Hong Kong’s top officials promote city’s infrastructure financing role to AIIB

Financial chief seeks new role for city as ‘perfect storm’ looms while HSBC warns of competition in fund raising for One Belt projects

PUBLISHED : Tuesday, 05 July, 2016, 12:02pm
UPDATED : Wednesday, 06 July, 2016, 12:05am

Hong Kong’s top officials joined forces on Tuesday to fend off competition from rival cities in the region by promoting local talent to the Asian Infrastructure Investment Bank (AIIB) and other bodies that will need to raise up to US$8 trillion for Beijing’s One Belt One Road infrastructure projects in the coming years.

In a meeting with AIIB president Jin Liqun, Chief Executive Leung Chun-ying pitched the strengths of Hong Kong as a financial hub capable of raising funds for One Belt, One Road projects.

The AIIB, backed by Beijing as an alternative version of the World Bank, was launched in January with the goal of raising funds for infrastructure projects. Hong Kong is set to join as a member by the end of this year.

“Hong Kong possesses world-class talent and rich experience which could support the work of the AIIB, particularly in areas such as project financing, investment, financial management and foreign exchange management,” Leung said.

On Tuesday morning Leung and Financial Secretary John Tsang Chun-wah both gave separate keynote speeches at the Boao conference where they promoted the city as an infrastructure financing hub.

The top officials’ aggressive moves came amid growing competitive pressure from rival cities fighting for the role to raise funds for Bejing’s “One Belt One Road” project which is expected to see investment of US$800 billion a year, or US$8 trillion in total through to 2020.

“There are many fund raising centres worldwide eyeing the golden opportunities to capture the many fund raising projects related to the One Belt, One Road scheme. In Asia alone, Singapore is a major competitor for Hong Kong,” said Peter Wong Tung-shun, chief executive of HSBC Asia Pacific.

“We cannot ban other financial centres from competing for the fund raising business so the competition is likely to be keen. This is why Hong Kong companies need to act fast to take first mover advantage as the first centre to focus on Belt Road finance,” Wong told the South China Morning Post in an interview on the sidelines of the Boao conference on Tuesday.

The Boao forum is the first initiative of the Hong Kong Monetary Authority’s newly formed Infrastructure Financing Facilitation Office (IFFO), which comprises 41 financial partners, including HSBC, with the goal of promoting Hong Kong as an infrastructure financing hub for One Belt One Road. The Beijing-backed scheme is aimed at establishing road, railway and other infrastructure projects in 60 countries neighbouring mainland China, spanning from Asia and the Middle East to Europe, in order to promote trade and business.

Financial secretary Tsang said he he wanted to see Hong Kong develop infrastructure financing to drive growth to cope with the challenge of the economic “perfect storm” that lies ahead.

“With Brexit and the worries over the US interest rate hikes and the pace of economic recovery in Japan and the euro zone – the ingredients for a global economic perfect storm are there,” he said, adding that the uncertainties would last for years as Britain negotiates with the EU on the terms of its exit.

Private sector business leaders engaged in Belt and Road infrastructure investment projects often complain that there is still a lack of bankable opportunities in the region because of sovereign risks and a lack of standardisation in how project owners seek financing.

However, the AIIB’s Jin urged business leaders not to be overly worried. “Sovereign risk is not a big issue. I’m not worried about the sovereign risks – as long as the project is good for that country,” Jin said at the Boao conference.

“Some projects can quickly generate revenues if [they] are connected. You don’t have to worry about debt sustainability. What’s important is whether the project can be funded right away rather than sit there and wait for five or six years.

“If you can get a project done as soon as possible you don’t even have to worry about high interest rates. A little bit of interest [to pay] is not that much, but a project can be costly if it is delayed year after year in implementation,” Jin said.

Market uncertainties created by the Brexit factor will not affect Hong Kong’s ability to raise funding, according to Laura Cha, chairwoman of the Financial Services Development Council of Hong Kong.

“The market uncertainty related to Brexit is not only affecting Hong Kong but also other financial centres. When markets return to a more stable footing, Hong Kong can compete for many of the infrastructure fund raising projects in the years ahead,” Cha told the Post.

The surprise outcome of the June 23 vote on British membership in the European Union, which saw the leave camp receive 52 per cent support, surprised global markets, triggering a sharp sell-off in equities, including in Hong Kong and Japan. The Hang Seng Index ended the session down 600 points, or 2.9 per cent. Tokyo’s Nikkei ended down 8 per cent, while the British pound swooned to its lowest level in 31 years.