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Financial firms key to China's clout
MORE than 100 countries and international organisations have given the thumbs up to the Belt and Road Initiative and China, as its initiator, has been working well with over 30 countries along the route to realise the potential, and discover how it can be of benefit to all. In the years between 2014 and 2016, China has invested a total of more than US$50 billion in countries and regions along the route. Projects related to the initiative cannot go without financial support. Financial institutions play a key role in the success of the Belt and Road Initiative indeed!
Infrastructure development and connectivity are main priorities in the Belt and Road Initiative. According to the Asian Development Bank's estimates, infrastructure needs in developing the Asia-Pacific region will exceed US$26 trillion through 2030.
Faced with such humongous demand, there is great urgency to find ways to fund the infrastructure projects by strengthening financial support. Therefore, financial institutions can certainly play an important role in raising capital under a multi-purpose, open financial system comprising policy and commercial banks as well as other multilateral development organisations, at the same time, getting the private sector on board.
There are obvious differences in the nature of commercial banks, multilateral development organisations as well as policy banks. With their respective characteristics complementing one another, they provide many advantages to fund the Belt and Road Initiative.
Firstly, for the commercial banks, it is the lenders' overseas service network. Take Bank of China for example. In order to serve the Belt and Road Initiative well, the bank has increased its reach overseas to cover 51 countries and regions globally. It has set up more than 600 branches and offices abroad. They include those in some 20 countries along the route of the Belt and Road Initiative. Also, the bank has continued to deepen comprehensive cooperation with various global financial institutions and established correspondent relationships with more than 1,600 financial institutions in 179 countries and regions.
Secondly, it is the size of the banks' capital. The objective of commercial banks dictates that their investment must have fair returns. Therefore, they feel safe only in financial projects which are commercial or strategic in nature, and those which ensure fair returns and are low-risk. In 2015, Bank of China proposed a big financial plan for the Belt and Road Initiative with the objective of providing financing of up to US$100 billion in the next three years. Up to May 2017, the bank had already financed over 400 big projects to the tune of US$68 billion, all of them involved in the Belt and Road Initiative and were in countries along the route.
Together, those projects had already attracted a total investment of more than US$400 billion. It is projected that Bank of China would have provided loans totalling more than US$100 billion for projects under the Belt and Road Initiative by the end of this year.
Thirdly, it is the wide range of banks' services. Commercial banks' products and services are usually both comprehensive and innovative. They can be tailor-made to suit special and practical needs of their customers. Bank of China has licences to cover commercial and investment banking, fund management, securities, insurance and leasing services which are needed for the Belt and Road Initiative.
For example, to attract investments, it offers loans; to facilitate mergers and acquisitions, it provides investment banking facilities; to accumulate capital for projects along the route, it issues bonds including offshore ones; and to serve the enterprises which invest or conduct business along the route, it provides consultancy on investments, interest rates, foreign exchange as well as insurance matters.
Fourthly, it is the banks' multiple sources for funds. Commercial banks have many channels to solicit funds. Besides attracting bank deposits and interbank borrowing, they also issue bonds, CD & CP, all credit facilities to meet the large sums of capital needed for the Belt and Road Initiative in the long-term. For example, Bank of China was the first to introduce the thematic bond especially created for the Belt and Road Initiative, issuing it successfully thrice with overwhelming support which attracted a total subscription of US$7.6 billion. It attracted the attention of many global capital ventures and institutional investors, thereby creating greater awareness of the Belt and Road Initiative.
Lastly, it is the strong risk management capability. Commercial banks are basically risk-management enterprises capable of differentiating the kinds of risks and evaluating, reducing and resolving them under a management system within which they provide a wide range of services in the area.
In financing the Belt and Road Initiative, the many international financial centres around the world can play an important role too. Fund managers globally manage assets worth trillions of dollars and projects under the Belt and Road Initiative are therefore their potential targets as well. International financial centres including those along the route such as Hong Kong, Singapore and London are capable of financing projects under the initiative. This is because these centres are connected to many institutional investors as well as individual investors with ready funds. In addition, they have also gathered many financial institutions with expertise ranging from accounting and auditing services to other related management and professional services which can come in handy for the purpose of the Belt and Road Initiative.
China's investment in Singapore has been on the rise in recent years and joint projects led by enterprises from both sides have also been increasing in countries along the route.
It is possible, therefore, that Singapore has the great potential to be the major financial hub to support the Belt and Road Initiative in South-east Asia. Bank of China Singapore Branch has been riding on Singapore's reputation as an international financial centre. Together with several China-Singapore joint projects, Bank of China Singapore Branch has also planned marketing strategies to benefit from the growth of the Belt and Road Initiative.
With the development of the initiative, the bank has in recent years also grown business from Singapore and the other Asean countries to North-east Asia, the Middle East, Australia, Europe, Africa and other overseas markets. To date, Bank of China Singapore Branch has financed successfully over US$10 billion in projects related to the Belt and Road Initiative, spread over more than 10 countries and regions along the route
Looking to the future, Bank of China Singapore Branch will continue to leverage on the bank's global image and Singapore as an international financial centre to promote cooperation between China and Singapore as well as to be a leading RMB services provider and a major financial supporter to serve the Belt and Road Initiative.
- The writer is general manager of Bank of China Singapore Branch, Country Head.