China economy

Beijing eyes Hong Kong and London for fresh Belt and Road funds

IMF chief Christine Lagarde urges China to focus on projects that plug real infrastructure gaps

PUBLISHED : Thursday, 12 April, 2018, 8:34pm
UPDATED : Thursday, 12 April, 2018, 10:26pm

Beijing will work with international organisations, commercial lenders and key financial centres such as Hong Kong and London to diversify funding sources for its massive international infrastructure drive, China’s new central bank chief said on Thursday.

“It is necessary to tap into the advantages of private finance, sustainable finance as well as development finance,” Yi Gang, governor of the People’s Bank of China, said at a seminar in Beijing co-hosted by the International Monetary Fund (IMF).

“Financial centres such as Hong Kong and London have played a very important role.”

He said the Hong Kong Monetary Authority had established an infrastructure financing facilitation office in Hong Kong in mid-2016 that could offer advice and mobilise more private lending for projects.

Yi’s assessment comes as Beijing pushes ahead with its “Belt and Road Initiative”, Chinese President Xi Jinping’s signature drive to expand China’s trade and investment along ancient land and maritime trade routes.

But China alone cannot finance the initiative, which includes infrastructure and energy projects in some of the world’s most troubled areas such as Pakistan and the war-torn Horn of Africa.

The China-IMF Capacity Development Centre, launched on Thursday, could go some way to help Beijing unlock more funds, by clearing bottlenecks in debt, private participation, environmental compliance, and social and governance sustainability.

“There is a concern that some investments – if not properly tended – could wither on the vine,” IMF managing director Christine Lagarde said at the seminar. “Experiences from across the globe show that there is always a risk of potentially failed projects and the misuse of funds.”

Lagarde said that as well as being aware of the political, legal, and environmental obstacles, Beijing needed to choose projects that filled true infrastructure gaps, implement them in the most efficient way and ensure transparent decision-making.

She also warned that overseas ventures could lead to a problematic rise in debt, potentially limiting other spending and creating balance of payment challenges.

“In countries where public debt is already high, careful management of financing terms is critical. This will protect both China and partner governments from entering into agreements that will cause financial difficulties in the future,” she said.

Netherlands keen on Chinese investment but wants belt and road to benefit foreign companies

Since the initiative’s launch in 2013, Beijing has tried to promote the belt and road push as open to all. But Washington and Tokyo have been suspicious about the grand plan, and many have seen it as an attempt by China to expand its influence over more than 60 countries in Asia, Africa and Europe.

US Treasury Secretary Steven Mnuchin said in Washington on Wednesday that the United States was “concerned about China’s growing lending on the ‘One Belt, One Road’ around the world”, referring to the Chinese initiative by an earlier name, according to Bloomberg.

Xi said in Hainan on Wednesday that the initiative was not a Chinese “conspiracy ” nor China’s Marshall Plan. It was a new platform for international cooperation to benefit peoples along the routes, Xi was quoted by the official Xinhua news agency as saying.

Chinese direct investment in the regions along the routes has totalled US$70 billion in the past four years, including a 3.5 per cent rise to US$14.4 billion last year, according to the Chinese Ministry of Commerce.

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Many of the infrastructure projects are funded by Chinese financial institutions such as China Development Bank, the Export-Import Bank of China and the Silk Road Fund, or China-led multilateral organisations such as the Asian Infrastructure Investment Bank and the New Development Bank.

Yi said those lenders “basically have a low profit margin” and relied largely on government subsidies. “[Now] they are trying to build sustainability in long-term finance,” Yi said.