From infrastructure to external circulation: Jiangxi enterprises redefine BRI strategy

Jiangxi Zhongmei Engineering Construction Co., Ltd. (Zhongmei Group) has set up a customer experience centre in Nanchang for commercial products featuring the Belt and Road Initiative (BRI).

Known as “Wan Guo Hui” (万国汇, lit. ten thousand countries converge), the experience centre brings together foods from all over the world, including Chilean red wine, Kazakh camel milk powder, Thai jasmine rice and Ethiopian coffee.

Zhongmei Group is a Chinese central state-owned enterprise that focuses on energy and infrastructure. In the past decade, it has taken on many BRI infrastructure projects in over 20 countries. However, as the number of overseas projects has steadily declined in recent years, the group has begun to venture beyond infrastructure development, including going into the food trading industry in 2019.

In an interview with Lianhe Zaobao, Qin Jian, general manager of Zhongmei International — a subsidiary of Zhongmei Group — said that Wan Guo Hui aims to introduce “good stuff” from countries along the BRI route to China. This is the group’s business diversification by using its extensive overseas offices as well as its advantages in domestic and overseas markets for trading.

Zhongmei International handles the group’s overseas business. Qin says, “Trade currently accounts for about 10% of the group’s total revenue. While it has increased after Covid-19, growth has been very slow.”

The BRI is an economic cooperation initiative proposed by China in 2013 to initiate infrastructure development in many countries through project financing and preferential loans between governments. However, due to the global economy’s feeble recovery after Covid-19 and the sharp interest rate hikes by the Fed, the cost of financing has skyrocketed, resulting in sharp increase in debt pressures in many countries. China’s economy is also facing domestic and external problems, including domestic inertia, reduced revenue and intensified geopolitical conflicts.

Qin Jian highlights that the changes in the domestic and external environments have affected the BRI’s implementation and threatened Zhongmei Group’s survival. He adds that overseas projects currently account for about 20% of business, down from about 30% in 2019.

“This is more or less due to Covid-19 and the global economic slowdown. The countries that we are cooperating with have encountered fiscal difficulties and are no longer able to engage us for construction projects.”

During the BRI’s tenth anniversary last year, Chinese President Xi Jinping proposed to coordinate signature construction projects and “small yet beautiful” programmes focusing on improving people’s livelihoods.

Some analysts highlight that this is a strategic adjustment to the BRI, and that China may no longer invest significant amounts of money on overseas infrastructure projects to avoid being accused by the West of creating debt traps.

Hung Yao-nan, executive director of the Centre of China BRI Studies at Tamkang University in Taiwan, said when interviewed that Zhongmei Group’s business diversification reflects a part of the BRI strategy which has shifted from exporting infrastructure development to promoting economic “external circulation” (外循环).

He says that the China-US trade war has negatively affected China’s export. Consequently, China hopes to strengthen economic and trade cooperation with the BRI countries, so that the excess production capacity of the “new three” (新三样, referring to electric vehicles, lithium-ion batteries and photovoltaics) may be channelled to other markets. Among these, the Southeast Asian markets are popular with China’s enterprises due to their proximity and high economic dependence on China.

Continued strong growth in China-ASEAN trade in the past few years have made them each other’s largest trading partners for the fourth consecutive year in 2023. As China exports higher value-added products to ASEAN and imports lower-value raw material and agricultural products from ASEAN, the trade deficit has continued to widen.

Hung says that Southeast Asian countries have long hoped to achieve parity in trading with China. However, China’s strong edge in electronics and processed products makes it difficult to narrow the trade deficit.

ASEAN is China’s largest trading partner in agricultural products, with the Chinese market being the largest for agricultural products exported by many ASEAN countries.

Hung adds, “Southeast Asia retains a competitive advantage in agricultural products, such as specialty foods. Importing more of such foods can pave the way for China to export more products to Southeast Asia and assuage the sentiments regarding the trade deficit.”

In mid-May this year, China’s Ministry of Foreign Affairs invited more than ten domestic and foreign media to visit Jiangxi Province to learn about the development of the local industries. In addition to visiting Zhongmei Group’s Wan Guo Hui, the delegation also visited the new energy vehicle (NEV) production plant of Jiangling Motors Corporation Group (JMCG).

Established under JMCG in 2015, the Jiangling Group New Energy Vehicle Co., Ltd. (JMEV) is funded and supervised by the State-owned Assets Supervision and Administration Commission of Jiangxi Province. Currently, JMEV has four electric vehicle models in the market, including the small EV3 priced at about 50,000 yuan (US$6,876).

In the past three years, although NEVs made in China were in red-hot demand, JMEV’s sales were unsatisfactory. According to JMEV’s 2023 annual report, it only sold 4,671 NEVs last year, which is hardly a presence in the China market.

According to JMEV’s annual report, while the company had the capacity to produce 160,000 NEVs in 2023, it only made 5,366.

When interviewed, vice-president of JMEV’s engineering research institute Nie Xiaoyong says that the company manufactures vehicles based on actual demand, and he estimates that this year’s production will reach 30,000 vehicles. However, he concedes that the company will remain in the red despite this production number, and that it has to make and sell at least 100,000 vehicles annually to make a profit.

He says, “Currently, this industry is extremely competitive, and we remain in survival mode. Although we are losing money, we must enhance our competitiveness through continuous research and new technological innovation because NEVs are the future. This is particularly important in our industry’s trajectory.”

Nie adds that JMEV’s AI and intelligent driving technologies currently lead the way in China, and its Apollo RT6 is the sixth-generation driverless vehicle produced for Baidu Apollo Go, an autonomous-driving service platform.

Nie says that JMEV has in recent years constantly enhanced cooperation with global distributors to explore penetrating new markets and launching customised NEVs.

“Overseas sales and marketing are critical to us. We have exported our products to more than 30 countries in Southeast Asia, South America and Europe. We expect our export to reach 3,000 vehicles this year,” he further adds.

Chen Gang, deputy director and senior research fellow of the East Asian Institute (EAI) at the National University of Singapore (NUS), said when interviewed that the BRI has provided opportunities for many China enterprises, including NEV manufacturers, to venture overseas. Due to fierce competition within the China market, many China enterprises have begun to move their sales and value chains overseas.

Chen believes that shifting industries will be the future mode of cooperation for mutual benefit between China and the BRI countries. With rising production costs in China, more enterprises will move a portion of their upstream value chains overseas, and transport the manufactured parts back to China for final assembly.

He said, “Partner countries can enhance their technologies and employment to upgrade their industries. China can also enjoy the comparative advantage of Southeast Asian countries in terms of their open policies and demographic dividends to narrow the trade deficits.”

Nevertheless, he also notes that not all enterprises are suited for venturing overseas. Some enterprises that have developed over a long time in China’s unique environment may encounter problems when venturing overseas and adapt poorly. “Many of these enterprises are still in the exploratory stage, when problems are less evident. However, the problems will become increasingly severe in the long run,” he adds.

This article was first published in Lianhe Zaobao as “江西企业实行“一带一路”战略调整 推动经济“外循环”“.

Related: Ten years of the BRI: Where does it go from here? | China’s Belt and Road Forum: Pressing ahead without the West