Development Finance Institutions Jointly Support the Belt and Road Initiative China Economic Information Service
Contents I. Establishing International Platforms for Financial Cooperation... 1 II. Expanding International Markets via Infrastructural Development... 2 1. Chinese Policy Banks... 3 1.1 China Development Bank (CBD)... 3 1.2 Export-Import Bank of China (China Eximbank)... 4 2. Special Funds and Multilateral Financial Institutions... 5
During the construction of Belt and Road, China is seeking to form a new foreign cooperation pattern which, with cooperation in basic infrastructure and production capacity as an approach, is backed up financial cooperation, says a report released by National Institution for Finance & Development. I. Establishing International Platforms for Financial Cooperation During the construction of Belt and Road, China is seeking to form a new foreign cooperation pattern which, with cooperation in basic infrastructure and production capacity as an approach, is backed up financial cooperation. China actively carries out financial cooperation with countries along the Belt and Road and international financial institutions and sets up international platforms to meet the financial services needs of those countries for infrastructural construction. Development financial institutions that take part in the Belt and Road Initiative fall into the following three types: multilateral development financial institutions, Chinese policy banks and special investment funds. Of these institutions, international multilateral development financial institutions are the pioneers while Chinese policy banks serve as a strong pillar of financial cooperation. Since 2013, China Development Bank (CBD) has signed more than 140 agreements with partners along the Belt and Road countries, involving a total financing amount of more than 130 billion U.S. dollars. Table: Classification of Development Financial Institutions Type of Financial Institution Name Institution How and What to Support AIIB is a regional multilateral development financial institution with a registered capital of 100 billion U.S. dollars. It disbursed its first loans in Asian Infrastructure 2016. AIIB mainly provides loan support for projects in infrastructure Investment Bank (AIIB) and related sectors. Currently, most of the projects supported by the bank are located in countries along the Belt and Road. Financial NDB BRICS is a regional multilateral development financial institution institutions for New Development with a registered capital of 50 billion U.S. dollars which is shared equally multilateral Bank BRICS (NDB among the 5 BRICS countries. The bank mainly finances infrastructure development BRICS) projects in BRICS countries and other developing countries. World Bank (WB) WB joins AIIB and NDB BRICS in co-financing projects in countries along the Belt and Road. Asian Development ADB is a regional multilateral development financial institution. It joins Bank (ADB) AIIB and NDB BRICS in co-financing the Belt and Road projects. Policy banks China Development CDB serves China s economic diplomacy strategies. It supports Chinese 1
Special investment funds Bank (CDB) The Export-Import Bank of China (China Eximbank) Silk Road Fund companies to expand international business. CDB aims at providing comprehensive financial services, including consultancy for strategic planning, project planning and incubation for China s cooperation with the Belt and Road countries. China Eximbank supports import and export trade and go global projects of Chinese companies. The fund was established for a purpose similar to that of AIIB. It is an organization designed specifically for supporting the Belt and Road Initiative. Established on December 29, 2014, the fund owns 40 billion U.S. dollars, with investment from the State Administration of Foreign Exchange (via Wutongshu Investment Platform Co., Ltd.), China Investment Corporation (via Sailisi Investment Co., Ltd.), China Eximbank and China Development Bank (via CDB Capital Co., Ltd.). Source: Compiled based on public information II. Expanding International Markets via Infrastructural Development As an engine for economic globalization, the Belt and Road Initiative places infrastructural construction on top agenda. Only better infrastructural connectivity can encourage business investment, trade and people-to-people exchanges. Characterized by gigantic amount of investment, long construction cycle and long-term fund occupancy but low earnings, infrastructural construction calls for long-term, stable, big-amount and low-cost funding. As regions along the Belt and Road are mostly emerging economies and developing countries, their economic strength and financing capabilities are relatively weak. Financial Tools Equity Tools Bond Tools IPO Tools Unlisted Stocks Dealings in Bond market OTC Stocks Listed Infrastructure Project Funds Direct Investment Indirect Investment Corporate Bonds Bonds for Infrastructure or Related Project Asset-Backe d bonds Direct Investment in Infrastructure Projects Special Infrastructure Project Funds Figure: Tools for Infrastructural Financing 2
