Bank of China USA works to capitalise on growing American interest in Belt and Road investment projects
The US unit of China’s oldest bank is using Belt and Road Initiative projects to tempt potential US lending clients, in part to blunt the impact of a potential trade war
Bank of China USA is looking to blunt the impact of both a drop in direct Chinese investment in the US and fallout from a potential trade war by increasing localisation and capitalising on American companies’ growing interest in investing in Belt and Road Initiative projects, a senior executive at the lender has said.
The US unit of China’s oldest bank is already close to the centre of trade financing and lending to Chinese companies in the US, but has worked to make itself a domestic player, an effort that has placed General Electric (GE), Honeywell International and other Fortune 500 companies among its clients.
“We’ve seen a lot of interest from companies such as GE” regarding Belt and Road projects, Raymond Qiao, the lender’s executive vice-president and head of corporate banking, told the South China Morning Post. The Belt and Road Initiative is a group of transport and energy projects connecting Asia and Europe.
“Their executives have mentioned opportunities in Belt and Road many times,” Qiao said. “We have some well-designed structured financing arrangements for their investments in China, so that pattern can be used in the Belt and Road countries and projects.”
About 85 per cent of BOC USA's corporate lending clients are American companies and the rest are from mainland China or are US-Chinese joint ventures, Qiao said. That ratio is up from 45 per cent five years ago.
“GE has long-term partnerships with Chinese [engineering, procurement and construction] companies, contributing to sustainable projects and solutions to address the complex critical infrastructure challenges in Belt and Road markets,” a GE spokeswoman told the Post.
Establishing business connections within the US is crucial for most Chinese companies looking to tap the world’s largest economy.
A crackdown by monetary authorities in Beijing on high-profile acquisitions of overseas real estate, highlighted by the recent arrest of Anbang Group chairman Wu Xiaohui, curtailed Chinese investment in the US starting in early 2017.
Direct investment in the US by Chinese companies slumped by a third against 2016 to US$29 billion, according to data compiled by investment consultancy Rhodium Group and the National Committee on US-China Relations.
The expansion of Bank of China USA’s business with American companies has strong backing from Beijing.
“Opening up doesn’t only mean welcoming foreign financial institutions to come into the Chinese market, but also means facilitating the Chinese financial enterprises to participate in global markets,” Song Xiangyan, an official with China’s central bank, said Wednesday at a conference in New York.
“In recent years, there has been an increasing number of Chinese financial institutions setting up branches and subsidiaries and also expanding their business and loans,” said Song, who is the New York-based chief representative for the People’s Bank of China. “We expect such a trend to continue as China further deepens its financial reforms and as the Chinese financial market continues to integrate into the global market.”
“We lost a lot of new money from China,” Qiao said. Before US President Donald Trump took office, “Bank of China was involved in most of the acquisitions financed by Chinese companies in the US market.”
Income from trade financing may take a hit after Trump’s decision to impose punitive tariffs on US$50 billion worth of annual imports from China and his threat to target US$100 billion more. China has announced reciprocal action on more than US$50 billion of American goods exported to China.
“The immediate effect of President Trump’s tariffs is quite limited for many of our member companies,” a representative of the US chapter of the China General Chamber of Commerce said in an email.
“They have been invested here for decades, operating like other American companies.”
“As investors, companies come here for various purposes, e.g. to diversify their investment portfolio, to supply for international market, etc. Our members are committed to long-term operations.”
Meanwhile, heightened scrutiny of Chinese investments by the Committee on Foreign Investment in the US (or CFIUS), an intra-agency body under the supervision of the US Department of the Treasury, has further dampened buying interest.
Citing national security concerns, CFIUS blocked several high-profile deals over the past year, including Ant Financial’s attempt to buy MoneyGram International for US$1.2 billion and the proposed US$117 billion purchase of Qualcomm by Singapore-based Broadcom.
The rejections took some analysts by surprise because CFIUS reviews were originally designed to prevent the transfer of sensitive technologies that could be used to give a foreign power military advantages over the US.
The body’s reviews of Chinese acquisitions have recently taken more factors into consideration, including the amount of personally identifiable data the acquirer would get access to.
Trump kills US$117 billion takeover of Qualcomm by Singapore’s Broadcom, citing national security threat
Washington may tighten the screws even further on Chinese investments in the US.
Senators John Cornyn, a Republican from Texas, and Dianne Feinstein, a Democrat from California, have co-authored a bill that would create the Foreign Investment Risk Review Modernisation Act (FIRRMA), which would widen the scope of government reviews of foreign investments on national security grounds.
Cornyn has tried to convince fellow lawmakers to support the act to stop China from using its “tentacles” to undermine American security through the acquisition of advanced technologies.
Qiao said that while he believed Washington and Beijing would eventually come to an agreement to prevent an all-out trade war, his bank was preparing for the worst.
“We have some measures to deal with the situation in case the two sides cannot reach agreement,” he said. “Maybe we can increase our local business.”
Bank of China USA was the first mainland Chinese lender to open for business in the US, in 1981, after Washington re-established diplomatic relations with the People’s Republic of China.
Total outstanding loans grew to about US$60 billion in 2017, compared with roughly US$25 billion in 2011, Qiao said.
“We’ve been here for more than 37 years,” he said. “We’ve seen many cycles, and we’ve always developed ourselves. ”