
also knowledge of the applicable DTA and the pertinent tax laws. January, 2021
China Isn’t Hong Kong. And Especially AVAILABLE HERE
When It Comes To Taxes.

It is important to note that Hong Kong and mainland China employ different tax systems,
operating at different rates, and also have their own specific tax agreement between them,
called the Closer Economic Partnership Agreement (CEPA). This is modified on a regular basis
but essentially provides Hong Kong based companies with preferential rates of doing business
in China. It is a complex subject and there are qualifying criteria that need to be met. We cover
this extensively over on our China Briefing portal (type in CEPA on the search function) while we
also maintain an office in Hong Kong that can assist with making a business CEPA applicable.
Hong Kong can also be a good project office location for Belt & Road and other China work.
Our Hong Kong office can be contacted via our website at www.dezshira.com

Be Prepared And Know Your Tax Boundaries
Before You Sign Off Belt & Road Contracts
It is important to note that it is necessary to discuss the use of applicable treaties with the
pertinent tax bureau before any shipments or business has been transacted.
China has also promulgated various incentives to assist local exporters and state-owned
companies. Foreign businesses operating in JVs with Chinese companies may on occasion
be able to access these – it often depends on the equity split in the JV and the terminology
of the specific tax law – many are applicable for China domiciled companies only.
China tends to view countries that have signed off its Belt & Road MoU with appreciation, and
although not codified in terms of tax incentives, this does tend to yield a more constructive
approach to assisting foreign businesses in Belt & Road projects.
But looking for the optimum in Free Trade and Double Tax Treaty benefits is only one part of
the bilateral search for maximizing your return on Belt & Road Project Investments. There are
other, sometimes more subtle approaches that can be made.
Using Belt & Road MoU As An Influential Tool

Has your parent company’s Government signed off a Belt & Road MoU with China? It is
important to know. Such documents are usually in the public domain. While Belt & Road MoU
are often quite bland, they can also sometimes be very specific, and even refer to projects
agreed to on a G2G basis. If you come from such a country, mentioning the Belt & Road MoU
when tendering for project contracts or dealing with the tax bureau in China can sometimes
produce a more lenient agreement with them. Make sure you know what is in any Belt & Road
MoU and use it to wield leeway.
Encouraged Industry Incentives

Along The Belt & Road
China updates its Encouraged Industries list every year. Details of the current 2021 encouraged
industry sectors can be found by using the search function at www.china-briefing.com That is
just one example, other countries release similar annual lists and investors should be aware of
what incentives these may contain.

Applicable Belt & Road Export Incentives
Most Governments like their domestic businesses to export their wares. Have you considered
what incentives your own government provides? This can range from receiving domestic grants,
tax incentives and even credit (Exim banks exist for this reason). Government bodies such
as Singapore’s excellent International Enterprise unit for example provides huge amounts of
assistance to Singapore based companies in reaching out overseas. Other Governments have
similar initiatives. Have you researched the available benefits open to you on your own doorstep?
Belt & Road Public-Private Partnerships

We see these as an under-utilized mechanism along the BRI, where Governments partner
directly with the private sector to jointly develop infrastructure projects. The private sector could
of course involve the participation of more than one company, and potentially to joint-partners.
This concept, which is not new, has the benefit of having Government support, which can help
clear away a lot of obstacles. They are starting to become more prominent in Eurasia; Russia’s
new Meridian Road, which connects Russia to the EU and Kazakhstan (a Kazak highway
already leads directly to China) is a PPP project, while Uzbekistan has also taken up the PPP
mechanism when it comes to foreign investment. They are useful as they reduce political risk
while adding valuable national support. Upcoming PPPs should be on the radar of larger MNCs
when looking for work along the Belt & Road Initiative.
Applicable Funds
An increasing number of PE and VC funds are also now looking at Belt & Road projects for
their investors, our firm is engaged in assisting some of these in terms of structuring the deal
as well as conducting due diligence and ensuring compliance. Our firm can also assist with
evaluating the potential for investment funds.
China has also been instrumental in setting up a number of bilateral funds specifically to assist
foreign investors in Belt & Road projects. These have often been agreed on a G2G basis.
Examples are the new African Belt & Road Fund and the Russia-China Regional Fund both of
which have US$1 billion to play with. In addition to these, there is the Silk Road Fund as well as
financing available from the BRICS New Development Bank, the Asian Infrastructure Investment
Bank, the Eurasian Development Bank and several other regional investment banks. In terms
of the Asian Development Bank, that has been invested in by over 100 national Governments
thus far, and they will expect to see some of that be returned to companies from their own
country. Do you know if your national Government is a shareholder of the AIIB? You should, as
it could give you a competitive advantage, and potential financing.

Shareholders Of The Asian Infrastructure
Development Bank
Is your Country a shareholder in the AIIB? If so you may be able to use that to your advantage
when negotiating. It certainly won’t do any harm - the Chinese reward loyalty. A list of the major
shareholders (at least 1% of equity) in the Asian Infrastructure Investment Bank is here:
The Top 20 Largest Shareholders In The Asian Infrastructure Investment Bank
Australia
Canada
China
France
Germany
India
Indonesia
Iran
Italy
Netherlands
Pakistan
Philippines
Russia
Saudi Arabia
South Korea
Spain
Thailand
Turkey
UAE
United Kingdom
Thus, from the policy aspect, in addition to the general criteria, the buyer may also consider other
factors, like special qualifications for the project, economic and social development, efficiency
and so on.

As can be seen there are numerous ways to get real financial assistance when looking, as a
foreign investor, at getting involved in Belt & Road projects. Your own Government will likely
have some export-related incentives on offer, while the use of Free Trade and Double Tax
Agreements can help structure fiscal-efficient contracts. China and other Belt & Road project
recipient countries also have their own incentives designed to encourage exactly what the
Belt & Road Initiative is all about: Foreign Direct Investment. The tax efficient protocols and
incentives in many cases already exist – all that needs to be carried out is a logical sequence
of financial due diligence steps as follows:
• Find what tax efficient structures and incentives are available home and abroad;
• Analyze them to understand the financial implications and how they work;
• Get them inserted into relevant documentation;
• Have them approved by the applicable tax and / or customs bureau.
The Moracica Bridge is Europe’s highest with a 960 meter long span and a
height to 158.5 meters. It is part of the Belt & Road Initiative routes that connect
Montenegro with Serbia and onto Budapest, and by sea from Montenegro’s coast
to Italy. It was built by the China Road and Bridge Corporation and opened in 2019.

4
China’s Western Regions and
China’s Western regions are some of its most increasingly diverse, with access both to
South-East and Central Asia. However, they have tended to experience lower growth than
China’s Eastern Seaboard, although that is now changing. The South-West of China borders
the ASEAN nations of Laos, Myanmar, and Vietnam while Cambodia is very close. The Far
West and North-West border Pakistan, India, Nepal, Afghanistan, Kyrgyzstan, Tajikistan,
Kazakhstan, Russia, and Mongolia. Connectivity between all these countries is taking place,
including infrastructure that will link Russia and Kazakhstan in the North through Chongqing
and Chengdu in China’s Sichuan Province to Vietnam and ASEAN. With EAEU Free Trade
Agreements in place and others arriving, the trade development potential is huge, linking
Central and South-East Asia together for the first time. Details of these varying infrastructure
builds can be viewed by using the search function at www.silkroadbriefing.com
In this chapter we explain the various incentives China has and is putting into place to motivate
trade along these increasing diverse supply chains - right on China’s borders.
15% Reduced Profits Tax Rates & Preferential

Policies Announced For Foreign Investors In
China To Support The Belt & Road Initiative
China’s State Council has decided to extend preferential corporate income tax policies to
further enhance the massive development of the western regions. Following an executive
meeting on April 14 2020, China’s Ministry of Finance and the State Taxation Administration
has subsequently released the Announcement about Continuing to Implement Preferential
Corporate Income Tax Policies for Western Development.
Profits Tax Reduction For Investing In China’s

Western Regions
According to the announcement, enterprises will pay a lower corporate income tax rate of
15% if they make investments in encouraged industries in China’s Western regions from
January 1, 2021 to December 31, 2030. This includes foreign invested companies. China’s
standard profits tax rate is 25%.
China’s Western regions include Chongqing Municipality, Sichuan, Guizhou, Guangxi, Yunnan,
Tibet, Gansu, Qinghai, Ningxia, Shaanxi, Inner Mongolia and Xinjiang, while some regions and
cities in other provinces, such as Xiangxi, Enshi, Yanbian and Ganzhou, can also adopt the
same preferential tax policies. To qualify, investors must fit into categories as provided for in the
‘Catalogue of Industries Encouraged to Develop in the Western Region’. The announcement
is effective from January 1, 2021, giving foreign and potential foreign investors in China eight
months to conduct market research prior to committing to an investment.

The Western Regions Encouraged Industries
List
Encouraged industries are listed in the Catalogue of Industries Encouraged to Develop
in the Western Region, and in order to enjoy the preferential tax rate, a company’s main
business revenue must account for at least 60% of its total business revenue. This will apply
in most cases, but is in place to prevent deliberate exploitation of the preferential reduction
by domestic companies.
The Encouraged Industries list varies from region and region, with about 30 differing industries
listed for each. In previous, similar lists, these have been typically demanding and highly
specialist requirements. What is unusual about this list is that it appears to include fairly
standard foreign investment criteria.
The Chongqing list appears to accept as qualifying for the scheme, investment in:
• Component part manufacturing for household, IT and auto industry, engines;

• Engineered plastics, light alloys, building materials, glassware;
• Power, energy, waste and fresh water treatments;
• Agriculture, medical; teaching aids;
• Recreational facility developments;
• Infrastructure development, highways, ports, airports, warehousing, transportation.
Chongqing, one of the largest metropolises in the world

China’s Western Regions: The Export Markets,
Value, And Belt & Road Trade Growth 2019/20
The reduction in profits tax is especially relevant for foreign investors looking to develop
export markets from these regions of China. Data as follows:
Region Main Export Markets Export Value (2020, US$) BRI Trade Growth 2019/20
Chongqing EU, ASEAN 24.8 billion +32%
Guizhou ASEAN 7.4 billion +15%
Guangxi ASEAN 32.8 billion +17.3
Yunnan ASEAN 12.8 billion +15.2
Tibet Nepal, India 400 million –
Gansu ASEAN 2.2 billion +2.8
Qinghai Nepal 500 million –
Ningxia US, South Korea 2.7 billion +3.1
Shaanxi US, South Korea, Japan 31.6 billion +17.3
Sichuan US, EU, ASEAN, Japan 22.8 billion +24.4
Inner Mongolia Mongolia, Russia, South Korea 5.8 billion +14.6
Xinjiang Middle East, Central Asia 16.4 billion +18.1
Sources: Xinhua
In overall terms, China’s trade with the Belt and Road countries rose 9.9 percent in 2019,
accounting for 29.3 percent of the total national import and export trade volume.
Western China – Geographical Demographics

In terms of reaching export markets, these can essentially be broken down as follows in terms
of regional proximity and the possession of committed, existing supply chain infrastructure,
including ports, warehousing and customs facilities. It should be noted that parts of China’s
Western regions also have significant consumer bases.