An effective and sustainable financing mechanism should be established in consideration of the serious bottlenecks constraining infrastructural development and financing along the Belt and Road. 1. Chinese Policy Banks Chinese policy banks mainly refer to China Development Bank (CDB) and the Export-Import Bank of China (China Eximbank). They take part in the Belt and Road Initiative mainly through providing financing and financial consulting services along with low-cost financing support for Chinese and foreign companies and large-scale projects. 1.1 China Development Bank (CBD) By the end of 2016, CDB had granted loans of more than 160 billion U.S. dollars to countries along the Belt and Road. It maintained a loan balance of more than 110 billion U.S. dollars, accounting for over 30% of its international business balance. In addition, the bank reserved over 500 foreign exchange projects in the Belt and Road countries, involving aggregate financing demands of more than 350 billion U.S. dollars. According to industry categories, road, shantytown renovation, public infrastructure, strategic emerging industries, electrical power and railways attracted most loans, with the first three industries taking up 45.55% of the outstanding loans. So far, CDB has invested in an array of infrastructure projects, such as Jakarta-Bandung High-Speed Railway, the infrastructure facilities and 300,000-ton Ferronickel Smelting Project in Indonesia Morowali Industrial Park, the lending to two major Egyptian banks, the coal-fired power plant in Pakistan, and Astana Light Rail Project in Kazakhstan. Table: Related Funds Recently Established by CDB Co-Establishment China-UAE Joint Investment Fund (China-UAE Fund) China and the United Arab Emirates set up an investment cooperation fund worth 10 billion U.S. dollars in December 2015. The first tranche involved 4 billion U.S. dollars, with each party contributing one half. The fund is jointly managed by Mubadala Development Company of Abu Dhabi, China Development Bank Capital(CDB Capital) and State Administration of Foreign Exchange(SAFE). The fund is operated according the commercial principles. It invests in traditional energy, infrastructure construction and high-end manufacturing, clean energy and other high-growth industries mainly in China, UAE and other countries and regions with great growth potential. 3
China-France (Buyout) Fund China-Latin America Capacity Cooperation Fund China-Africa Development Fund China-Portuguese Speaking Countries Cooperation and Development Fund Silk Road Fund The fund involving EUR 500 million was established by CDB Capital, Bpifrance and Cathay Capital Private Equity in March 2014. It is aimed at promoting the growth and internationalization of medium-sized companies in China, France and Europe. The fund, through supporting the advancement of medium-sized companies in these places, facilitates cooperation between China and France as well as China and Europe. It plays a critical role in propelling economic growth and creating employment. Initiated by the People s Bank of China, SAFE and CDB, contributed by SAFE and CDB, operating from August 2015, the fund provides medium- and long-term financing, with an outlay of 30 billion U.S. dollars. The first tranch of this fund involved 10 billion U.S. dollars. In forms of equity and bonds, the fund makes investment in manufacturing, high-tech, agriculture, energy and mineral, infrastructure and financial cooperation in Latin America, so as to realize medium- and long-term viability. This fund does not seek to control or take majority shares. It provides equity investment to encourage and support Chinese enterprises to invest in Africa, support the growth of African SMEs and the construction of significant projects that may benefit local economy. The fund is an equity investment fund dedicated to investing in eight Portuguese speaking countries and regions, i.e. China (including Macau), Angola, Brazil, Cape Verde, Guinea-Bissau, Mozambique, Portugal and East Timor. See details below. Sources: CDB, Minsheng Securities 1.2 Export-Import Bank of China (China Eximbank) During 2014 to late 2016, China Eximbank signed more than 1,100 projects with the countries along the Belt and Road, with a total contract amount of more than RMB 700 billion. It issued more than RMB 540 billion in loans and accumulatively supported business contracts with a total amount of more than 410 billion U.S. dollars. These projects are distributed in 50 countries along the Belt and Road. Moreover, from 2014 to November 2016, China Eximbank supported nearly 70 infrastructural connectivity projects along the Belt and Road, driving a total investment of more than 30 billion U.S. dollars. More than 70 percent of these projects belonged to the transportation sector, including highways, railways, airports and water transport. Table: Funds Established Involving China Eximbank China-Latin America Cooperation Fund Initiated and funded by China Eximbank and SAFE, China-Latin America Cooperation Fund went into operation in January 2016 as a limited partnership fund registered abroad. With a total financial outlay of 10 billion U.S. dollars, the fund invests in forms of equity and bonds in the areas of energy and resources, infrastructural construction, agriculture, manufacturing, technological innovation, IT, 4
China-Africa Development Fund China-ASEAN Investment Cooperation Fund Silk Road Fund industrial capacity cooperation, consumer retail and medical care in Latin America, and supports cooperation projects between China and Latin America.. Established in November 2015 by the Central Bank and China Eximbank, China-Africa Development Fund has a first-tranche scale of 10 billion U.S. dollars. With respective capital contributions of 8 billion and 2 billion U.S. dollars, the Central Bank and China Eximbank hold a stake of 80 percent and 20 percent, respectively. China-ASEAN Investment Cooperation Fund was established in 2010 by China Eximbank in association with several domestic and foreign investment institutions, with China Eximbank as the main issuer. With a target scale of 10 billion U.S. dollars and the first-tranche scale of 1 billion U.S. dollars, the fund mainly invests in infrastructure, energy, natural resources and other fields in the ASEAN region, including transportation, power, renewable resources, public utilities, telecommunications infrastructure, pipeline storage and transportation, public facilities, minerals, petroleum and natural gas, and forests. In November 2015, China Eximbank signed a memorandum of understanding on strategic cooperation with the fund. In this way, it offered enterprises a complete package of financial services through investment-loan integration and other innovative models with industrial capacity cooperation and infrastructure as key investment fields, thereby substantially promoting the implementation of the Belt and Road Initiative. See details below. Sources: Export-Import Bank of China and Minsheng Securities Research Institute China Eximbank s key infrastructure investment projects include Djiploho Upper Regulating Reservoir in Equatorial Guinea, Mombasa-Nairobi Standard-Gauge Railway in Kenya, Addis Ababa-Djibouti Railway and Garissa 50MW PV Power Plant. 