Author: Wang Cong
Posted on: Global Times, May 12th, 2017




Chinese banks have been issuing loans and making equity investments in vast amounts in countries along the One Belt and One Road initiative, in support of the plan that aims to connect Asia, Europe and Africa to bolster trade and development.

The enormous investments could put Chinese banks in an advantageous position in these regions, which have tremendous development potential, but they could also pose some serious challenges, given that projects require long-term investments, have low returns and face many potential risks, experts noted.

Total outstanding loans from the China Development Bank and the Export-Import Bank of China (Eximbank), two of the three policy lenders in China, to countries and regions along the Belt and Road route have reached $200 billion so far, Pan Guangwei, a vice president of the China Banking Association, told a news conference on Thursday.

State-owned commercial banks have also made huge investments. Together, Bank of China, the Industrial and Commercial Bank of China (ICBC) and China Construction Bank have so far offered a total of $527.2 billion in loans and equity investments for 1,012 projects in Belt and Road countries, Pan said.

Most of those loans and investments have gone to or will go to infrastructure projects such as roads, railways, ports, and telecommunication and energy projects, Pan said.

The vast investments from Chinese banks aim to fill a massive funding gap in infrastructure projects in the Belt and Road countries, analysts said. In Asia alone, there is a funding gap of $26 trillion in such projects that needs to be filled by 2030, the Asian Development Bank said.

«There are a lot of opportunities in infrastructure in these regions, and with the Belt and Road, Chinese banks have the policy support to pursue these opportunities,» said Dong Dengxin, director of the Finance and Securities Institute at the Wuhan University of Science and Technology.

One example of policy support is that investments in projects under the Belt and Road are not subject to measures authorities have imposed to restrict speculative outbound investment activities amid rising pressure of capital outflows.

With these investments, Chinese financial institutions got off to an early start in these regions, Liu Xuezhi, a senior analyst at the Bank of Communications, said.

«We are investing in the future, looking for long-term gains, not short-term returns,» Liu told the Global Times. «Once the infrastructure is improved, all kinds of business will follow and Chinese companies will be the first to see it.»

Challenges and risks

But even with such policy support and overall growth prospects, there are challenges and risks in funding these projects, which are mostly in developing countries, officials and experts said.

There is an immense demand for infrastructure funding, but so far only Chinese financial institutions, mostly non-commercial lenders, are trying to fill that gap, while the participation of foreign financial institutions is limited and domestic commercial banks still need to step up their efforts, Pan said.

«For some infrastructure projects, the social benefits outweigh the commercial benefits. The commercial returns are very low, so commercial banks may not be willing to participate,» Sun Ping, vice president of the Eximbank, said Thursday at the same briefing.

ICBC vice president Zhang Hongli also said that not all the more than 400 projects the bank has invested in will be economically successful, «because there are so many uncertainties and risks during the whole process of the projects.»

Differences in political and economic situations in these countries create uncertainty, and some companies in these countries might not be able to pay back the loans, according to Pan.

Still, the future prospects outweigh the current challenges and risks, banking officials said, adding they will take all necessary measures, including strict vetting of borrowers, to fend off potential risks.



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