Region Population (millions) International Borders Primary Export Base
Sichuan 110 None Chengdu, Chongqing
Guizhou 34 None Guiyang
Guangxi 48 Vietnam Nanning
Yunnan 46 Myanmar, Laos, Vietnam Kunming
Tibet 3 Nepal, India, Bhutan, Myanmar Lhasa
Gansu 26 Mongolia Lanzhou
Qinghai 5 None Xining
Ningxia 7 None Yinchuan
Shaanxi 37 None Xi’an
Inner Mongolia 25 Mongolia, Russia Baotou, Ordos
Xinjiang 25 Kazakhstan, Afghanistan, Kyrgyzstan, Tajikistan, Urumqi, Kashgar

Mongolia, Russia, India, Pakistan
Sources: Xinhua
Western China: Existing 2020 And Upcoming

Free Trade Agreements
In terms of tax and free trade, the most obvious candidates for foreign investors to explore
with the Western Regions Catalogue of Encouraged Industries and the applicable reduced
15% profits tax rates are as follows:
China-ASEAN
The Western regions of Yunnan, Guangxi and Tibet all share borders with the ASEAN nations of
Laos, Myanmar and Vietnam, of which the latter is the easiest to access. ASEAN also includes
Brunei, Cambodia, Indonesia, Malaysia, Philippines, Singapore and Thailand, and is a free trade
bloc in its own right, allowing for free movement of trade throughout the region. This is significant
as China has a Free Trade Agreement with ASEAN. This means that products shipped from
China from these regions attract reduced or zero duties when landed in ASEAN. This in turn
means attacking these export markets may best be done from a base in China’s West, with
Yunnan and Guangxi being the easiest choices to do so.

China-EAEU
China’s Western regions of Xinjiang and Inner Mongolia share borders with Kazakhstan,
Kyrgyzstan and Russia. These countries are part of the Eurasian Economic Union (EAEU), which
has signed off a Free Trade Agreement with China. At present, trade representatives on all sides
are negotiating tariff reductions and exemptions. These are not in place as yet, but when they
are, will see a significant increase in trade. China-Russia trade for example is expected to double
to US$200 billion by 2024. The date that China set for the implementation of the Encouraged
Industries Catalogue for the Western Regions may be a pointer. It is possible that China and
the EAEU expect to announce the tariff details as part of the FTA at a date near to this.
How To Apply For Western Regional Profits Tax

Reductions & Encouraged Industry Qualification
The first stage is to engage advisors who can determine the following:
• Does your proposed business activity fulfill the criteria laid down in the Western Regions
Encouraged Industries List? This will require liaison with the relevant regional authorities
and potentially some negotiation over your permissible and qualifying scope of business.
It will be a Yes or No answer.
If positive, this can be followed by:
• Some investors may require additional export market research.

• Legal and tax registration procedures to obtain preferential treatment and tax breaks.
• Assistance with sourcing local customs officials familiar with regional export processes and facilities.
• All other business registration, tax and operational requirements.
• Match the China business end with ASEAN/EAEU distributors and related contacts.
Qualified Assistance In Western China, and the

ASEAN & Russia Supply Chains
Dezan Shira & Associates has been operational in China since 1992 and has handled multiple
foreign investments into Western China over the years. We remain familiar with the procedures,
regional nuances and applicable government and official contacts. We also have offices
throughout ASEAN as well as Russia and can therefore assist at both ends of the manufacturing
supply chain. Please email us at silkroad@dezshira.com for enquiries on how to proceed with
market intelligence and obtaining qualification approval for obtaining profits tax reductions
related to China’s Western regions investment, and advisory over how to take advantage of this.

The Eurasian Economic Union (EAEU) 2021
Has FTA with EAEU Members of the EAEU Observer status
Russia
Belarus
Moldova Kazakhstan
Serbia Uzbekistan
Armenia Kyrgyzstan
Tajikistan
Iran China
Egypt
Vietnam
Singapore
Note: Cuba is also an Observer member of the EAEU

Investing in China’s Western Provinces: How to
Read the New Encouraged Catalogue
China has rolled out the latest Encouraged Catalogue for Western China after launching another
round of its ‘Go West’ campaign, in a bid to lure investment into its vast western region. Lower
corporate income tax rate can be enjoyed by eligible companies. The western region is also
acquiring strategic importance as China seeks to enhance the construction of the Belt and
Road and cement its position in global supply chains.
On January 26, 2021, the National Development and Reform Commission (NDRC) published
the Catalogue for Encouraged Industries in the Western Regions (2020 Edition) (“Western
Region Encouraged Catalogue”), to be implemented from March 1, 2021 and to replace the
2014 Edition.
Unlike the Encouraged Catalogue for Foreign Investment (FI Encouraged Catalogue), which
only applies to foreign-invested enterprises (FIEs), the Western Region Encouraged Catalogue,
in principle, is applicable to both domestic and FIEs in the western regions of China.
Eligible foreign and domestic companies registered in the western regions can enjoy a reduced
corporate income tax (CIT) rate of 15 percent (China’s standard CIT rate is 25 percent). To enjoy
this preferential CIT rate, the company’s main business must fit into the encouraged categories
and its main business revenue must account for at least 60 percent of its total business. This
preferential policy will last at least until the end of 2030, according to the Announcement about
Continuing to Implement Preferential Corporate Income Tax Policies for Western Development.
Where are the western regions of China?

The western regions include 12 provinces – Inner Mongolia, Guangxi, Chongqing, Sichuan,
Guizhou, Yunnan, Tibet, Shaanxi, Gansu, Qinghai, Ningxia, and Xinjiang, which cover more
than 70 percent of the country’s land area and have nearly a third of its population. Some
cities or regions in other provinces, such as Xiangxi of Hunan, Enshi of Hubei, Yanbian of Jilin,
and Ganzhou of Jiangxi are also within the scope of the application of the Western Region
Encouraged Catalogue.

China’s Western Regions
Heilongjiang
Jilin
Liaoning
Xinjiang
Inner Mongolia
Hebei
Shan Shan
-xi -dong
Qinghai
Gansu Henan
Tibet
Anhui Shanghai
Hubei
Sichuan
Jiangxi
Hunan
Guizhou Fujian
Yunnan Guangdong Taiwan

Guangxi
Western regions
Central regions Hong Kong
Macau
Eastern regions
Northeastern regions
What’s in the Western Region Encouraged Catalogue?
The Western Region Encouraged Catalogue is like a mother catalogue, consisting of:
• the encouraged industries as detailed in the existing national industrial catalogues, such
as the Catalogue for Guiding Industry Restructuring and the Catalogue for Encouraged
Industries for Foreign Investment; and
• a list of the newly added encouraged industries in China’s western regions, which is, it must
be noted, applicable only to domestic companies.

FIEs should always implement their production or operations in accordance with the Encouraged
Catalogue for Foreign Investment. You can access the full FI Encouraged Catalogue for
nationwide here (in English), and FI Encouraged Catalogue for the western regions here (in
English).
Here, we summarized the industries in each western province, that encourages both domestic
and foreign investment.
Major Encouraged Industries in Western Regions
Province Major encouraged industries
Automobile and motorcycle manufacturing, R&D and manufacturing of laptops and smart phones,
Chongqing new chemical materials, biomedical technology, precision instrument manufacturing, environmental
protection equipment manufacturing, etc.
Technologies for the utilization of vanadium and titanium, modern manufacturing, cloud computing, big
Sichuan
data, new carbon materials, high-tech equipment manufacturing, automobile manufacturing, etc.
Tea planting and production, titanium smelting, automobile manufacturing, cross-border trade,
Guizhou
international logistics, e-commerce, high-grade textile, knitting, and garment processing production, etc.
Production of natural rubber, natural flavor, coffee, tea, camellia, and tung oil, healthy food, biomedical
Yunnan
technologies, biology liquid fuel, tourism, etc.
Tibet Tourism, characteristic cultural products, salt-lake resources, health industries, etc.
Medical equipment, automobile manufacturing, integrated circuit, manufacturing of laptops and smart
Shaanxi
phones, vocational schools, etc.
Big data, new materials, biopharmaceuticals and Chinese and Tibetan medicine, advanced equipment
Gansu
manufacturing, energy conservation and environmental protection industries, etc.
Salt Lake chemical industry, non-ferrous metallurgy, light industry textile, drinking water, Chinese Tibetan
Qinghai
medicine processing, ethnic articles, tourism, etc.
New materials, intelligent manufacturing, biopharmaceuticals, energy conservation and environmental

Ningxia
protection industries, etc.
Tourism, energy chemical materials, Petroleum petrochemical and coal processing, New energy, new
Xinjiang
materials, advanced equipment manufacturing, biomedicine, health industries, etc.
Coal processing, non-ferrous metal production and processing, equipment manufacturing, lithium
Inner Mongolia
battery, permanent magnet material industries, etc.
Guangxi Sugar production, aluminum, information technology industries, etc.

