by Jane Cai in Global Times, May 12, 2017
China is urgently seeking support from international lenders to close a yawning financing gap for projects under its “Belt and Road Initiative”, a top official said.
The remarks from Yi Gang, vice-governor of the People’s Bank of China, come just days ahead of the Belt and Road Forum for International Cooperation on Sunday and Monday. Leaders from 29 countries and regions will gather in Beijing to learn more about the blueprint for China’s trade scheme.
Infrastructure and other key projects in belt and road countries had “strong demand for financing”, and support from the global market was “desperately needed”, Yi said in an interview with People’s Daily yesterday.
The calls, among the first straightforward cries for financial help from top officials, highlighted China’s dilemma in pursuing a bigger influence in the world amid a domestic economic slowdown, swelling debts and huge capital outflows.
While the plan is designed to speed development in Asia, Europe and Africa, the Asian Development Bank says there is a US$26 trillion funding gap in the infrastructure projects that will be required in Asia alone by 2030.
China had invested more than US$50 billion in belt and road countries since President Xi Jinping introduced the initiative in 2013, Xinhua has said.
“Most projects are financed by Chinese financial institutions, while participation of international institutions is relatively limited,” Pan Guangwei, vice-chairman of the China Banking Association, said.
“Policy banks are making progress in doling out loans, but commercial banks are less active.”
Many infrastructure projects were long-term and required large amounts of investment, so a system of “policy banks, commercial lenders and international development institutions” was needed to ensure their financial sustainability, Pan said.
However, analysts said it would be challenging to convince global lenders to get involved in the belt and road scheme while the commercial soundness of many its projects was still in doubt.
“I’m not optimistic about other parties’ active participation,” Hong Hao, chief strategist at Bocom International, said.
“When they believe the initiative is mainly aimed at building up China’s sway, instead of providing profitable projects, few will be interested.”
China would have to rely on issuing long-term bonds to finance the scheme, Hong said.
However, Wang Huiyao, the director of the Centre for China and Globalisation, said the belt and road initiative would be unsustainable without the involvement of international financial institutions.
“China needs an international capital pool, which should include world financial institutions as well as various funds, such as special development funds raised in rich Middle Eastern countries, or targeting Southeast Asian tycoons,” he said.
To increase the appeal of the initiative, Beijing should explain its intentions, publish a list of belt and road projects and introduce some profitable pilot schemes to lure initial investors to get onboard, Zhao Xijun, a finance professor at Renmin University in Beijing, said.http://www.scmp.com/news/china/diplomacy-defence/article/2094010/cash-crunch-chinas-new-silk-road
Chinese banks expand loans in Belt and Road nations
By Wang Cong in Global Times, May 12, 2017
Chinese banks have been issuing loans and making equity investments in vast amounts in countries along the One Belt and One Road initiative, in support of the plan that aims to connect Asia, Europe and Africa to bolster trade and development.The enormous investments could put Chinese banks in an advantageous position in these regions, which have tremendous development potential, but they could also pose some serious challenges, given that projects require long-term investments, have low returns and face many potential risks, experts noted.
Total outstanding loans from the China Development Bank and the Export-Import Bank of China (Eximbank), two of the three policy lenders in China, to countries and regions along the Belt and Road route have reached $200 billion so far, Pan Guangwei, a vice president of the China Banking Association, told a news conference on Thursday.
State-owned commercial banks have also made huge investments. Together, Bank of China, the Industrial and Commercial Bank of China (ICBC) and China Construction Bank have so far offered a total of $527.2 billion in loans and equity investments for 1,012 projects in Belt and Road countries, Pan said.
Most of those loans and investments have gone to or will go to infrastructure projects such as roads, railways, ports, and telecommunication and energy projects, Pan said.
The vast investments from Chinese banks aim to fill a massive funding gap in infrastructure projects in the Belt and Road countries, analysts said. In Asia alone, there is a funding gap of $26 trillion in such projects that needs to be filled by 2030, the Asian Development Bank said.
“There are a lot of opportunities in infrastructure in these regions, and with the Belt and Road, Chinese banks have the policy support to pursue these opportunities,” said Dong Dengxin, director of the Finance and Securities Institute at the Wuhan University of Science and Technology.
One example of policy support is that investments in projects under the Belt and Road are not subject to measures authorities have imposed to restrict speculative outbound investment activities amid rising pressure of capital outflows.
With these investments, Chinese financial institutions got off to an early start in these regions, Liu Xuezhi, a senior analyst at the Bank of Communications, said.
“We are investing in the future, looking for long-term gains, not short-term returns,” Liu told the Global Times. “Once the infrastructure is improved, all kinds of business will follow and Chinese companies will be the first to see it.”
Challenges and risks: But even with such policy support and overall growth prospects, there are challenges and risks in funding these projects, which are mostly in developing countries, officials and experts said.
There is an immense demand for infrastructure funding, but so far only Chinese financial institutions, mostly non-commercial lenders, are trying to fill that gap, while the participation of foreign financial institutions is limited and domestic commercial banks still need to step up their efforts, Pan said.
“For some infrastructure projects, the social benefits outweigh the commercial benefits. The commercial returns are very low, so commercial banks may not be willing to participate,” Sun Ping, vice president of the Eximbank, said Thursday at the same briefing.
ICBC vice president Zhang Hongli also said that not all the more than 400 projects the bank has invested in will be economically successful, “because there are so many uncertainties and risks during the whole process of the projects.”
Differences in political and economic situations in these countries create uncertainty, and some companies in these countries might not be able to pay back the loans, according to Pan.
Still, the future prospects outweigh the current challenges and risks, banking officials said, adding they will take all necessary measures, including strict vetting of borrowers, to fend off potential risks.http://www.globaltimes.cn/content/1046592.shtml
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