What Has China’s One Belt One Road Meant for Taiwanese Businesses?

A decade after its launch, the One Belt One Road Initiative is gaining post-pandemic momentum. While some argue that Taiwanese companies should take advantage of its benefits, others are concerned about Chinese influence on countries and businesses. 

In 2013, Chinese President Xi Jinping launched his hallmark One Belt One Road Initiative (also known as the Belt and Road Initiative, or BRI), a global infrastructure development strategy broadly aimed at restoring China’s ancient standing as the Middle Kingdom and smoothen Chinese companies’ global access.

The BRI consists of two main components: the Silk Road Economic Belt and the 21st Century Maritime Silk Road. The Silk Road Economic Belt focuses on connecting China with Central Asia, Russia, and Europe, while the Maritime Silk Road aims to connect China with Southeast Asia, the Middle East, and Africa. The Initiative covers more than 60 countries and involves over 70% of the world’s population, making it one of the largest and most ambitious development projects in history.

To fund the BRI, China has set up the Asian Infrastructure Investment Bank (AIIB) and the Silk Road Fund. The AIIB is a multilateral development bank with a focus on infrastructure investment, while the Silk Road Fund is a state-owned investment fund with a focus on infrastructure, resources, and energy.

The Initiative has drawn criticism and controversy from a number of countries and organizations. Critics argue that the infrastructure projects funded by China could lead to unsustainable debt levels, leaving participating countries vulnerable to economic and political pressure. For example, when Sri Lanka handed over the Hambantota port, which is located near key shipping lanes, to China in 2017 on a 99-year lease after failing to repay the loans for its construction, opponents argued that Sri Lanka had fallen into a “debt trap” that led to its granting China strategic control over the port.

Another concern is the lack of transparency and accountability in the project. The U.S. and EU have argued that China’s opaque decision-making processes and lack of public disclosure on the terms and conditions of loans and investments raise questions about the project’s intentions and long-term sustainability. In 2018, the U.S. National Security Strategy report identified the Initiative as a tool for China to expand its influence and challenge U.S. interests.

Although Taiwan is not among the 151 economies that have thus far formally joined the Initiative, Taiwanese businesses are considered stakeholders given their close involvement in the Chinese economy and their operations in many of the BRI target countries.

Despite pandemic-related turbulence, China’s 2022 investment in target countries rose to US$32.5 billion, the highest level in three years and up 63% year-on-year, according to a report from China’s Fudan University. The main recipients were the tech, energy, and construction sectors, in that order. Hungary was the largest recipient of Chinese investment among BRI nations, followed by Saudi Arabia and Singapore.

The Taipei-based Chinese National Federation of Industries (CNFI), an industry association representing most manufacturing businesses in Taiwan, says that since the BRI mainly focuses on infrastructure, only a few Taiwanese businesses are in a position to participate directly.

But CNFI notes that the Initiative presents opportunities for those deeply integrated into China’s industrial chain. High on the list of examples are Taiwanese consumer electronics companies Compal, Foxconn, Inventec, Pegatron, Quanta, and Wistron. These companies all have considerable investments in Chongqing, the central Chinese city that is the main Chinese hub for the New Silk Road freight rail services between China and Europe. Chongqing also connects to the New Western Land-Sea Corridor, a trade channel between western Chinese provinces and ASEAN members that has been undergoing a major upgrade under the BRI.

“One out of every three notebook computers in the world is manufactured in Chongqing, while Taiwanese businesses in the southeast coast of China and the Yangtze River Delta have also increased their use of China-Europe trains,” says Huang Chien-chun, Director of CNFI’s Mainland China Affairs Division. Huang adds that this route “not only spreads the transportation risks affiliated with global ocean container shortage but also cuts the shipping time from China’s east coast to Europe from about 35 days to 15 days.”

As an example, Huang says that in Xiamen more than 80% of transportation volume is contracted by TPV Electronics Fujian Co., which transports more than 2,000 containers of electronics goods to Europe by land annually. Taiwan’s frozen aquatic products, fruits, and vegetables could also be shipped by train to Europe, he adds.

Xiamen, which sits across the strait from Taiwan, could act as a transport hub for exporting Taiwanese goods to Europe by train.

Huang notes that while large-scale infrastructure contracting may not be Taiwanese companies’ strongest suit, Taiwan still possesses some expertise in various related industries, including cement, steel, electromechanical equipment, photovoltaics, smart grids, and smart transportation. For example, Taipei-based CTCI Group is active across Asia, the Middle East, and the Americas and has competitive niches that all fit neatly into the BRI.

“In 2019, CTIC signed three cooperation agreements on engineering projects along the BRI with Guodian Technology and Environmental Protection Group, a central state-owned enterprise in the mainland,” he says. “And in 2021, the Jiangxi Provincial Government awarded CTIC the general contracting task for the maintenance project of the Suva Multi-Function Stadium in the capital of Fiji.”