The revision of the Western Region Encouraged Catalogue indicates four general directions for
the development of western regions, namely supporting the self-reliance of high-tech industries,
undertaking the industrial transfer from the eastern regions, developing local advanced industries,
and consolidating achievements in ecological environment protection and poverty alleviation.
The Go West campaign and Belt and Road Initiative

China’s ‘Go West’ strategy, which aims to narrow the economic gap between the less developed
west and affluent east coast, kicked off at the beginning of the millennium. Ever since, local
governments have initiated financial support, tax breaks, and other incentives to lure investment.
Entering its third decade, the ‘Go West’ campaign was reported having mixed results. The
economy of the western region improves, but still lags far behind the eastern provinces. Foreign
investment didn’t flood into the vast western China as Beijing wished.
Over the last two decades, the contribution to gross domestic product (GDP) from China’s 12
western provinces increased four percent to slightly above 20 percent. To compare, the east
coast’s contribution remains well above 50 percent, according to government data.
Foreign direct investment (FDI) inflow to the western regions accounts for no more than seven
percent of the total FDI inflow in China, while the FDI inflow of the eastern areas contribute
nearly 85 percent.
FDI Inflow to East, Central, and West Parts of China in 2019
Realized FDI Value

Region Number of FIEs Share (%) Share (%)
(US$100 million)
East 36613 89.5 1191.1 84.3
Central 2138 5.2 97.3 6.9
West 2137 5.2 92.9 6.6
Others 22 0.1 30.9 2.2
Note: Others involve banking, securities, and insurance industries FDI statistics.
Source: 2020 Statistical Bulletin of FDI in China, Ministry of Commerce of PRC

Disadvantages in geographic connectivity and resource limits have a role in undermining the
western region’s scope of development and scale of growth over the decades. Although local
governments attempted to improve the situation, irrational industrial arrangement, investment
promotion not linked to capacity, and homogeneity competitions between the western provinces
left local governments burdened with debt, low efficient use of industrial land, and pollution
problems.
The strategic importance of China’s western provinces has increased after the Belt and Road
Initiative was launched. Moreover, after the US-China trade war and geopolitical tensions
followed by the COVID-19 pandemic, China has looked more seriously at connecting its
western provinces with the Belt and Road Initiative (BRI) countries for cementing its position
in global supply chains.
In May 2020, the State Council published the Guiding Opinions on Promoting the Development
of the West in the New Era to Form a New Pattern, saying the development of the country’s
western regions aligns with China’s goals on building up the BRI, tackling income disparities,
forming a modernized industrial system, and protecting the nation’s ecosystem.
Beijing’s policy blueprint hopes to fit western regions into the BRI big picture – for example,
Xinjiang should form a traffic hub for China to connect BRI countries in the west; Inner Mongolia
should be involved in the construction of Mongolia-Russia Economic Corridor; Yunnan should
have more cooperation with the Lancang-Mekong region.
Some western regions are experiencing a marked rise in foreign trade. According to official
data, in 2020, coastal provinces Guangdong, Jiangsu, Shanghai, and Zhejiang remained the
strongest in foreign trade, accounting for about 60% of the country’s total import and export.
But the central and western regions of China also fared well, with import and export growing 11
percent, accounting for 17.5 percent of the country’s total – a 1.4 percentage points increase.
Some western provinces like Sichuan and Chongqing saw stable growth in exports – by more
than 10 percent. Guizhou and Yunnan’s exports even jumped by 30 percent in 2020 as ASEAN
replaced the US as China’s largest trading partner.

other provinces
Total Value of Import and Export in Chinese Provinces, 2020 (US$ Billion)
western provinces other provinces
Guangdong 1,062.67
Jiangsu 667.51
Shanghai 522.43
Zhejiang 507.12
Beijing 348.24
Shandong 330.14
Fujian 210.53
Sichuan 121.23
Tianjin 110.11
Henan 99.82
Liaoning 98.16
Chongqing 97.70
Anhui 81.10
Hunan 73.12
Guangxi 72.92
Hebei 66.16
Hubei 64.41
Jiangxi 60.15
Shaanxi 56.58
Yunnan 40.21
Heilongjiang 23.06
Shanxi 22.59
Xinjiang 22.26
Jilin 19.20
Inner Mongolia 15.65
Hainan 13.99
Guizhou 8.20
Gansu 5.59
Qinghai 3.42
Tibet 3.20
100 200 300 400 500 600 700 800 900 1000
Source: official data from different provincial governments.

China’s Western Regions: Export Markets, Value, and Belt & Road Trade Growth
Region Main export markets Export value (2019, US$) BRI trade growth (2018/19, %)
Chongqing EU, ASEAN 24.8 billion +32
Guizhou ASEAN 7.4 billion +15
Guangxi ASEAN 32.8 billion +17.3
Yunnan ASEAN 12.8 billion +15.2
Tibet Nepal, India 400 million –
Gansu ASEAN 2.2 billion +2.8
Qinghai Nepal 500 million –
Ningxia US, South Korea 2.7 billion +3.1
Shaanxi US, South Korea, Japan 31.6 billion +17.3
Sichuan US, EU, ASEAN, Japan 22.8 billion +24.4
Inner Mongolia Mongolia, Russia, South Korea 5.8 billion +14.6
Xinjiang Middle East, Central Asia 16.4 billion +18.1
Source: Xinhua
Western China: Population, International Borders, Export Bases

Population
Region International borders Primary export base
(millions)
Sichuan 110 None Chengdu, Chongqing
Guizhou 34 None Guiyang
Guangxi 48 Vietnam Nanning
Yunnan 46 Myanmar, Laos, Vietnam Kunming
Tibet 3 Nepal, India, Bhutan, Myanmar Lhasa
Gansu 26 Mongolia Lanzhou
Qinghai 5 None Xining
Ningxia 7 None Yinchuan
Shaanxi 37 None Xi’an
Inner Mongolia 25 Mongolia, Russia Baotou, Ordos
Kazakhstan, Afghanistan, Kyrgyzstan,

Xinjiang 25 Urumqi, Kashgar
Tajikistan, Mongolia, Russia, India, Pakistan

With the ongoing BRI development and the signing of the Regional Comprehensive Economic
Partnership (RCEP) Agreement between China, ASEAN, Japan, South Korea, Australia, and New
Zealand – China’s western regions aim to become more competitive with Vietnam and other
Southeast Asian countries and be an alternative investment destination for foreign investors.
So far, the region is improving its infrastructure, has lower labor costs, and is connected to
China’s supply chain networks.
The Regional Comprehensive Economic Partnership, 2021
SOUTH JAPAN
KOREA
CHINA
MYANMAR
(BURMA) LAOS
THAILAND
VIETNAM
CAMBODIA
PHILIPPINES
MALAYSIA
INDONESIA
AUSTRALIA
NEW
ZEALAND

E-Commerce Along The
5
An Introduction to China’s Cross-Border
E-Commerce Pilot Zones and Pilot Cities
Cross-border e-commerce (CBEC) – activities of purchasing or selling products via online
shopping across national borders – is gaining momentum in China.
To fuel this engine of China’s import and export growth, Premier Li Keqiang reiterated the
government’s support for accelerating the growth of CBEC and enhancing the country’s
international shipping capacity in the 2020 Government Work Report.
In fact, over the last several months, the government has been rolling out policies, including
adding new CBEC pilot zones and pilot cities for CBEC retail importation, extending the CBEC
retail import list, and lowering tax and tariffs, in a bid to boost CBEC:
• In May 2020, the State Council unveiled 46 new comprehensive pilot zones for CBEC,
bringing the total CBEC pilot zones in China to 105.
• In January 2020, five authorities, including the Ministry of Commerce (MOFCOM), jointly
released a notice to expand the pilot cities for CBEC retail importation, adding 50 cities and
the whole Hainan island (to the existing 36) into the pilot scheme of CBEC retail importation.
• In December 2019, 13 authorities extended the “List of Goods under Cross-border
E-commerce Retail Importation” to allow more foreign goods to be delivered to Chinese
consumers through CBEC retail importation program. The list, also dubbed ‘CBEC positive
list’, has taken effect this year.
This article aims to provide you a holistic look at China’s CBEC world. What is China’s CBEC
pilot zone program? What is the pilot program of CBEC retail importation? What is the difference
between China’s CBEC pilot zones and pilot cities? How do enterprises benefit from these
programs? What is the import duty and tax liability?
Urumqi, the capital of China’s Xinjiang Province and the wealthiest city in
Central Asia. Behind the mountains lies Kazakhstan.

Understanding China’s comprehensive pilot zones for cross-
border e-commerce
To date, the State Council has approved five batches of 105 comprehensive pilot zones for
cross-border e-commerce (CBEC pilot zones), covering almost all the provinces except for
Tibet. Most zones are located in coastal regions like Beijing (1), Shanghai (1), and the provinces
of Guangdong (13), Zhejiang (10), Jiangsu (10), Shandong (7), and Fujian (6).
The CBEC pilot zones are designed to boost China’s import and export businesses (especially
export). As China has been putting much effort into upgrading its manufacturing infrastructure,
it is seeking opportunities to export products with higher value and margins.
Policy makers think that the CBEC trade will help China diversify its trade links in the context
of the Belt and Road Initiative and reshape international trade patterns amid US-China trade
tensions.
In addition, the CBEC can also help foster new industrial chains like cross-border logistics, cross-
border financial payment, and supply-chain finance, adding impetus to China’s economic growth.
At the micro level, the CBEC pilot zones are also enabling entrepreneurship, connecting domestic
small- and medium-sized companies (SMEs) and local industries with the world.
Innovative management system, integrating services
The CBEC pilot zones have been pivoted as the ideal home for manufacturing companies,
e-commerce export enterprises, e-commerce platform companies, logistics enterprises, and
financial service firms.
For example, Hangzhou CBEC Pilot Zone, the first CBEC pilot zone in China, hosts established
import e-commerce platforms (like Tmall Global, NetEase Kaola, and JD Worldwide), export
e-commerce platforms (Jollychic and club factory), third-party payment platforms (Alipay),
logistics companies (EMS, SF Express), and other enterprises providing supporting services,
such as credit insurance, for CBEC businesses.
In a move to facilitate CBEC import and export, local CBEC pilot zones are exploring innovative
breakthroughs in the management of customs clearance, tax collection and management,
foreign exchange supervision, cross-border financial services, and logistics.
For instance, the Hangzhou CBEC Pilot Zone has taken the lead in innovating the management
mechanism. They call it “six systems and two platforms” – the “six systems” refer to the
information sharing system, financial service system, intelligent logistics system, e-commerce
credit system, statistics monitoring system, and risk prevention and control system; the “two
platforms” refer to the online integrated service platform and offline industrial park platform.

