Connecting the world with “One Belt, One Road”
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Connecting the world with “One Belt, One Road”

Widely known as the largest infrastructure initiative in Asia and beyond, One Belt One Road initiative was originally introduced by the Chinese President Xi Jinping in 2013, later renamed as Belt and Road initiative (BRI).

Infrastructure will promote international trade between economies.

Gu Shu, President of Industrial and Commercial Bank of China, ICBC1

What is One Belt One Road (OBOR)?

There are two parts of this initiative, the Silk Road Economic Belt and the 21st Century Maritime Silk Road. The scale and scope of the One Belt One Road initiative have no predecessor in modern history, with an estimated investment spending of USD 4 trillion2 into projects from as many as 65 countries3 . The initiative is arguably one of China’s most ambitious economic and diplomatic plans since the founding of People’s Republic of China. To put it into perspective, McKinsey estimates the OBOR initiative covers about 65% of the world’s population, about one-third of world’s GDP, and about a quarter of all the goods and services the world moves4.

The OBOR was envisioned by President Xi to extend the era of Chinese economic boom to benefit neighboring countries, which will simultaneously bridge the current infrastructure gap in Asia and beyond. World Pensions Council (WPC) estimates that Asia excluding China will need up to USD 900 billion of infrastructure investment per year during the next 10 years, which implies a current spending shortfall of 50%5. As a consequence, the potential project opportunities for OBOR will be enormous. This only accounts the potential in Asia, the number of potential projects would be even larger considering OBOR initiative goes well into continental Europe.

Wide range of project opportunities

Project inclusion is evaluated in five broad categories: 1) Policy consultation; 2) Infrastructure connectivity; 3) Investment and trade promotion; 4) Financial capital cooperation; 5) People-to-people exchanges. However, up to today there is no clear definitions which projects will qualify as OBOR projects. Broad inclusion criteria means any projects that are related to the five categories and along the planned routes can qualify as OBOR projects. The vast amount of opportunities should translate into a larger number of projects available for investors.

According to a report conducted by Deloitte, two biggest categories of risks preventing investors putting money in infrastructure projects are political risks and regulatory risks6. Involving government funding in such infrastructure projects should align the incentives of government, developers, and other related project stakeholders, thus reducing associated project risks. So far, more than 200 enterprises7 have signed cooperation agreements for projects along the OBOR routes.

Government backed funding reduces risks

There are three major sources of OBOR funding, policy banks, the Silk Road Fund, and the Asian Infrastructure Investment Bank, collectively made hundreds of billions US dollars available to fund or co-fund these projects. Two biggest policy banks are China Development Bank (CDB) and Export-Import Bank of China (ExIm Bank). The Silk Road Fund was set up by the Chinese government with an initial capital of USD 40 billion in 2014.

As of June 2017, the fund has signed 16 contracts and committed to investing USD 6.8 billion, encouraged by past performance of OBOR projects. According to Euromoney, non-performing loan ratio of China Development Bank’s OBOR projects has been below 1% for 49 consecutive quarters. In addition, the repayment of capital with interest is in good condition for most international cooperation projects and the quality of assets are stable8. Additional capital has been pledged for Silk Road Fund during the OBOR Forum held in Beijing in May 2017. In addition to the special purpose loans from CDB and Exlm Bank, China has further committed another USD 14.5 bn capital into the Silk Road Fund9, highlighting President Xi’s commitment to the OBOR initiative. As a consequence, companies involved in the OBOR initiative shall benefit, sending positive signals to investors. To further understand OBOR projects, we will discuss the China Pakistan Economic Corridor as an example to illustrate how OBOR projects could look like:

The China Pakistan Economic Corridor (CPEC)

Due to historically all weather friendship between the two countries and the strong military commitment on the Pakistan side, Pakistan is one of the biggest beneficiaries of China’s foreign investment and the China Pakistan Economic Corridor is widely viewed as the flagship sub-branch of One Belt One Road initiative. The CPEC Projects have been valued to be worth of USD 46 billion and investments center around four pillars, Gwadar Port, Infrastructure development, Industrial Cooperation, and Energy Projects.

