News & Events
PKF China desk salutes – one belt one road policy
China has been in the news lately with its policy of ‘one belt one road’ (OBOR) which is a novel way of spreading commerce linked to the China’s historical Silk Road. It was formally announced by President Xi Jinping in 2013 to help exports to developed countries and assist spending at home on the infrastructure.
OBOR began as a way to boost infrastructure projects along two routes – one roughly following the ancient Silk Road from China through central Asia and the Middle East to Europe, ending in Duisburg in Germany, and the other linking China to Southeast Asia and eastern Africa by sea.
It was a smart move to regenerate economic growth. Due to the global recession that began in 2008, many Western economies had stalled and resulted in over-capacity – arranging from real estate to steel and cement. Not a moment too soon, President Xi Jinping allocated the massive sum of $100 billion to fund a global initiative, and it is expected that this money will have a positive multiplayer effect on a number of countries, including Malta.
Chinese policy-makers are very conscious of the accumulated hoard of US Treasury Bills acquired over the past decades of unilateral trade with the US and are seeking to boost growth in other regions. Can we blame them for wanting a better return on their $3 trillion hoard of foreign exchange, including the formidable sum of $1trillion in US Treasury bills? Leaders may ask how can Malta – a tiny island in the Mediterranean – ever share even a small part of this business. As a matter of fact, business with China started in the early 1970s when China lent us the money to build a number of medium-sized industries and engineered the building of the largest dry dock at a time when unemployment was relatively high, following the oil price shock when OPEC unilaterally tripled the price of crude.
Since then, Malta has developed its trans-shipment business facilitating the movement of thousands of containers coming from the Silk Road and entering the Med, to be temporarily housed in our Freeport and later redistributed to other ports in Europe. This Freeport activity was privatised and after new investment in gantries is now generating good returns to the French shareholders and, of course, it is a good source of employment, with work covering three shifts.
So the question is: how can Europe audit firms gain from this China initiative? The scope for professional services to hundreds of new companies being incorporated is exciting and this month PKFI invited representatives from a number of offices to a sizeable meeting in Duisburg at the offices of PKF Fasselt Schlage with their Chinese counterparts. The 10 offices include Munich, Cyprus, Malta, London, Italy, New York, Beijing, Hong Kong and Shanghai.
PKF’s Hasselt Schlage welcomed participants to their splendid offices in Duisburg. PKF Fasselt Schlage is a German firm that is fully committed to helping Chinese companies be successful in Germany. They provide services to Chinese companies planning to invest in Germany or those that have already done so. In addition, they provide support to companies who are cooperating with Chinese investors – whether it be in Germany, Mainland China, Hong Kong, Taiwan, Europe or worldwide. Their in-house team of HR managers, IT specialists, German public certified accountants, certified tax advisors, lawyers and business consultants are fully geared to deal with the requirements of existing China clients based in Germany and are keen to attract new ones.
Another member of the China desk is the New York office. Founded in 1891, PKF O’Connor Davies has evolved from an accounting firm to a team of high calibre professionals that provides a global, growing client base with comprehensive accounting, auditing, tax and specialised management advisory services at the highest level. With a profound commitment to active value creation, they connect with China’s investors to provide sound business advice, making use of key players and resources around the world.
Now, with the steady growth of China’s economy and the active OBOR scheme, they are well qualified to help Chinese enterprises establish and build operations in the US and to help US companies expand into China. Other PKF participants included firms in the UK – Francis Clark and Littlejohn, Pakistan, Munich, Cyprus, Malta and Italy. These firms have deep roots in the Chinese mainland and are ready to capture the flow of business and add to their list of satisfied clients.
A recent addition to the China offices in Hong Kong, Beijing and Shanghai is ZG. Based in Beijing, ZG has good geographical coverage with 2,000 staff and branches in 32 cities, and is among the top 20 accounting firms in China. It has established strategic alliances with many well-known investment banks, brokerages and fund companies and offers its customers a variety of services including asset assessment, auditing & advisory and judicial expertise and tax advisory. At the Duisburg meeting, ZG chairman Geng-chun Yao, expressed his satisfaction that the organisation of a China desk at each PKF office will contribute towards a successful implementation of OBOR.
The China desks at each of the 10 participating firms underpin a unity of purpose: they want to be part of this success story. There is a risk that OBOR will become a source of funding that gets misused and instead of contributing to greater trade or greater economic collaboration will be wasted on projects that really should never have been funded in the first place. A case in point is the study conducted by Chinese experts three years ago for the provision of a 10-kilometre bridge connecting the Maltese Islands. This study aimed to reach a consensus with the government and other stakeholders to decide whether a steel bridge is a better option than building a sub-sea tunnel.
The government chose the sub-sea tunnel but the Opposition (if elected) are promising a four-lane surface and underground Metro to be built at a cost of €2.3 billion. This could be a fitting project to be co-financed by using the OBOR fund, provided that a deal can be reached with the Chinese government. A unique example of OBOR put in action is the ‘dry port’ on the Kazakhstan-Chinese border and a railway link connecting Kazakhstan with Iran. China is a major investor in central Asian connectivity and as such has been involved in core projects such as a $54 bn land route from China’s Xinjiang region to a deep water port of Gwadar in Pakistan. It will spend $1.1 bn on creating a “port city” in Sri Lanka’s Colombo, across from Gwadar, and a projected 3,000km high-speed rail line from south-west China to Singapore.
In conclusion, the meeting of minds in Duisburg has converged on the idea to organise a follow-up meeting in Beijing in September at which all the participants can meet their Chinese counterparts. This will be OBOR in action.