2. Special Funds and Multilateral Financial Institutions Silk Road Fund, New Development Bank (NDB) and Asian Infrastructure Investment Bank (AIIB) went into operation in January 2015, July 2015 and January 2016, respectively. These institutions are respectively funded by China, BRICS countries and 57 other countries in five continents, with a respective designed first-tranche scale of RMB 40 billion, RMB 50 billion and RMB 100 billion. Silk Road Fund and AIIB are financial support institutions tailored for the Belt and Road Initiative. In terms of investment direction, Silk Road Fund, NDB and AIIB have supported a total of 27 projects in 2015 and 2016, of which more than 85 percent were infrastructural projects in the fields of clean energy, transportation and power transmission lines. Under the signed MOU, the three institutions will stay focused on clean energy, road transportation and other infrastructural fields in the future. 5
As an institution established for the development of the Belt and Road Initiative, Silk Road Fund has operated for a long time, acquired and developed a lot of investment opportunities during its growth, and created a preliminary evaluation model. In terms of investment direction, it targets projects that promote connectivity, energy resource development and industrial capacity cooperation. It also focuses on medium- and long-term projects of social significance and industrial value in the Belt and Road construction. Table: MoU Projects Signed by Silk Road Fund Date Target Country Domestic Partner Foreign Partner Investment Amount Details November 14, 2016 France China International Capital Corporation Limited FC Global Group, Amundi Asset Management Silk Road Fund holds a stake in FC Global Group. The fund aims at raising EUR 400 million for making investments in French and other European companies. Acquisition of a minority stake in Sibur was November 7, December 14, 2016 Russia China Development Bank PJSC Holding Russia SIBUR of 10 percent stake China s largest investment in Russia in 2016. The investment, geared to Russia s Far East development strategy, will promote China-Russia energy cooperation. China Silk Road Fund will work with the Serbian June 18, 2016 Serbia Gezhouba (Group) Serbian Government government in renewable energy fields including hydropower, wind power, Corporation photovoltaic and biomass. June 15, 2016 European Bank for Reconstruction and Development The two sides will hold dialogues at all levels to exchange investment ideas and information on potential cooperation projects. They will also seek common investment opportunities and maximize the synergistic effect between the two sides. A tripartite framework cooperation Beijing EEW Energy agreement on green and clean energy June 13, 2016 Germany Enterprises From Waste utilization was reached to support solid Holdings Ltd. GmbH waste disposal operations in China, Germany and the rest of Europe. January 9, 2016 UAE, Egypt ACWA Power International The two sides will jointly develop Hassyan Clean Coal-Fired Power Plant of UAE and Dairut LNG Power Plant of Egypt. The two sides will establish December 14, 2015 Kazakhstan Kaznex Invest 2 billion U.S. dollars China-Kazakhstan Industrial Capacity Cooperation Fund to support China-Kazakhstan industrial capacity 6
cooperation and project investments in relevant fields. The two sides will cooperate under the framework of China-Kazakhstan Industrial December 14, 2015 Kazakhstan Baiterek JSC Capacity Cooperation Fund to seek cooperation in some preferred fields, including industrial capacity, innovation and IT. September 3, 9.9 percent December 17, Russia Pao Novatek stake, EUR Yamal LNG Project, Russia 2015 730 million State Corporation Bank for September 3, 2015 Russia Development and Foreign Economic Affairs, Russian The two sides will jointly invest in fields including infrastructure, industrial cooperation, power and energy. Direct Investment Fund June 5, 2015 Italy China National Chemical Corporation Camfin Italy The two sides will jointly invest in Pirelli to build a market leading position in the global tire industry. April 20, 2015 Pakistan China Three Gorges Corporation Private Power & Infrastructure Board 1.65 billion U.S. dollars The two sides will provide financial support for Pakistan s clean energy development and Karot Hydropower Project on Pakistan s Jhelum River. Sources: Silk Road Fund Co., Ltd. and Soochow Securities Research Institute Unlike policy banks, Silk Road Fund prefers making medium- and long-term equity investments to solve financial problems for some long-term projects with a large financing amount. Meanwhile, NDB aims to mobilize resources to support the infrastructural construction and sustainable development projects of BRICS countries, other emerging economies and developing countries. Moreover, AIIB is an intergovernmental multilateral development institution in Asia. With focus on infrastructural construction, it aims at reducing the outflow of capital from Asia, investing in Asia s vitality and growth and promoting connectivity and economic integration in Asia. AIIB approved first four loans totaling 509 million U.S. dollars in June 2016, three of which would be 7
issued in association with other multilateral development banks. 8