The CPEC itself is a vision plan to build a 3,218 kilometers route connecting China’s Xinjiang to Pakistan’s Gwadar port, ranging from construction of highways, railways, and pipelines. The actual estimated cost of the project is expected to be ca. USD 75 billion10. The CPEC projects are supposed to bring FDI equivalent of 17% of Pakistan’s 2015 GDP to the country. Deloitte further estimates direct job creation from CPEC will be 700,000 during 2015 – 2030.

Karachi-Peshawar Main Line

Pakistan railways is set to attract up to USD 5 bn investment for upgrading and deploying new railway infrastructure across Pakistan. One of the projects along the planned route is Karachi-Peshawar Main Line (ML-1). Total length of the line is 1,687 kilometers and the line serves as the main passenger and freight line of Pakistan, carrying 75% of the country’s cargo and passenger traffic. Chinese investment is estimated to be USD 8 billion11 in this line upgrade and the project was announced as a priority area under CPEC by Pakistan Railway. Groundwork of Karachi-Peshawar Rail Line was expected to start in March 201812. Due to disagreements about the financing the start of the work has been delayed for undefined time, however one still hopes that work can start later this year13. Upon completion, the Karachi-Peshawar main railway line will be upgraded to allow for train travel at up to 160 kilometers per hour by December 2019. Pakistan is envisioned as a gateway for Central Asian countries, including Afghanistan, Uzbekistan, linking Sri Lanka, Iran, and Xinjiang. Pakistan’s strategic position is important for Chinese economic and diplomatic expansion in Central Asia, so we believe such projects will receive large amount of attention from the Chinese government to make it work.

Karot Hydropower project

Electricity shortfall has reached 4,500 MW14 in Pakistan. The shortfall has increased due to low water level in dams and the smog-triggered tripping system. At present, power generation stands at 9,000MW while demand is 13,500 MW. Under the CPEC project arm, there are a grand total of 21 energy projects, estimated to be worth of USD 34.5 billion to be invested to bridge Pakistan’s energy deficit. One example is the Karot Hydropower project.

The Karot Hydropwer project is the first to be funded by One Belt One Road. Groundbreaking of this project took place on January 10th, 2016 and the project is expected to be completed by 2020. Project objective is to build a rockfill gravity dam with an installed capacity of 720 MW. The project will construct a concrete gravity of 95.5 meters high dam with a crest length of 320 meters with an estimated investment of USD 1.65 billion, among which IFC contributes USD 100 million15. Three other known lenders are China Development Bank, China Eximbank, and Silk Road Fund. We believe third-party institution investment signals to investors positive return prospects of OBOR projects. Completion of the Karot Hydropower Project will greatly relieve Pakistan’s power shortage problem. Karot dam is expected to be operational in five years and will generate 3,174 gigawatt-hour16 of net energy annually, providing affordable, clean power to ca. 3 million residential customers in Pakistan.


Global infrastructure investment gap has been more than emphasized in recent policy maker discussions. President Trump’s ambitious plan to create USD 1.5 trillion17 to repair and upgrade America’s infrastructure and in Europe, Mario Draghi, the President of European Central Bank, has once famously said “In the European context tax rates are high and government expenditure is focused on current expenditure. A “good” consolidation is one where taxes are lower and the lower government expenditure is on infrastructures and other investments”18. These two continents are mostly talking about rejuvenating existing infrastructure facilities and the sheer amount of investment involved is enormous. Alone in Asia, considering the growth of population, together with repairing existing infrastructure, the investment opportunities exist beyond current expectations. Thus OBOR is considered as the biggest infrastructure plan that is ever known to the world. On the other hand, we also believe that risks are reduced when government funding, Chinese policy banks are involved in such projects. Simply because the Chinese President Xi’s stake in the OBOR initiative is too big to fail, as he envisions to gain a firmer position for China on the global political and economic stage.