Chinese, foreign financial institutions open slew of branches to support initiative

By Ma JingJing Source:Global Times Published: 2017/5/22 19:03:40

Banking on the Belt and Road

Banks say they play a significant role in offering financial support to projects under the Belt and Road (B&R) initiative. Nine Chinese banks had established 62 primary affiliates in 26 countries and regions along the B&R route by the end of 2016, according to the China Banking Association. And 54 commercial banks from 20 B&R countries and regions have set up 67 primary affiliates in China. In addition to multilateral development banks and the Silk Road Fund, financing channels such as bond issuances and Public-Private Partnerships are likely to provide strong financial support for the initiative.

Photo: IC

Graphics: GT

Chinese and foreign banks have jumped at participating in the Belt and Road (B&R) initiative through loans, bond issuances and Public-Private Partnerships (PPPs), which experts said will provide financial support for the China-proposed initiative while keeping risks under control.

By the end of 2016, nine Chinese banks had set up 62 primary affiliates in 26 countries and regions along the B&R route to provide tailored financial services, Pan Guangwei, deputy director of the China Banking Association (CBA), said at a press conference on May 11.

Employing diversified financial tools such as syndicated loans, industry funds and credit swaps, domestic banks have played a significant role in the implementation of key B&R projects in transportation, power generation and telecommunications, Pan said.

In 2016, domestic companies entered into engineering contracts worth $126 billion in B&R regions, while foreign direct investment into these regions reached $14.5 billion, Pan said, noting that all of the projects rely on bank financing.

For example, for the past three years, Industrial and Commercial Bank of China (ICBC) has provided all manner of financial services for B&R projects. The bank had set up 127 branches in 18 countries and regions along the B&R route by the end of the first quarter of 2017, lending a total of $67.4 billion for 212 projects under the initiative, according to a statement ICBC sent to the Global Times Thursday.

China Construction Bank (CCB) has set up 26 primary affiliates overseas to offer cross-border financial services for B&R clients, Li Hongmao, vice president of CCB's Guangdong branch, said Thursday at a press conference in Beijing. At present, the bank has provided tailored financial services for 84 key clients along the route.

The domestic banking sector has also optimized its structure in Northwest China's Xinjiang Uyghur Autonomous Region, an important node on the B&R route.

The Xinjiang office of the China Banking Regulatory Commission (CBRC) has guided domestic banks to optimize their distribution in the regions along the route and help foreign countries establish branches in Xinjiang, the office told the Global Times on Thursday.

These efforts have born fruit. Habib Bank, the largest commercial bank in Pakistan, set up its first branch in Xinjiang in March in the region's capital of Urumqi, according to a statement the office sent to the Global Times Thursday. Nine domestic village and town banks and four rural commercial banks have also set up shop in the region.

As of the end of the first quarter of 2017, 144 banks have been established in Xinjiang, with 3,745 business outlets, said the statement from the Xinjiang office of the CBRC.

Foreign endorsement

In addition to domestic banks, many foreign banks are also participating in the B&R initiative by coordinating with their branches in China to provide financial services for B&R projects, the CBRC said in a statement sent to the Global Times on May 16.

As of the end of 2016, 54 commercial banks from 20 B&R countries and regions have set up 67 primary affiliates in China, comprising six subsidiaries, one financial company, 20 branches and 40 representative offices, Pan said.

Standard Chartered PLC illustrates foreign banks' interest in the initiative. About 68 percent of the bank's business units are located in the regions along the route, according to Zhang Xiaolei, executive vice chairman and CEO of Standard Chartered Bank (China) Ltd.

The bank has established special organizations to integrate resources to support the initiative.

The bank has relationships with several regional development banks, Chinese policy banks and commercial banks, and has experience in financing B&R projects in countries and regions including Pakistan, Malaysia and Middle East, Zhang told the Global Times on Friday via e-mail.

In 2016, the bank conducted 40 transactions related to the B&R initiative, bringing in revenue of more than $100 million, data from the bank showed.

Coordination is key

Because companies need large amounts of steady capital for cross-border infrastructure investment and operation, they face exchange rate risks, interest rate risks and credit risks, Zhang noted.

In addition, companies also face operational risks investing in the regions along the route because they don't know enough about the local societies, customs, politics and laws, Zhang said, noting that geopolitical risks have also emerged amid growing local protectionism.

The banking sector faces risks and challenges in supporting the B&R initiative, but China's financial institutions have distinctive advantages, said Pan, the deputy director of the CBA.

He said that China has a built-in advantage in that its central government and regulators have established a coordination mechanism to integrate resources.

Because many countries and regions along the route are at different stages of development, with different regulatory and legal environments, cross-border banking cooperation faces problems such as asymmetric information, ICBC President Yi Huiman said at a panel at the Belt and Road Forum for International Cooperation on May 14.

ICBC aims to facilitate cooperation with banks in B&R markets and strengthen cooperation in regions including fundraising, risk control and international settlement, he said.

E Zhihuan, chief economist of the Bank of China (Hong Kong), believes that the B&R initiative still requires large amounts of capital, and thus it is necessary to expand financial cooperation, develop strong financing channels and explore multilateral institutions' cooperation with market-oriented financial institutions.

In a report released on Friday, she said that Chinese authorities should encourage financial institutions to conduct a 300-billion-yuan overseas yuan-fund business to provide a new currency option.

Besides, innovative financing methods like PPPs, syndicated loans and infrastructure bonds will likely become powerful financing channels for the initiative, she noted.

She also proposed developing a multilevel capital market and forging an international financing platform where mature investment projects under the B&R initiative can issue bonds or otherwise raise funds.

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