Huang believes that Taiwanese companies could gain from the BRI’s streamlined border trade. Several border cities in China have established BRI-funded industrial parks, including Ruili Port in Yunnan, Dongxing Port in Guangxi, Pingxiang Port in Guangxi, and Horgos Port in Xinjiang. These parks are located near China’s borders with Myanmar, Laos, Vietnam, and Kazakhstan, respectively.

“In Dongxing’s border economic cooperation zone, for instance, Taiwanese businesses can hire Vietnamese laborers without paying into the mainland’s ‘five social insurances and one housing fund,’ while products can be labeled Vietnamese-made and therefore enjoy tax-free benefits in ASEAN countries,” Huang says. “There are also Taiwanese businesspeople who set up logistics centers there to make money from trade.”

Schnell Jeng, Executive Director of Taipei Airfreight Forwarders & Logistics Association of Taiwan, says that Taiwan-based logistics companies with branch offices in China tend to use the China-Europe rail service quite extensively. By contrast, Taiwanese logistics companies seldom use BRI trains when shipping goods out of Taiwan.

“China Customs considers these types of shipments as transit trade, as opposed to domestic trade, meaning rail services from Taiwan connecting Europe via China have little to no advantage on cost and efficiency over ocean shipping at the moment,” Jeng says.

He notes that trains are the most environmentally friendly mode of transportation and should thus be promoted internationally. ASUS Computer, a major computer company based in Taiwan, has been using rail service to transport its goods from China to Europe for many years. But he adds that low ocean freight costs and the effects of the war in Ukraine have meant more companies favor the ocean route.

Data by Duisport, the owner and operator of Germany’s Duisburg port, Europe’s key hub for BRI trains, shows that the geopolitical upheaval associated with the war in Ukraine has taken its toll. Although the annual number of trains in 2021 rose by 12%, bookings dropped by about 30% after the invasion, as businesses that adopted rail freight faced reputational, insurance, sanctions, and confiscation risks along the Russian route. By late 2022, momentum had improved, but figures were still below pre-pandemic days.

The bigger picture

While political tensions across the Taiwan Strait make it nearly unthinkable that Taiwan will formally jump on the BRI bandwagon any time soon, there is a notion that BRI infrastructure spending could be helpful for Taiwan’s international outreach if it only manages to identify the right niches.

“When railway tracks are laid in Indonesia, Taiwanese southbound projects are obviously among the potential gainers,” says Reinhard Biedermann, a professor of international relations at Tamkang University in Taipei, referring to the New Southbound Policy that, ironically, was created to make Taiwan less dependent on China.

Biederman adds that Taiwanese businesses could tap into programs created by the U.S., EU, or G7 as responses to the BRI, such as the EU Gateway and the Build Back Better World (B3W), as the importance of finding “likeminded partners” increases.

Biedermann also warns about potential traps that could harm Taiwan’s sovereignty. He sees China as trying to further its unification agenda by setting economic incentives on the public-private level, as reflected by the “31 Measures to Benefit Taiwan” announced by the Chinese government in 2018. The measures stipulate that Taiwanese enterprises can participate in the BRI and enjoy the same treatment as Chinese firms, which came in handy at a time when China was gradually rolling back preferential treatment for foreign companies active in the country.

“The 31 Measures were meant to compensate for China’s failed attempt to sign a service trade agreement with Taiwan in 2013 and chiefly seek to make Taiwanese companies invest in strategic sectors in China,” Biedermann says. “It is a classic infiltration strategy to soak up Taiwanese know-how.”

Similarly, Andre Wheeler, founder & CEO of Australia-based Asia Pacific Connex consultancy and author of China’s Belt Road Initiative: The Challenge For The Middle Kingdom Through a New Logistics Paradigm, points out that Taiwan’s regulations formally bar Chinese companies from owning or operating Taiwanese ports. However, he says, the BRI comes with integrated Chinese-designed smart port and logistics. The sophisticated, seamless data integration has gained traction within global supply chains and logistics, including in Taiwanese ports.

In 2021, the Taiwan ports of Kao-hsiung and Taipei have been included in three of six container shipping services embraced by the Silk Road Maritime International Forum, a BRI shipping platform. Significantly, Taiwanese liner operator Evergreen is operating one of the services, the China-Europe-Mediterranean (CEM) service.

“Taiwanese ports, as all other ports that have an interface with China Port/Terminal Operating systems, are potentially compromised,” Wheeler says. He calls the BRI platform “a smokescreen to gain access to data and information that can be manipulated and weaponized.” This puts Taiwan’s trade security at greater risk of supply chain disruption through data being “lost” or shipping being “redirected,” Wheeler says.

“It is no coincidence that the latest meeting of the Silk Road Maritime initiative was held in Xiamen [in September 2022], which is not only the closest mainland China city to Taiwan but also an exemplar of China’s Military-Fusion Strategy,” he says.