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Inclusive and Innovative Ways of Funding -- “Belt and Road” Initiative: Building Synergy with EU Policies and Strategies

Time:2017-09-09 09:30:43    Views:32274    Origin:Boao Forum for Asia

On Sept 14th and 15th, Boao Forum for Asia (BFA) will hold a special meeting in Paris, France. The conference is themed as “‘Belt and Road’ Initiative: Building Synergy with EU Policies and Strategies”. Governmental, business, scholar and research personages from Asia and Europe, including host country France, are invited to the conference to analyze the key opportunities and challenges during the implementation of the “Belt and Road” initiative and coordination with EU policies and strategies from the perspectives of infrastructure, trade, investment and finance.

Capital is the “bloodline” and “food” of the “Belt and Road” initiative. In May this year, President of the People's Bank of China (PBC) ZHOU Xiaochuan pointed out in an article published in the journal “China Finance” that it is necessary to advance the network layout of financial institutions and financial services, prompt countries along the Belt and Road to work together, and effectively mobilize domestic and international resources so as to provide long-term and reliable financial support for the “Belt and Road” initiative.

The Important Role of Multi-lateral Development Institutions

According to the Asian Development Bank's (ADB) forecast in February 2017, from 2016 to 2030, the infrastructure investment demand from emerging Asian markets will reach about $26 trillion, namely $1.7 trillion a year, more than double the 2009 forecast. This figure does not include Africa and Europe.

The “Belt and Road” countries have long infrastructure investment cycles, high demand for funds, low rate of return on investment, and relatively weak finance. So there will be great financing bottlenecks. How to leverage more funds into countries along the “Belt and Road” route?

Multilateral development banks play a very important role in this regard. On the one hand, the multilateral development institutions support the national long-term planning, provide long-term loan based on market interest rates for market operation and leverage the global capital into the developing countries along the “Belt and Road” route through development-oriented financial models; on the other hand, through cooperation, multilateral institutions can strengthen financial policy communication and form the network layout of the “Belt and Road” financial cooperation.

At present, the Asian infrastructure Investment Bank (AIIB), the BRICS National Development Bank (NDB), the SCO Development Bank (SCODB) and other “new stars” are seeking cooperation with “veterans”, such as the World Bank (WB), the Asian Development Bank (ADB), and the European Bank for Reconstruction and Development (EBRD) to promote the development of infrastructure.

At the BFA Financial Cooperation Conference in London in 2015, EBRD President Soumah Chakrabarty met with AIIB President JIN Liqun. JIN said that AIIB and EBRD share some common members and the two sides boast a great prospect for cooperation in promoting the connectivity between Europe and Asia. Chakrabarty pointed out that EBRD and AIIB have similar development approaches and that EBRD can be a good example for Asia Infrastructure Investment Bank in terms of development model and market experience.

Asian financial connectivity is imperative

Europe is the birthplace of modern finance and has long been a leader in global finance. In recent years, Europe has been attaching more and more attention to the opportunities brought by the "Belt and Road" initiative and hopes to exploit its advantages in financial services. Of the 57 founding members of AIIB, 18 are from Europe, accounting for almost 1/3 of the total, including Russia, Britain, Germany, France, Italy and other countries. Britain was the first western country joining in.

Why does the “Belt and Road” initiative gain popularity in Europe? In 2015, at the BFA Financial Cooperation Conference in London, Vice Chairman of the BFA and former Vice Premier of the State Council of China ZENG Peiyan pointed out that in the international financial system, Asia owns a large amount of funds and needs to learn from the mature capital market while the modern European financial service industry wishes to expand the market outside the area to enhance liquidity.

ZENG stressed that in the future Eurasian connectivity will be imperative. It will not only provide strong and efficient investment and funding guarantees for "Belt and Road" Initiative, the "Juncker plan" and other Asian and European development plans but also contribute to advancing the reform of the international monetary system and improving the world financial system and global economic governance.