Integrated Trade Services in CBEC Pilot Zones
Consumer
Retailer Wholesaler
Buyer Supplier
Direct selling
Local warehouse
Import and export integrated services platform

of CBEC Pilot Zones
Customs Taxation Foreign Exchange Transportation Financing
Data
and credit
Source: Ali Research
The mechanism can achieve information sharing among customs, taxation, foreign exchange,
and other government departments, which largely shortens the period of goods export
declaration. Meanwhile, it builds up CBEC enterprises’ credit database and risk prevention and
control systems, and provides enterprises with more innovative services in financing, guarantee,
foreign exchange settlement and sale, and intelligent logistics.
Besides the innovative system and facilitating customs clearance procedures, the government
has also rolled out favorable tax policies for in-zone e-commerce export enterprises.
The following policies are applicable nationwide:
• CBEC retail export “duty-free” policy
According to the Notice on Tax Collection Policies for Retail of Exports in CBEC Pilot Zones
(Cai Shui [2018] No.103) released by the Ministry of Finance (MOF) and the State Taxation
Administration (STA) in 2018, in-zone e-commerce export enterprises that have not obtained
a valid proof of purchase (like input value-added tax invoice) are still allowed to be exempted
from value-added tax (VAT) and consumption tax (CT) when exporting goods if they meet
certain criteria.

• CIT verification and collection policy
According to the STA Announcement on Issues Concerning the Levy upon Assessment of
Income Tax on Retail Export Enterprises in CBEC Pilot Zones (STA Announcement [2019] No.36)
released in 2019 and taken effect January 1, 2020, for the in-zone e-commerce export enterprises
that meet certain criteria – corporate income tax (CIT) can be levied upon verification. CIT will
be assessed and levied with a taxable income rate of 4 percent, namely:
CIT payable = total revenue × 4% × 25%
Further, if the enterprise meets the conditions of preferential policies for a small low-profit
enterprise, the enterprise can enjoy the applicable preferential CIT policies for small low-profit
enterprises on top of the aforementioned treatments. If the income of an enterprise falls under
the scope of tax-free income as stipulated in Article 26 of the Corporate Income Tax Law of
China, the CIT on such income can be exempted.
China’s CBEC retail importation program and CBEC retail

import pilot cities
Different from general trade, China’s CBEC retail importation program is designed to make it
easier to import certain foreign goods for Chinese consumers’ personal use, in order to satisfy
the growing domestic demand.
Pilot cities which joined the CBEC retail importation program can conduct more convenient
import modes like “online shopping bonded import mode” (customs supervision mode 1210)
– whereby imported retail goods can be temporarily stored at the bonded warehouse before
being delivered to customers. As a prerequisite condition, these pilot cities usually own free
trade zones (FTZs), comprehensive bonded zones (zones), and act as logistics hubs with
trading partner countries.
In January 2020, China added 50 cities and the whole Hainan island into the pilot program
of CBEC retail importation. Now the country has a total of 86 CBEC pilot cities as well as
Hainan island.

86 Cities and Hainan Island that Joined the Pilot Scheme of CBEC Retail Importation
36 cities approved before 2020 50 cities and Hainan newly approved in January 2020

Pilot cities which joined the program of China’s CBEC retail importation usually overlap with
CBEC pilot zones geographically. But they are different.
For example, Hangzhou is the city where Hangzhou CBEC Pilot Zone was established. The
Hangzhou CBEC Pilot Zone has over ten offline industrial parks for interested companies to
settle in.
Meanwhile, Hangzhou is also a pilot city for CBEC retail importation. Imported retail goods can
be stored at the bonded warehouse established in Hangzhou, for example, in a warehouse in
Hangzhou Comprehensive Bonded Zones, and deliver to domestic customers after they place
orders through a third-party CBEC platform.
To be noted, under the CBEC retail importation program, the imported retail goods have to fall
under the “List of Goods under Cross-border E-commerce Retail Importation” (2019 version),
which is also dubbed a ‘CBEC positive list’, limited to personal use, and must satisfy the criteria
stipulated in the tax policies for CBEC retail importation.
In addition, goods need to be transacted through an e-commerce platform linked with the
Chinese Customs network – where the “three documentation” comparison of transaction,
payment, and logistics electronic information can be achieved.
In case the transaction does not happen through an e-commerce platform linked with the
Chinese Customs network, the inbound and outbound courier operator or postal enterprises will
undertake the corresponding legal liability – they will need to transmit the electronic information
of transaction, payment, and logistics to Customs, according to the Notice on Work Relating
to Improved Regulation of CBEC Retail Importation (Shang Cai Fa [2018] No.486).
How enterprises can benefit from the CBEC retail importation

program
First-time import registration waiver
CBEC retail imports are regulated as items imported for personal use and can’t be re-sold.
So, there are no requirements for license approval, registration, or record filing for first-time
importation. This indefinitely extends the waiver of the pre-importation registration requirements
on specified categories of products, including cosmetics, infant formula, health food, and medical
devices, which was originally set to expire on December 31, 2018, as long as the goods are
on the ‘CBEC positive list’.
Expanded positive list
As we mentioned above, retail imported goods have to be on the “List of Goods under Cross-
border E-commerce Retail Importation”. The 2019 version of this list, which has taken effect

since January 1, 2020, contains 92 new taxable items compared with the previous version,
including frozen aquatic products, alcohol, and consumer goods. The positive list is expected
to continue to expand as the government improves the CBEC regulatory system and domestic
consumer demand grows.
Import modes
The CBEC retail imports can be divided into two modes of operation:
• Bonded Warehouse Import (Customs Supervision Code 1210 and 1239)
Goods are purchased in advance and temporarily stored in a bonded warehouse in China. After
a consumer places an order, customs clearance and delivery will be carried out immediately
from the bonded warehouse. Then the products can be delivered to consumers by logistic
companies.
Currently, the bonded warehouse mode involves two customs supervision codes – 1210 and
1239. 1210 refers to “online shopping bonded import mode” and is only applicable in CBEC
retail importation pilot cities; 1239 refers to “online shopping bonded import A mode” and is
applicable in other cities not in the CBEC retail importation program.
• Direct Shipping Mode (Customs Supervision Code 9610)
In this scenario, consumers place an order through CBEC websites, then overseas suppliers
or sellers directly deliver the products to China by post or express, mainly by air. The product
will need to go through the customs clearance process to be released to the consumer.

Import Modes Under CBEC Retail Importation Program
Import mode Operation mode Regulatory policy Commodity scope Advantages and disadvantages
This mode, primarily applied to

Goods in the the small-scale B2C model, does
positive list which not require domestic inventory
Direct CBEC operator
are not labeled but is more complicated than
shipping mode ships the goods
as “only limited bonded importation because
(Customs directly from
to commodities of the delivery arrangements.
Supervision overseas to
• Supervised as products imported via CBEC Customer satisfaction also may
Code 9610) China
for personal use; under the bonded be impacted depending on the
• Licensing for first-time warehouse model”. efficiency of the international
imports is not needed; and transportation.
• No registration/record
Bonded imports, filing is needed.
Online
applied in
shopping
special customs
bonded
supervision
import mode
areas or bonded
(Customs
logistics centers
Supervision
inside the CBEC
Code 1210)
pilot cities.
Goods in the This mode entails a large
positive list inventory, but the goods are
• Licensing for first-time
delivered quicker.
imports is not needed;
• When products enter the
Online Bonded imports,
bonded area from abroad,
shopping applied in
they are supervised
bonded special customs
as goods for special
import supervision
purposes need registration/
A mode areas or bonded
record filing; and
(Customs logistics centers
• When products are
Supervision outside the
delivered from the bonded
Code 1239) CBEC pilot cities.
area to consumers,
they are supervised as
products for personal use.

Import duties and taxes
Under certain single and annual transaction limits, retail imported goods on the ‘CBEC positive
list’ are deemed as duty-free, and the import VAT and consumption tax (CT) are temporarily
levied based on 70 percent of the statutory tax payable.
Since January 1, 2019, the government has increased the duty-free quota on a single transaction
from RMB 2,000 (US$291.6) to RMB 5,000 (US$729) and the annual quota per person from
RMB 20,000 (US$2,916.2) to RMB 26,000 (US$3,791) for retail imports, according to the Notice
on Improving Tax Policies for Cross-border E-commerce Retail Importation (Cai Guan Shui
[2018] No.49). Over these limits, consumers will need to pay full general import taxes, including
tariff, VAT, and CT.
If the customs value of a single product exceeds the single transaction limit of RMB 5,000
(US$729) but less than the annual transaction threshold of RMB 26,000 (US$3,791), the item can
still be imported via the CBEC retail channel. However, tariff, import VAT, and CT will be levied
in full and the transaction amount must be included in the total annual transaction amount.
Individual customers are the import taxpayers. But the e-commerce service providers, or the
logistic companies as the case maybe, will act as the withholding agent and pay tax on behalf
of individual customers.
For goods mailed into the country by individuals, the electronic information of which can’t be
accessed by Customs – the parcel tax will be levied. Since April 2019, the parcel tax has been
reduced to 13 percent, 20 percent, or 50 percent, depending on the type of goods and can be
exempted if the tax is less than RMB 50 (US$7.07). For a single transaction exceeding a certain
limit – RMB 1,000 (US$141.3) for mailed item from abroad or RMB 800 (US$113) for items from
Hong Kong, Macao, or Taiwan, goods must be cleared and subject to general import taxes
(Tariff, VAT, and CT), or they will be returned.

Cross-Border E-Commerce Retail Importation Tax Rules
CBEC retail imports, the electronic information of which can be
Applicable scope
assessed by the customs
Tariff: zero rate for the moment;

Parcel tax at 13%, 20%, and 50%,
Applicable taxes and rates VAT and CT charged at 70% of the normal
depending on the types of goods
rates
RMB 1,000 for mailed items (RMB 800

Single RMB 5,000 for products delivered from HK, Macao,
Transaction limits and Taiwan)
Annual RMB 26,000 No limits
• General import taxes

Applicable taxes for (Tariff, VAT, and CT)
General import taxes (Tariff, VAT, and CT)
transactions over limits • Parcel tax still applies for single
inseparable items over limit
Exemptions No exemptions Where tax payable is below RMB 50
Conclusion
CBEC is becoming a more prominent channel for import and export in China. In the past six
years, the proportion of China’s CBEC exports in the country’s total foreign trade jumped from
2.2 percent to 11.25 percent.
This year, from January to February, China’s import and export volume of CBEC retail was RMB
17.4 billion (US$2.45 billion), up 36.7 percent year-on-year, despite the COVID-19 pandemic. In
2019, the number reached RMB 186.2 billion (US$26.25 billion), five times that of 2015, showing
an average annual growth rate of 49.5 percent, according to the official data.
The Chinese government is trying to promote CBEC business to stabilize and promote foreign
trade. It is expected that China will scale-up favorable policies to support the growth of CBEC
as well as roll-out further measures to regularize CBEC. Foreign investors who are looking to
tap into China’s CBEC market should stay abreast of the latest developments.

