Hong Kong banking on a big role in financing China’s One Belt, One Road plan linking Asia to Europe and the Middle East
Hong Kong’s biggest banks and private equity players are moving fast to position their strategies to capture infrastructure financing opportunities that will emerge under China’s ‘Belt and Road’ initiative that is estimated to create a US$8.5 trillion market in the coming decade.
“Hong Kong will have an important role to play – not just as an intermediary,” said Laura Cha, chairwoman of the Financial Services Development Council, which expects the initiative to generate US$780 billion of transactions a year.
Hong Kong is already the largest foreign direct investment provider for China. Because of its other roles as a centre for equity finance, offshore yuan, risk management and trade settlement, the city aspires to play a “super-connector” role in the “Belt and Road” region that covers two-fifths of the world’s land mass and is host to some 60 per cent of the world’s population.
Addressing the ongoing Asian Financial Forum, Yue Yi, vice-chairman and chief executive of Bank of China (Hong Kong), said the bank is already lining up some 50 branches across the region with an initial lending target to generate US$20 billion worth of business. Over the past year, BOCHK has undertaken a wave of mergers and acquisitions with the aim of transforming itself from a Hong Kong local bank to becoming an “ASEAN regional bank”.
Echoing Yue, Benjamin Hung, regional chief executive for Greater China and North Asia at Standard Chartered Bank (Hong Kong), said StanChart’s branch presence along the Belt and Road zone is already in line to supplement the financing needs. “The Belt and Road strategy is going to have impact of epic proportion,” he said.
Gordon French, group general manager and head of global banking and markets at HSBC, estimates China will initially provide some US$240 billion to kick-start the project. If Hong Kong could recycle capital from the savings glut in Hong Kong, China and along the Belt and Road region for the rest, it could be “watershed”.
“If it is going to be done, it will be in Hong Kong,” French said.
The transactions cannot all be financed by bilateral loans alone and much of it would have to come from the equity and debt capital markets, he said, adding there is a now an extremely strong bond market in Hong Kong for global companies to tap.
Chen Shuang, chief executive of China Everbright, said the new institutions built for the plan, such as the Asian Infrastructure Investment Bank and the Silk Road Fund, will play only a limited part in coming up with the money. What the banking industry is focusing on at present is how to involve private capital to finance the projects. China and Hong Kong, said Chen, should look into France’s model of securitising infrastructure projects.
“Since its proposal by president Xi Jinping two years ago, the Belt and Road initiative has become a core strategy in China’s opening up and reforms. It is a good strategy for Chinese corporates’ internationalisation, providing infrastructure connectivity to the rest of the region, which is precisely what Asia needs,” said Chen.
“Unlike China, Hong Kong has a very well developed secondary market. Over the years, this has allowed Hong Kong to help Chinese corporates raise capital as they have gone global.”
Anthony Leung, former financial secretary and currently group chief executive of Nan Fung Group, said the key question will be how risk can be sliced and priced for investors with varying appetite.
“There is just one kind of risks that will be very difficult to absorb – it’s the country risks [along the Belt and Road countries],” Leung said, adding China can to set up an institution on the lines of the Export-Import Bank of China or a dedicated insurance company focused on dealing with country risks, in which China has more experience than Hong Kong.
If China manages to succeed in its Belt and Road initiative, said DBS chief executive Piyush Gupta, “it will be a game changer not unlike what the US did with the Marshall Plan after the second world war”.