At this meeting, BFA also established its Expert Committee of Financial Cooperation, with Shaukat Aziz, former Prime Minister of Pakistan, former Executive Vice President of Citibank, and Board member of the BFA and WU Xiaoling, former Deputy Governor of the PBC as the Co-Chairs and other 11 Chinese and foreign financial leaders as members.

Policy coordination is the first step toward financial integration. The “Belt and Road” initiative has yet to form a unified policy coordination mechanism, and the Asian Financial Cooperation Association (AFCA) fills the void. In March 2015, Chinese President XI Jinping delivered a keynote speech at the BFA Annual Conference 2015 and said that we need to explore and build a platform of exchanges and cooperation for Asian financial institutions. In March 2016, Chinese Premier LI Keqiang proposed again to set up AFCA at the opening ceremony of the BFA Annual Conference 2016. As one of the achievements of the “Belt and Road” Forum for International Cooperation, AFCA was formally established on May 11, 2017 in Beijing. 107 financial institutions in 27 countries and regions outside Asia have become members of the Association.

China Provides Impetus for the “Belt and Road” Financial Cooperation

China has long been committed to financial integration among countries along the “Belt and Road”. So far, China has joined or set up 9 multilateral development institutions, of which four are multilateral bodies in coordination with the Ministry of Finance, including the WB, ADB, AIIB, BRICS Development Bank; another 5 multilateral development institutions are in collaboration with the the PBC, and they are: African Development Bank (AFDB), Inter-American Development Bank (IADB), EBRD, Caribbean Development Bank (CDB), and PTA Bank.

According to the PRC National Development and Reform Commission (NDRC) statistics, loans released by the Export Import Bank of China (China Exim bank) and the China Development Bank (CDB) to countries along the “Belt and Road” exceeded $110 billion. China Export and Credit Insurance Corp (SINOSURE) has underwritten over $320 billion of export and investment in countries along the “Belt and Road” and the foreign investment of Silk Road Fund (SRF) is over $ 6 billion. Nine banks have set up 62 primary branches in 26 countries along the "Belt and Road", and 20financial institutions of countries along the route have set up dozens of branches and representative offices in China.

Efforts at the internationalization of RMB complement the “Belt and Road” initiative. RMB settlement in the Belt and Road countries will help reduce costs, improve trade efficiency and maintain financial stability. In addition, the internationalization of RMB will further promote the financial integration among these countries. According to the 2016 White Book on RMB Internationalization, 74% of the respondents in the countries along the Belt and Road find it easy to obtain the needed local RMB products and services. This proportion increased by 2 percentage points compared with the previous year. Poland, Hungary and many other Belt and Road countries have issued Panda bonds.

The strength of the multilateral development banks alone is far from enough. The “Belt and Road” initiative needs diversified financing channels. To this end, we will develop innovative financial products and encourage more private capital to invest in it, such as bonds, stocks and other innovative financial products. We will vigorously promote public-private partnership (PPP) model and further open the capital market.

Europe is the birthplace of modern finance, with a well-developed financial service industry and a wealth of international market experience. As the world economic center is shifting eastward, if Europe hopes to maintain its leading position, it needs to pay attention to the market in Asia and the “Belt and Road” initiative. China currently leads in financial technology in the world and possesses advanced technologies and rich experience in Internet financing and mobile payment. China and Europe have complementary advantages. What cooperation will they carry out in global finance and innovation?

On the afternoon of September 15th, Boao Forum for Asia Paris Meeting will hold the session “Inclusive and Innovative Ways of Funding”. Shaukat Aziz, FAN Yifei, Deputy Governor of the PBC, Benoist GROSSMANN, managing partner of INDINVEST, Enzo QUATTROCIOCCHE, Secretary General of the EBRD, SHI Wenchao, Vice Chairman and President of China UnionPay Co. Ltd, and David WRIGHT, senior adviser and former Vice Chairman of Barclays Bank will attend the session and deliver speeches. They will discuss issues related to “Belt and Road” financial cooperation and innovation. There is much to be expected at this feast for the mind.

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