Profiting From The Belt
& Road Initiative
6
Profiting From The Belt & Road Initiative
With numerous projects now coming to conclusion, there are differing ways in which foreign
investors can exploit the Belt & Road build. This is especially true as now completed or nearing
completion, many projects can now offer a return on that capital investment. These can be
broken down into the following sections:
Exploiting The Infrastructure

I give a case study of this in the next few pages, citing the example of Colombo’s Port City in Sri
Lanka. Real estate values are going up and workers in the CPC will require all the differing types
of services human beings and their equipment need. There are literally thousands of examples
worldwide, interested parties may contact us with their sectoral industry scope, geographic
preference and ask for specific intelligence. We will be featuring a cross-section of these in our
upcoming report: Belt & Road Initiative Projects Foreign Investors Should Be Aware Of. Please
subscribe at www.silkroadbriefing.com to ensure you receive this, or contact us for specifics.
Selling Products & Services

As discussed from Page 63, it is increasingly easier to become involved in China procurement.
China needs the foreign expertise and in some cases technologies. Procurement lists are
regularly published in China containing details of tenders and the types of products and services
required. For assistance with this intelligence please contact us at silkroad@dezshira.com
Purchasing Equities
In the next article we explain how China is developing REITs - financial structures that will
package together primary infrastructure assets and then list these on the stock exchanges in
Shanghai and Shenzhen. Currently such shares are off-limits to foreign investors, but should
the initial batch prove domestically successful, then it can be expected that future listings will
be made available in Hong Kong, which is open to foreign investors.

This is also likely to be mirrored in other regional stock markets. Elsewhere within this chapter
we introduce markets in Central and South-East Asia as examples.

Exploiting The Belt & Road Initiative
Foreign involvement in Belt and Road projects has been limited, as much of the interest and
attention has been on participating in the multi-million-dollar infrastructure builds, and these
typically come with Chinese state financing, conditional that Chinese SOEs conduct the work.
Chinese BRI projects favor other State-Owned partners rather than public companies, both
for business cultural reasons and for keeping details out of public scrutiny; while the sheer
nature of Chinese financial competitiveness combined with sometimes superior technology
and construction expertise, also plays a part, especially on difficult terrain. China for example
built the rail to Lhasa, very few if any foreign contractors have that type of experience.
Accordingly, involvement in BRI projects tends to be limited to Chinese contractors and their
local partners where the project is situated. In fact, other foreign investors are missing a trick
here, as most of China’s BRI projects are now nearing completion with the infrastructure build
coming to fruition.
This creates new opportunities for foreign investors to look at the original purpose of building
the project in the first place and the increased commercial business flows this will generate.
For example, Sri Lanka’s Southern Expressway was Chinese built and financed (with a lot of
criticism about the US$740 million capital cost). However, that spurred a huge growth in the
regional tourism industry valued at US$1.5 billion per annum. The related Colombo Port City
development meanwhile will see Colombo city develop into a Southeast Asian office center for
back-office functions. All of these provide investment and service development opportunities
for foreign investors.
The message here is that the opportunities lie where the BRI infrastructure build has been
completed, there are asset enhancements and appreciations, and international investors can
provide the service elements to support the increased trade and human needs the physical
infrastructure provides. But very few businesses are looking at this, although our firm provides
the market intelligence for them to do so. The penny hasn’t yet dropped, yet there are ways
to examine the potential for involvement and exploiting the build.
The main issue is looking at the local financing and regulatory requirements along with local
banking issues. These can vary tremendously and especially along the BRI as by proxy most
of the countries involved are emerging economies. Investment laws and service facilities may
not be as advanced as in Europe or North America. China gets around this by having G2G
agreements that are typically worked out at the diplomatic level, foreign private investors may
not have this option. So, the first thing to look at are the local investment laws, and what banking
services are provided to foreign investors. This needs to be done on a country-by-country
basis as not all have the same legal, tax or operational infrastructure. Many do not possess
internationally or even commonly traded or exchangeable currencies. Often local laws permit
the investment of foreign currency but restrict its subsequent repatriation. Such local issues
need to be examined and solutions found, but these can be overcome with advance planning.

Exploiting The Belt & Road Initiative - A Case
Study
Colombo Port City Turns Into Belt & Road Initiative Cash Cow
For Investors
The Colombo Port City, Sri Lanka’s major China funded Belt & Road Initiative project, is turning
into a cash cow for the Sri Lankan government, its Chinese investors, and for savvy future
investors in the project. While the project captured criticism over the terms of the deal, the
financial and development impact of the project has been grossly undervalued.
Six years in the making, the land re-development, which has been taking place on previously
underutilized land near the Colombo Fort area, has been busy with dredging and reclamation.
It includes an artificial island, a marina, deep water port and integrates commercial, residential,
leisure, and entertainment functions. Intended to become Colombo’s Central Business District,
the City has its eyes on attracting some HQ and back office functions away from nearby
Singapore. Now the reclamation is complete, the CPC is now offering land to investors.
Delivered Under Budget & On Time
With an initial price tag of US$1.5 billion for the reclamation alone, the project has been Sri
Lanka’s largest ever foreign direct investment. The Chinese State Owned Enterprise’s China
Harbour Engineering (CHEC), China Communication Construction and the Sri Lanka Port
Authority have been the major players, with the Chinese stumping up the finance. However, in
a rebuttal to the usual accusations of debt traps, the project came in at US$800 million and

ahead of schedule. The total amount of land reclaimed amounts to 269 hectares – just over a
square mile. Breakwater construction has also been completed and independently verified by
Dutch experts as being ‘flawless’. This means that phase two – the actual construction build –
can now take place. This is where the real foreign investor opportunities lie.
Colombo Port City Real Estate
The CPC itself is zoned, with construction having re-commenced in June, and workers adhering
to strict coronavirus rules. This first phase of CPC infrastructure construction – including drainage,
bridges, canal works, a park, marina and public access beach are scheduled to continue until
August next year. Also underway is the Phase 1 vertical development, which includes three
towers for office use, two residential blocks, and a commercial shopping mall. These are to
be completed by 2024 and will take up 6.8 hectares of the total. Phase 2, which also starts
now includes a Special Economic Zone with factory and office facilities in conjunction with
services such as customs, bonded zones and so on. The SEZ is expected to be completed
by the end of 2021 and goes hand in hand with a highway link to the existing ring road to the
main Colombo international airport.
Colombo Port City Investors
The China Harbour Engineering Company (CHEC) have been marketing the Colombo Port City,
mainly to investors in Asia, and has been targeting 300,000 HNW individuals for investments
into the real estate construction. According to Henry Tillman of China Investment Research
some 200 investment MoU have already been signed off with interested parties in Singapore,
India, Sri Lanka, Pakistan and Bangladesh. However, due to Covid-19, planned investment
roadshows, first in Asia and later to the global investment community have been pushed back
until June 2021.
Colombo Port City Valuations
According to the Grisons Peak Investment Bank, the land valuation of the initial investment
made by CHEC on the land reclamation amounted to Sri Lankan Rupees (LKR) 5.6 million
per perch (91 hectares). However, since 2014 real estate values in Sri Lanka have boomed,
partially as a result of the Chinese built Southern Expressway that links Colombo to the southern
beach resorts of Galle and the coast. (Our take on the related Hambantota Port issues can
be viewed here) That route has helped develop a multi-billion dollar tourism industry (under
normal conditions) along China’s south and east coasts, while the Hambantota airport will
eventually be the south-eastern terminal of choice for travelers accessing Sri Lanka’s famed
east coast beaches from Asia.

Chandaka De Soysa, of Colombo’s Acquest real estate brokers states that the valuation of
adjacent land in the Colombo Fort area is reaching LKR20 million a perch – a 258% increase.
PwC’s research in February this year (download here) has taken a set of calculations based
upon a midpoint of two valuations of LKR5.6 million and LKR20 million a perch, giving a
midpoint of LKR13 million a perch. That’s a 132% increase. At this level – which now appears
understated – the Colombo Port City would generate US$3.4 billion from land sales, while the
Sri Lankan Government would pocket US$1.8 billion. Foreign investors are additionally expected
to purchase 70% of marketed plots at a value of about US$3.6 billion.
Looking ahead, valuations could also be reasonably expected to increase during the
infrastructure and operational stages. Sri Lankan inbound FDI to complete the projects should
amount to US$5.6 billion with US$740 million annual income during the operational stage.
It would be worth tracking valuations to late 2023 when much of the development build is
scheduled to be completed or nearing completion.
Outside The Colombo Port City
There are real estate and development opportunities just outside the CPC as well. The main
area is Colombo One, also known as Colombo Fort, which has rail connections through to Sri
Lanka’s second and third largest cities of Kandy and Galle. The Colombo Ring Road is shortly
due to be completed, and is accessed from this area, while the Central Expressway to Kandy
should be finished mid next year.
It should also be noted that zoning regulations are easier outside the CPC itself, and available
plots smaller. Within 0.5km of CPC, the Colombo Fort area as mentioned is already achieving list
prices of between LKR15-20 million. According to Sanjeev Nair of JLL Colombo, slightly further
out, between 0.5 and 1 km of the CPC, commercial land is now achieving LKR12-20 million
a perch, depending upon the zonal type and local infrastructure, and has risen considerably
the past five years. Prices have flattened out somewhat during 2020 however most of this is
attributable to Covid-19 project slowdowns and temporary trade reductions. Prices are expected
to rise again from 2021.
The new financial data coming out of the Colombo Port City project appear to vindicate both
the Chinese investors and the modus operandi of the Belt & Road Initiative. While early media
attention concentrated on the huge amounts of money being spent and loaned, or on land
given away, the CPC project has shown the Sri Lankan to have been further-sighted than they
had been credited for. A bunch of underwater sand, dredged up from the Palk Strait now has a
value of US$1.8 billion for the Sri Lankans. Add to that taxes and other soft levies that Sri Lanka
will be able to levy on businesses and trade operating from the CPC – an annual, sustainable
fiscal income, and it is quite apparent that the CPC will develop into a profitable exercise for
Colombo and the country as a whole. It also provides a nearby solution to the expenses of
operating in Singapore, and may attract back office functions from Singapore to Sri Lanka. This

is especially pertinent for businesses operating between India and ASEAN – Sri Lanka being
less expensive but close to hand.
It also ushers in a new realization and understanding of where the BRI is now headed – it is the
soft construction and development of sellable assets and services that now dictate the Phase
Two of the Belt & Road Initiative push. The infrastructure is nearing completion on nearly all of
the major 2,500 BRI projects that China has financed and helped build. Now the Golden Apple of
wealth creation via asset appreciation, increasing trade flows and services are beginning to kick
in. Now, more than ever, is the time for foreign investors to look at where the new opportunities
lie in the wake of the Belt & Road infrastructure investment reaching its construction phase
completion and study where attractive returns on this investment can be found.

