Integrated Trade Finance (ITF) and its Chinese partner, Easyway International, recently arranged and led a business delegation to China to assess recent developments and look for opportunities in various sectors inside China as well as along the Belt and Road Initiative (BRI) (China’s “new Silk Road”) path. Joe Chapuran, International VP for ITF, and Wenliang Xu, President of Easyway International were joined by various businesses looking to enter or expand into the Chinese market and beyond. The trip centered around Xi’an city and Shaanxi Province – the focal point of the BRI in China.
The China Belt and Road Initiative (BRI) Open for US Business Cooperation
Prior to group events in Shaanxi, ITF had high-level meetings in Beijing with the U.S. Embassy, the American Chamber of Commerce in China, and the China Export & Credit Insurance Corporation (SINOSURE). Discussions focused on the current trade war with the United States, sectors where there are still opportunities for U.S. companies, outsourcing trends, export opportunities for manufacturers operating in China as a Wholly Foreign-Owned Enterprise (WFOE) or as a JV, BRI opportunities, agriculture trends, and opportunities for certain industries actually stemming from the trade dispute. As China shifts to a focus on internal consumption, there are also several prospects for production in China for China.
China’s BRI intends to deploy over $1 trillion to impact over 64 countries comprising more than half of the world population, encompassing half of the world’s energy resources in 40% of global GDP.
Also dubbed as the “One Belt, One Road” the plan is to build rail, highways and ports that will embolden China’s soft-power status by spreading economic prosperity during a time of heightened political uncertainty in both the United States and European Union, according to Stephen L. Jen, chief executive officer at Eurizon SLJ Capital, who estimates a value of US$1.4 trillion for the project.
ITF learned also that what matters to China are several key factors related to the BRI:
Bring added-value back to China: Chinese capital may be available for infrastructure, farms, manufacturing, and production, but added-value production is intended to be brought back to China to final processing and refinement, an absolute 180-degree difference from how China once positioned itself.
China can’t do it alone: China recognizes the value of American companies’ ingenuity, reliability, distribution, customer service and global presence. All countries have a comparative advantage, and when working together for economic development and cooperation, they can achieve more. ITF and is working with Shaanxi to position US companies to partake in China-led investment projects in the BRI countries, and will act as a conduit to get US companies involved.
China private capital requires faster ROI in BRI. As China has now the largest reserves of hard currency in the world, and many Chinese businessmen have become especially wealthy as a part of the boom for the past decades in China, China’s private equity market has started to spread its wings, and it wants to also invest in BRI markets.
China private equity is also driven by what all private investors want: stable earnings and better overall returns. ITF is working with Chinese private equity in several ways:
to identify and support investment projects in BRI countries;
bring in equipment and services of ITF clients from the United States into Chinese investment projects in BRI countries;
arrange matching capital from other investors and arrange attractive debt financing in order to leverage Chinese equity in BRI countries.
It is a win-win situation for China and the US.
According to their website, the business tenet of SINOSURE is: “By means of export credit insurance against non-payment risks, promote Chinese exports of goods, technologies and services, especially high-tech and high-value-added capital products such as mechanical and electrical products, thus further support foreign trade and economic cooperation, economic growth, employment, and international balance of payments.” The bank offers export credit insurance, foreign investment insurance, bond guarantees, and debt & capital retrieval. The bank can cover against commercial, credit, and political risks. While in Beijing, ITF met with top-level SINOSURE officials about their effort in the BRI, as well as their support for US companies with subsidiaries in China looking to export to countries in the region. They agreed to cooperate on both efforts. Many times, the U.S. subsidiaries will include component products from their U.S. parent, and thus will increase U.S. products as well.
In Shaanxi, the main delegation met with provincial and local government leaders, trade associations, private sector business owners and investors. Discussions centered around business and agriculture trends in China as well as in BRI countries.
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ITF Vice President of International, Joe Chapuran, meets with government leaders in Shaanxi, joined by ITF partner company Easyway International and various business leaders from the U.S.
New Changes in Agriculture Policy for Land Lease and Subsidies
Agricultural developments in China and along the BRI were topics of numerous discussions with government and private-sector representatives. Given China’s growing population and a desire to move away from sourcing of agricultural commodities from the U.S., increasing internal and BRI-sourced commodities is a major and focused effort for China. While that leads to undesirable trends for U.S. ag and food producers, it does open numerous opportunities for American agriculture equipment, technology, and service providers.
One change that China is making involves major adjustments related to agriculture “ownership” (long-term leases), as well as subsidies to ag machinery buyers. China has been subsidizing new Chinese-made agriculture equipment at a rate 30% given to equipment buyers. China is now opening this up to new foreign-made equipment as well. Thus, while there are tariffs that always need to be considered, US-made agriculture products should be receiving this subsidy as well.
Also, China’s larger farms have generally been state-owned, with private investors unable to combine large land sections together as there were difficulties in sub-leasing of land. Now China is adopting operating licenses so that an investor can work with numerous land lessees to operate on their land plots, combine them into one operating farm, and share profits with the lessees.
The efforts in China to bring in better products and technologies are taking place in both private farms, as well as state-owned farms. ITF met with a major state-owned farm during the trip and the farm manager seemed very open to incorporating foreign-made products.
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Delegation members get a tour of a State-Owned farm in China after leaders discussed the options to bring in foreign machinery to increase production
Farm developments along the BRI are both private-sector and government-funded. While many of the government-funded farms will be strongly encouraged to buy Chinese-made equipment, if a company has good contacts and can show considerable yield and ROI benefits, there are possible sales to be had.
Private-sector investors along the BRI disclosed to ITF that their decisions will be business-driven only, and not influenced by the government.
The farm developments along the BRI will largely be commodities with the products going back to Shaanxi and other places for processing and distribution throughout China. This is because of quality control issues and importing restrictions.
However, for Chinese agriculture developments internally, the hot topic was keeping the value-added products close to the original production. Thus, local governments and developers were very interested in hearing the trend towards integrated and value-added agriculture developments. Instead of a farm growing corn and then selling it on an open market, more value and jobs are created if you set up an ethanol plant in the area, sell the alcohol, then use the DDG for hog feed, then take the hogs for slaughter, and finally processing. Keeping the increased margins and higher-paying jobs locally looks like it could catch on well in China.
To help develop all these advantages, there are a number of entities in China that are doing training sessions throughout China. Visits to the Yangling High-tech Agriculture Demonstration Zone and its annual fair in October are also encouraged at a national level.
There are also focused efforts beyond traditional row crops to include citrus & fruit, cattle breeding, hog farms, veterinarian services, and feed supplements.
Follow-up Efforts in November
Chinese farm investors have invited ITF to return to China in late November to sign agreements to use ITF and ITF client products and services in farm efforts inside and outside of China. ITF will participate in those events. Other meetings include government agencies looking for ways to bring more high-level technologies into the Chinese agriculture industry.
ITF will also have meetings regarding bringing ag delegations from China to the U.S. to meet ag equipment and technology companies. There are two planned visits in planning stages for early 2020.
Please contact ITF / Easyway International for additional information on, and opportunities in the world’s number two economy and beyond.