Capital flow restrictions prove to be a hurdle for China’s ambitious Belt and Road Initiative

Industry players say difficulties moving capital between participating countries is limiting the success of Beijing’s ambitious project

PUBLISHED : Wednesday, 29 November, 2017, 8:01am
UPDATED : Wednesday, 29 November, 2017, 10:02pm

Issues with moving capital between countries involved in the Chinese government’s ambitious “Belt and Road Initiative” are limiting the success of the project, according to industry players.

“The major problem facing the Belt and Road Initiative is the flow of capital,” said Justin Kwok Hung-chiu, executive director of CK Asset Holdings, at the MIPIM Asia Summit, a leading property conference, on Tuesday.

“Whether there is free flow of capital into the country and whether you can repatriate your capital, these are major issues.”

He said a key challenge for businesses looking to invest was strict KYC, or know-your-customer, requirements, which banks use to identify and verify the identity of their clients to reduce financial crimes such as money laundering and fraud.

Initiated by Xi Jinping in 2013, the belt and road plan is aimed at building infrastructure, including railways, ports, airports and roads, in countries neighbouring China and in other parts of Asia, the Middle East and Europe, to boost trade flows and economic growth.

Certainly in the last six months, we noticed a slowdown in the outbound investment along the Belt and Road
Adam Rush, senior director Cushman and Wakefield

The strategy is at the heart of a soft-power push by China, and is backed by hundreds of billions of dollars for infrastructure projects. To date, more than 70 countries and international organisations have signed up for the project.

But despite the fact that so many parties have confirmed their participation, industry insiders said the challenge was at the business level.

“Certainly in the last six months, we noticed a slowdown in the outbound investment along the belt and road,” said Adam Rush, senior director at commercial real estate broker Cushman and Wakefield, at the MIPIM summit. “A lot of it is related to capital issues about how to raise capital in countries where there are difficulties with the regulatory system.”

Meanwhile, China has been dealt with a couple of setbacks in its plan. Two major projects – a US$2.5 billion deal to build the Budhigandaki hydroelectric dam in Nepal, and the US$14 billion Diamer-Bhasha dam in Pakistan – have been cancelled because the terms were not considered to be fair and equitable by the respective governments.