China To Use REITS To Cash Out Belt & Road
Initiative Infrastructure
• Assets to be listed and sold as tradeable equities

• Funds to be reinvested in digital economy and trade
• Specific regions of China to be prioritized
• Expected to become a US$300-750 billion market within a decade
The problem of infrastructure building is that it is a huge cost on national budgets. China has
spent some US$4 trillion for example along the Belt & Road Initiative, with many questioning
how this money can ever rematerialize and much talk of ‘white elephants’. REITS are a Chinese
innovation based on studying Hong Kong’s capitalist system and then repurposing this for its
own ‘Capitalism with Chinese Characteristics’ models.
Real Estate Infrastructure Investment Trusts (REITs) are financial structures developed by Hong
Kong and mainland China investors and are about to formally enter a pilot phase in China.
REITs may become a US$300 billion-US$735 billion market within a decade, driven by “new
infrastructure” and e-commerce assets.
In April 2020, the China Securities Regulatory Commission (CSRC) and the National Development
and Reform Commission (NDRC) jointly issued “Circular 40”- the Notice Concerning Work to
Advance Infrastructure Real Estate Investment Trust Trials. This aims to “make full use of the
capital markets to actively support the REIT trials for high-quality infrastructure in key areas
and industries in accordance with the market principles and the rule of law” and clarifies the
position concerning the development of REITs as follows:
“Infrastructure REITs are internationally accepted allocation assets. They have the characteristics
of high liquidity, relatively stable returns, and strong security. They can effectively revitalize

existing assets, fill the gaps in current financial products, broaden social capital investment
channels, and increase the proportion of direct financing. Enhance the quality and efficiency of
capital market services for the real economy. In the short term, it is conducive to extensively
raising project capital and reducing debt risks. It is an effective policy tool to stabilize investment
and make up for shortcomings; in the long term, it is conducive to improving the savings
conversion investment mechanism, reducing the leverage of the real economy, and promoting
the marketization and standardization of infrastructure investment and financing healthy growth.”
Infrastructure REITs aim to finance China’s next phase of development through digital
infrastructures, including 5G, data centers, logistics centers for E-commerce, and cross-border
digital trade warehouses, etc. Contrary to the Western REITs experience, China’s main goal is
to support China’s digital infrastructure building. The plan specifically excluded residential and
commercial real estate properties from the REITs. meaning China’s REITs are not designed to
finance real estate developments and properties.
China needs innovative and structured financial instruments to share market-based risks and
returns between the public and private investors, while the pilot REITs aim to control leverage
in the infrastructure sector, creating space for new projects and growth. This will free up capital
investment from existing infrastructures for greater expansion opportunities.
Between 1995 and 2019, China invested nearly RMB 150 trillion (US$23.1 trillion) in infrastructure
development. So far, China’s infrastructure development projects have been mostly SOE-led
and heavily debt-leveraged. Infrastructure REITs can now unleash existing assets locked in
the existing infrastructure projects and divert the funds for greater infrastructure expansion.
REITs are also appearing in local China Government Five-Year Plans. Shanghai for example
aims to be the primary listing and trading center for future infrastructure REITs according to
its regional 14th Five-Year Plan. Other provinces, including Jiangsu, Guizhou, Jiangxi, Gansu,
and Chongqing, have also highlighted in their Five-Year Plans to actively pursue REIT trials to
promote investment, financial reforms, and innovation. The CSRC notice also identified that
“priority REIT support will be given to key areas such as the Beijing-Tianjin-Hebei Region, the
Yangtze River Economic Belt, Xiong’an New Area, The Greater Bay Area, Hainan, and the Yangtze
River Delta, and support pilot projects in state-level new areas and state-level economic and
technological development zones.”
REITs are designed to be publicly traded, listed on China’s stock exchanges with the CSRC
specifically mentioning Shanghai and Shenzhen. Hong Kong will also be wanting to position
itself as a REIT trading centre, and it can be expected that over time, China REITs may become
available as an investment vehicle for foreign investors - another way to profit from the BRI
infrastructure build. From there, it can also be expected that REITs would be developed along
other Belt & Road Initiative countries - a useful way to invest Government capital and ultimately
show a return on investment by listing on respective BRI stock markets. This will be of relevance
to Central Asian and South-East Asian bourses where money tied up in expensive infrastructure
and redevelopment projects can later be released.

Investing In China’s Belt & Road Initiative:
As we saw in the previous article, China’s upcoming use of REITs is likely to be taken up by
other national governments where there is a need for expensive infrastructure build to be
recycled and re-purposed. The regional stock exchanges are a good way to get into this asset
realization. In this section we feature two geographic areas of with specific proximity to China’s
Belt & Road Initiative: Central, and South East Asia.
Investing In Emerging Belt & Road Initiative Stock Markets

In Central Asia
With China’s Belt & Road Initiative gaining much attention due to the vast financial spend across
regions, it makes sense to start to examine how that expenditure will impact on listed companies,
some of them direct participants, on stock exchanges throughout the Belt & Road Initiative.
Projections of how much China has actually invested differ. Morgan Stanley have estimated that
the total spend by 2027 will reach US$1.2 trillion, while Moodys Analytics put the total spend at
US$614 billion at the end of 2018. To put this into context, the United States has stated it will
spend US$2 trillion on supporting the American economy due to Covid-19 and a further US$3
trillion on green economy and infrastructure - perhaps an indicator of how US policy is now
looking at outspending to compete with China in this area after decades of infrastructure neglect.
Whatever the figures, the results should be the same: Infrastructure investment into BRI countries
could be reasonably expected to show up later as improvements in the performances of certain
local businesses in industries impacted by such projects. Obvious candidates as improved
infrastructure enhances trade are banks, rail, road, air and port operators, certain retail outlets and
logistics companies, and especially those which have some element of Government ownership.
In this section, we will examine the various regional exchanges, identify some of the key players
and look at the possibility for foreign investors to get involved.
In terms of regulatory and professional oversight, several of the exchanges have partnered with
or have as significant shareholders other experienced exchanges. This is especially notable in
Mongolia and Uzbekistan, where the London and Korean Stock Exchanges have taken respective
equity as a result of anticipated future national economic booms due to perceived mining potential
and political reforms. Also of note are the regulatory bodies such as the Federation of Euro-
Asian Stock Exchanges which promotes the cooperation, development, support and promotion
of capital markets in the Eurasian region, and is based in Yerevan, Armenia. Then there is the
World Federation of Exchanges, representing over 250 market infrastructure providers, including
standalone Central Counterparty Clearing Houses (CCP) that are not part of exchange groups.
Its market operators are responsible for operating the key components of the financial world. It
is based in London.
Central Asia
Kazakhstan
Kazakhstan is a major transit route from China through to Central Asia and on towards the
Caucasus and Europe. Major rail, road and air corridors as well as inland Ports such as Khorgos
have positioned the country as a transshipment route for a large part of the Belt & Road Initiative.
• The main Kazakh exchange is KASE

• Founded: 1993
• Website: https://kase.kz/en/
• Market Capitalization: US$42.5 billion
• Number of Listings: 127
• Permitted Currencies: Kazakhstan Tenge, US$, Euro, Ruble, Chinese Yuan.
• Statistical Data
• CEIC: https://www.ceicdata.com/en/indicator/kazakhstan/market-capitalization–nominal-gdp
• Trading Economics: https://tradingeconomics.com/kazakhstan/stock-market
• Foreign Participation: Foreign nationals may establish local brokerage accounts however
need to present themselves in person to do so and undergo KYC checks.
• Management: Golden share held by Kazakhstan Central Bank. Is a member of the World
Federation of Exchanges.
• Useful Links: https://www.investmentfrontier.com/2015/10/12/how-to-invest-in-kazakhstan/
• What We Say: https://www.silkroadbriefing.com/news/2018/07/05/aqtau-port-kazakhstans-
caspian-sea-belt-road-window-europe/
Kyrgyzstan
The Kyrgyz Republic is landlocked but an important transit hub in Central Asia – both towards
north-east from Kazakhstan to Russia towards Tajikistan and Afghanistan, as well as towards
the southeast, connecting Central Asia with China.
The main Kyrgyz exchange is the KSE.

Founded: 1994
Website: http://www.kse.kg/
Market Capitalization: US$38 billion
Number of Listings: 27
Permitted Currencies: Kyrgyzstan Som, US$.
Statistical Data
CEIC: https://www.ceicdata.com/en/kyrgyzstan/kyrgyz-stock-exchange-market-capitalization/
market-capitalization-kyrgyz-stock-exchange
Trading Economics: https://tradingeconomics.com/kyrgyzstan/stock-market-turnover-ratio-
percent-wb-data.html
Foreign Participation: Permitted via local brokerages. See: https://comparebrokers.co/compare/
kyrgyzstan-brokers/

• Management: The Kazakhstan Stock Exchange is a shareholder, while the KSE is a member
of the Federation of Euro-Asian Stock Exchanges.
• Useful Links: http://www.kse.kg/en/History
• What We Say: https://www.silkroadbriefing.com/news/2020/02/28/kyrgyzstan-cancels-china-
logistics-super-hub-investment-al-bashy-protests/
Mongolia
Mongolia is sited between Russia and China and also borders Kazakhstan. It is a major transit
route between China and Russia and lies on the Mongolian section of the main Trans-Eurasian
Land Bridge.
• Website: http://mse.mn/en
• Founded: 1991
• Market Capitalization: US$3 billion
• Permitted Currencies: Mongolian Togrog.
• CEIC: https://www.ceicdata.com/en/mongolia/mongolian-stock-exchange-market-capitalization/
market-capitalization-mse
• Trading Economics: https://tradingeconomics.com/mongolia/stock-market
• Foreign Participation: Yes, through local brokerages
• Management: In partnership with the London Stock Exchange. Is a member of the Federation
of Euro-Asian Stock Exchanges.
• Useful Links: https://en.wikipedia.org/wiki/Mongolian_Stock_Exchange
• What We Say: https://www.silkroadbriefing.com/news/2019/09/10/mongolia-china-russia-
trade-trends-point/
Tajikistan
Tajikistan is another landlocked Central Asia country, albeit with minimal experience in handling
a domestic stock market. The Tajik stock exchange is known as the Central Asian Stock
Exchange (CASE)
• Website: https://www.case.com.tj/en/
• Founded: 2015
• Market Capitalization:
• Permitted Currencies: Tajik Somoni.
• Trading Economics: https://tradingeconomics.com/tajikistan/currency
• Foreign Participation: Joint ownership with Tajik nationals or companies only.
• Management: In partnership with the Uzbekistan Stock Exchange.

