HK’s Trade Development Council ran its fifth Belt & Road Initiative summit on a hybrid basis this week. As usual, the government’s intention was to catalyse new business for Hong Kong; less mentioned, but just as promising, are the prospects for dispute resolution.
Belt & Road never appealed much to HK investors and lenders but it did to the swathe of services based here and necessary to make the deals happen. One key ingredient, rightly touted by the HKIAC, has been the provision of reliable dispute resolution mechanisms. These have turned out to be needed in a number of BRI deals which have turned out not to one / both sides’ liking with varying degrees of transparency. They range from the $3.2 billion Nairobi to Mombasa Standard Gauge Rail where, in June, three years after it opened, a Kenyan court ruled the original contract invalid – to the Hambantota port in Sri Lanka, unfairly labelled by the US as “debt trap diplomacy” but where China Merchants injected a further $1.1 billion to lease an asset that was grossly underperforming.
As JM Keynes, Alan Bond and many other luminaries have noted, if you owe the bank $100 that’s your problem – if you owe the bank $100 million, that’s the bank’s problem. This is even truer if the loan is secured over infrastructure which cannot be moved from another country. Just as worldwide lending is being subjected to stress tests far more severe than any run when the loan was made, China’s Belt and Road lending, made as it often has been to less creditworthy jurisdictions, has come under particular stress. Thus, the Rhodium Group reckons that, as of Q3, at least twelve countries are in talks with Beijing to renegotiate some $28 billion of loans.
Many of these disputes will be resolved at the government to government level. As the Paris Club of mainly western creditors found before it, China has limited room for manoeuvre here and will, in all probability, also quietly extend terms / reschedule loans with perhaps a sprinkling of forgiveness. Some disputes will end up in the commercial courts established for this purpose in Xian and Shenzhen (but not many). And others will, indeed, come to Hong Kong for its legal skills but also for its array of other services available to act as expert witnesses in those disputes, be they formal or informal (Logie Group does so for infrastructure finance).
At the virtual APEC forum last month, President Xi Jinping undertook to “further harmonise policies, rules and standards with Belt and Road partners”. He added similar soothing words at the China – ASEAN expo in Nanning last week. As with the BRI forum last year, Beijing now needs to walk that talk. As these lessons are learned and as China’s largesse turns out not to be unlimited, the new business side of BRI is waning but the dispute resolution opportunities are waxing.
HK is fond of a wager: a city of 7 million bet US$28 billion with the Jockey Club in the year to June. On BRI, it can back both horses.