• Useful Links: https://www.ebrd.com/downloads/legal/securities/tajsec.pdf
• What We Say: https://www.silkroadbriefing.com/news/2019/06/27/china-invests-tajikistan-
silver-deposits-roads-aluminum/
Turkmenistan
Turkmenistan occupies a strategic position between East and West and an outlet to the
Caspian Sea, however remains somewhat closed. The country possesses the world’s fourth
largest gas reserves. An attempt to open a stock exchange in the capital, Ashgabat was made
in 2016/17, however contacts and websites seem to be inoperable. What is operational is the
State Commodity & Raw Materials Exchange of Turkmenistan. The exchange acts mainly as
an auction house for exported products.
• Website: https://www.exchange.gov.tm/?lang=en
• Founded: 1994
• Market Capitalization: n/a
• Number of Listings: n/a
• Permitted Currencies: Turkmen Manat, Rubles, US$.
• CEIC: https://www.ceicdata.com/en/country/turkmenistan
• Trading Economics: https://tradingeconomics.com/turkmenistan/indicators
• Foreign Participation: Attempts have been made to seek investment in London. Is a member
of the Federation of Euro-Asian Stock Exchanges.
• Management: Government owned
• Useful Links: https://www.mintradefer.gov.tm/index.php/en/novosti-3/exchange-news/386-the-
state-commodity-and-raw-materials-exchange-of-turkmenistan
https://www.oilgas.gov.tm/en/blog/3023/the-introduction-of-digital-technologies-will-increase-
the-volume-of-exports-on-the-state-commodity-and-raw-materials-exchange-of-turkmenistan-
scrmet
• What We Say: https://www.silkroadbriefing.com/news/2020/03/31/azerbaijan-turkmenistan-
seek-develop-trade-ties-transport-corridors/
Uzbekistan
Uzbekistan has been the subject of reform and opening up and is developing as a Central Asia
investment hub. It is a key regional player on the Belt & Road Initiative and is experiencing an
influx of new foreign investment due to recent Government relaxing of regulatory and capital
protocols. The Uzbek stock exchange is known as the Toshkent, or Republican Stock Exchange
(RSE).
• Website: https://www.uzse.uz/?locale=en
• Founded: 1994
• Market Capitalization: US$7.3 billion

• Permitted Currencies: Uzbeki So’m.
• CEIC: https://www.ceicdata.com/en/uzbekistan/republican-stock-exchange-tashkent-rse-index
• Trading Economics: https://tradingeconomics.com/uzbekistan/market-capitalization-of-listed-
companies-us-dollar-wb-data.html
• Foreign Participation: Permitted via local licenced brokers.
• Management: In partnership with the Korea Stock Exchange, is a member of the Federation
of Euro-Asian Stock Exchanges.
• Useful Links: https://en.wikipedia.org/wiki/Tashkent_Stock_Exchange
• What We Say: https://www.silkroadbriefing.com/news/2020/02/04/uzbekistan-opens-banking-
financial-services-foreign-investors/
For foreign participants it is important to be aware that the key to investing isn’t to look at
fundamentals and previous performance, the key to investing is working out as best you can
what is likely to happen in the future. Examining shareholder meeting discussions and looking at
obvious market progression, both domestic and regional and the probability of this happening,
is a research issue. Please contact us for assistance.
Singapore’s Financial & Central Business District

Investing In Emerging Belt & Road Initiative
Stock Markets: South-East Asia
With China’s Belt & Road Initiative gaining much attention due to the vast financial spend across
regions, it makes sense to start to examine how that expenditure will impact on listed companies,
some of them direct participants, on stock exchanges throughout the Belt & Road Initiative.
In terms of regulatory and professional oversight, the emerging South-East Asian countries
have some way to go, although these countries are part of ASEAN and can take advice and
regulatory standards from countries such as Singapore and the ASEAN secretariat.
However where to list provides a conundrum; whether to go through all the regulatory and
compliance mechanisms to list locally, and attract local investment capital, or to do exactly
the same and list on the Singapore bourse and its access to international finance. There are
reasons to do both; one to raise local capital for local expansion, the other to prepare later for
a Singapore listing. In essence, this indicates that local stocks may be a precursor to larger,
pan-Asia and global roll outs. All developing businesses have to start somewhere, and having
local Governmental approval is always a political strength that can be used when assessing
wider market development.
Several of the South-East Asian bourses are members of the ASEAN Exchanges; a collaboration
of various exchanges from Indonesia, Malaysia, Philippines, Singapore, Thailand and Vietnam.
This entity exists to promote the growth of the ASEAN capital market by bringing more ASEAN
investment opportunities to more investors.
The collaboration is working with partners to build greater liquidity amongst members by:
• Streamlining access to and within ASEAN

• Driving cross border harmonisation
• Creating ASEAN centric products and implementing targeted promotional initiatives
• Improving efficiency among member exchanges.
Some have also partnered with the World Federation of Exchanges, representing over 250
market infrastructure providers, including standalone CCPs that are not part of exchange groups.

Cambodia
Cambodia is becoming increasingly well connected to China, as it possesses an important

Port at Sihanoukville opening out onto the Gulf of Thailand, thus providing maritime access to
South East Asia and India, a facility that China itself doesn’t have.
• The main exchange is the CSX

• Founded: 2010
• Website: http://csx.com.kh/
• Market Capitalization: US$800 million
• Permitted Currencies: Cambodia Riel
• CEIC: https://www.ceicdata.com/en/indicator/cambodia/foreign-direct-investment
• Trading Economics: https://tradingeconomics.com/cambodia/indicators
• Foreign Participation: Permitted via local brokerages.
• Management: Owned by the Cambodian Ministry of Finance (55%) and the Stock Exchange
of Korea (45%).
• Useful Links: https://www.euromoney.com/article/b1jwxwzp1mc3zl/cambodia-the-stock-
exchange-takes-baby-steps
• What We Say: https://www.aseanbriefing.com/news/cambodia-eaeu-fta-negotiation/
Indonesia
Indonesia is a rapidly growing Asian economy and is developing simultaneously as a competitive

manufacturing base and a significant consumer market.
• The main exchange is the IDX.

• Founded: 2007 (After merger of the Jakarta and Surabaya Exchanges. The Jakarta stock
exchange dated back to 1912).
• Website: https://www.idx.co.id/
• Permitted Currencies: Indonesian Rupiah
• CEIC: https://www.ceicdata.com/en/indonesia/indonesia-stock-exchange-idx-market-
capitalization
• Trading Economics: https://tradingeconomics.com/indonesia/stock-market
• Foreign Participation: Yes, ID registration required. Over 50% of IDX stocks are foreign owned.
• Management: Is a member of the World Federation of Stock Exchanges.
• Useful Links: https://www.indonesia-investments.com/finance/stocks-bonds/buy-stocks-and-
bonds/item383
• What We Say: https://www.aseanbriefing.com/news/indonesias-textile-garment-industry-
opportunities-foreign-investors/

Laos
Laos is a mountainous, landlocked country sharing borders with China, Thailand and Vietnam,
its main trade partners.
• The main exchange is the LSX

• Founded: 2011
• Website: http://www.lsx.com.la/
• Permitted Currencies: Lao Kip
• CEIC: https://www.ceicdata.com/en/laos/lao-securities-exchange-lsx-index
• Trading Economics: https://tradingeconomics.com/laos/stock-market
• Management: Laos Ministry of Finance. The Korean Stock Exchange is a 49% shareholder
• Useful Links: https://www.businesstimes.com.sg/opinion/lao-bourse-needs-more-transparency-
openness
• What We Say: https://www.aseanbriefing.com/news/laos-increases-minimum-monthly-wage-
third-time-eight-years/
Malaysia
Malaysia is one of the Asian tigers, with a sound manufacturing base and significant consumer
market.
• The main exchange is the Bursa Malaysia.

• Founded: 2004. (Previously known as the Kuala Lumpur stock exchange, dating back to 1930)
• Website: https://www.bursamalaysia.com/
• Permitted Currencies: Malay Ringgit
• CEIC: https://www.ceicdata.com/en/malaysia/bursa-malaysia-market-capitalization/bursa-
malaysia-market-capitalization
• Trading Economics: https://tradingeconomics.com/malaysia/stock-market
• Management: Has a working relationship with the Chicago Mercantile Exchange and the
ASEAN Exchanges.
• Useful Links: https://kclau.com/investment/how-to-trade-stock-at-bursa-malaysia-investing-
basic/
• What We Say: https://www.aseanbriefing.com/news/malaysias-2020-budget-courts-investment-
from-mncs-china/

Myanmar
Myanmar is very much an emerging market. It is strategically positioned but remains somewhat
backward in human capital. Nonetheless, foreign investment is flowing in and infrastructure
standards beginning to improve, although internal security problems still remain.
• The main bourse is the Yangon Stock Exchange

• Founded: 2015
• Website: https://ysx-mm.com/
• Permitted Currencies: Myanmar Kyat
• CEIC: https://www.ceicdata.com/en/country/myanmar
• Trading Economics: https://tradingeconomics.com/myanmar/currency
• Management: Joint venture between Myanmar Economic Bank and Japan’s Stock Exchange
and Daiwa Securities.
• Useful Links: https://asia.nikkei.com/Business/Markets/Myanmar-s-stock-market-cracks-open-
door-to-foreigners
• What We Say: https://www.aseanbriefing.com/news/emerging-opportunities-in-
myanmars-construction-sector/
Philippines
The Philippines is an Asian tiger, with rapidly developing light manufacturing and services
sectors, and a growing consumer base.
• The main exchange is the PSE.

• Founded: 1992 (Formed from the merger of the Manila Stock Exchange and the Makati
Stock Exchange, which had been operational since 1927).
• Website: https://www.pse.com.ph/stockMarket/home.html
• Permitted Currencies: Philippines Peso
• CEIC: https://www.ceicdata.com/en/philippines/philippines-stock-exchange-index
• Trading Economics: https://tradingeconomics.com/philippines/stock-market
• Management: Uses technologies sourced from NASDAQ. Is a member of the ASEAN
Exchanges and the World Federation of Stock Exchanges.
• Useful Links: https://www.monexsecurities.com.au/page/investing-in-philippines-stock-market/
• What We Say: https://www.aseanbriefing.com/news/philippines-foreign-investment-act-
amendments-may-attract-fdi-smes/

Singapore
Singapore is the de facto financial centre of ASEAN with numerous Asian and Chinese
companies listed on the bourse.
• The main exchange is the SGX.

• Founded: 1984
• Website: www.sgx.com
• Permitted Currencies: Singapore Dollar, US Dollar
• Trading Economics: https://tradingeconomics.com/singapore/stock-market
• Management: Is a member of the ASEAN Exchanges, World Federation of Stock Exchanges
and the Asian and Oceanian Stock Exchanges Federation
• Useful Links: https://asia.nikkei.com/Companies/Singapore-Exchange-Ltd
• What We Say: https://www.aseanbriefing.com/news/planning-your-2021-investment-budgets-
singapore-as-a-key-trading-hub-in-asean/ ht
Thailand
Thailand is an Asian Tiger and a significant manufacturing hub and consumer market, with a
buoyant tourism industry.
• The main exchange is the SET.

• Founded: 1975
• Website: https://www.set.or.th/set/mainpage.do?language=en&country=US
• Permitted Currencies: Thai Baht
• CEIC: https://www.ceicdata.com/en/thailand/the-stock-exchange-of-thailand-index
• Trading Economics: https://tradingeconomics.com/thailand/stock-market
• Management: Is a member of the ASEAN Exchanges and World Federation of Stock
Exchanges.
• Useful Links: https://www.investasian.com/2017/10/01/buy-trade-stocks-in-thailand/
• What We Say: https://www.aseanbriefing.com/news/thailand-issues-new-incentives-eec/

Vietnam
Vietnam is an Asian tiger economy and has been attracting a lot of foreign investment previously
in China due to its competitive manufacturing costs and increasingly viable infrastructure. It is
also an emerging consumer market.
There are two main exchanges, being the Hanoi Stock Exchange (HNX) and the Ho Chi Minh
Stock Exchange, or HOSE. From 2020, HOSE will become the main Vietnamese stock exchange,
while the HNX will issue Bonds.
• Founded: HNX: 1995; HOSE: 2000

• Websites: HNX: https://www.hnx.vn/vi-vn/ HOSE: https://www.hsx.vn/
• Market Capitalization: HOSE: US$128 billion
• Number of Listings: HOSE: 386
• Permitted Currencies: Vietnamese Dong
• CEIC: https://www.ceicdata.com/en/indicator/vietnam/equity-market-index
• Trading Economics: https://tradingeconomics.com/vietnam/stock-market
• Management: Both are members of the ASEAN Exchanges and the World Federation of
Stock Exchanges.
• Useful Links: https://e.vnexpress.net/news/business/economy/why-foreign-investors-are-
dumping-vietnamese-stock-4074063.html
• What We Say: www.vietnam-briefing.com
The stock exchanges listed above are all emerging markets in ASEAN. Readers may also refer
to and subscribe to our related ASEAN Briefing at www.aseanbriefing.com as a source of
ASEAN business and investment intelligence. For obvious reasons we recommend caution
when investing in stocks and shares in these emerging markets. We make no recommendations,
risks are those of the reader alone.

Executive Summary
By Chris Devonshire-Ellis, Dezan Shira & Associates
Direct Involvement : Belt & Road Projects

Direct involvement in the BRI tends to be via G2G agreements, with Government officials
negotiating agreements in tandem with respective banks, financial institutions, and contractors,
and agreeing the terms of the project. These structures involve officials, politicians, and business
leaders and can at times be weakened by the involvement of elected, but inexperienced
personnel. We have discussed the pitfalls of these circumstances within these pages and how
to mitigate against them. Ideally, a sound knowledge of, and China business experience needs
to be injected into the negotiating structure. Failure not to can have career damaging and lead
to serious financial issues. At least one BRI G2G contract I have been asked to examine did
not adequately determine the Chinese RMB Yuan exchange rate, meaning when it fluctuated
the cost in local currency value significantly increased. That caused embarrassment, project
suspension and renegotiation - an expensive and time-consuming process. It also destroyed
some political careers. Our message here is to bring in expertise that can at least dot the i’s
and cross the t’s. Small mistakes on big ticket projects can be very expensive.
Direct Involvement : Belt & Road Procurement

China’s revision of its Foreign Investment Law in early 2020 opened the China market for
procurement to foreign investors. The type of product or service being tendered for impacts
upon the relevant qualifications being sought; often this information needs to be provided in
Chinese and especially when the procurement process is in China. The Chinese Government
is aware of the shortcomings of some of its own companies in certain areas and therefore,
to save the possible diplomatic, political, and financial implications of any failed structures is
now far more amenable to access from foreign expertise and open to acquiring international
expertise. As the BRI covers some 147 countries, the demand for this is significant, yet is not
duly recognized as a viable source of opportunity. Regular assessments of what projects are
being developed and what materials and skill sets are required is an area where procurement
can be looked at as an opportunity throughout the BRI. Access to that intelligence is the key.
Indirect Involvement: Exploit The Infrastructure

We have also looked at how, post-completion, opportunities exist to exploit the build. This
ranges from property development, to the provision of auxiliary infrastructure, to all the services
a human working and living population require. Much of the BRI infrastructure has to do with
the movement of people and goods, and the investment opportunities in this lie across all
industry sectors from tourism to supermarkets to IT - anything that people need to go about
their daily business where BRI projects increase people flow.
There are openings here for investors who have experience in developing new sites and
acquiring buildings, building commercial hubs and all the component parts that people need.
Keeping abreast of where suitable, defined investments are coming to fruition can lead to some
relatively easy pickings as the initial investment value increases as usage develops.
The Belt & Road Initiative therefore represents a huge opportunity for foreign investors to get
involved.

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From Dezan Shira & Associates
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CHINA’S BELT & ROAD INITIATIVE:
BUSINESS INTELLIGENCE REPORTS
Our wide regional knowledge and editorial research, combined with Dezan Shira
& Associates professional expertise, are available for the production of bespoke
business reports and market intelligence services. We regularly produce reports
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Please contact us at silkroad@dezshira.com to discuss your requirements.

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IDENTIFYING OPPORTUNITIES WITHIN THE BELT AND ROAD INITIATIVE 3

Dezan Shira & Associates Offices INDONESIA

Dezan Shira Asian Alliance Members

About Dezan Shira & Associates

IDENTIFYING OPPORTUNITIES WITHIN THE BELT AND ROAD INITIATIVE 4

IDENTIFYING OPPORTUNITIES WITHIN THE BELT AND ROAD INITIATIVE 5

Part 1 | The Belt and Road Initiatives Soft Power 08

Opportunities, Risks & Potential Within the Belt 09

China’s Free Trade Agreements 10

Rerouting Supply Chains To Reflect Growing 10

China’s African Belt & Road Initiative – It’s Not 25

The Complete Belt & Road Modus Operandi: 35

BRI Financing Issues 37

China Using Paris Club Creditor Methods To 38

Hong Kong Opportunities 40

Part 2 | The Belt & Road Initiative - The Legal Structures 43

Managing Pitfalls When Handling Belt & Road 52

Understanding China Joint Ventures 55

Submitting Trademark Registrations Along 58

Understanding China’s New Foreign Investment Law As 64

IDENTIFYING OPPORTUNITIES WITHIN THE BELT AND ROAD INITIATIVE 6

Hong Kong Repositioned As A Belt And Road 72

Part 3 | The China Belt & Road Initiative: 74

Minimum Wage levels & Individual Income Taxes 76

Human Resources Along The Belt & Road Initiative 80

Part 4 | China’s Western Regions and 93

Part 6 | Profiting From The Belt & Road Initiative 119

Exploiting The Belt & Road Initiative - A Case Study 122

China To Use REITS To Cash Out Belt & Road 126

Investing In China’s Belt & Road Initiative: 128

Investing In Emerging Belt & Road Initiative 133

Executive Summary 139

IDENTIFYING OPPORTUNITIES WITHIN THE BELT AND ROAD INITIATIVE 8

Opportunities, Risks & Potential Within the Belt

IDENTIFYING OPPORTUNITIES WITHIN THE BELT AND ROAD INITIATIVE 9

Rerouting Supply Chains To Reflect Growing

The China-ASEAN Free Trade Agreement

IDENTIFYING OPPORTUNITIES WITHIN THE BELT AND ROAD INITIATIVE 10

The China-Pakistan Free Trade Agreement

The China-Gulf Co-Operation Council Free Trade Agreement

The China-Sri Lanka Free Trade Agreement

IDENTIFYING OPPORTUNITIES WITHIN THE BELT AND ROAD INITIATIVE 11

The China-Eurasian Economic Union Free Trade Agreement

The China-EU Preferential Trade Agreement

IDENTIFYING OPPORTUNITIES WITHIN THE BELT AND ROAD INITIATIVE 12

The outline of the CAI

• Market access and investment liberalization

IDENTIFYING OPPORTUNITIES WITHIN THE BELT AND ROAD INITIATIVE 13

How to read the CAI: Key elements

China’s market access commitments

More specifically, EU investments in manufacturing are concentrated 28 percent in the

Interestingly, China’s market opening commitments in manufacturing include automobiles

In the non-services sectors, China is making (limited) liberalization commitments in agriculture,

IDENTIFYING OPPORTUNITIES WITHIN THE BELT AND ROAD INITIATIVE 14

Creating a level playing field