China weighs Silk Road investment options

CHINA hopes to build close partnerships with financial institutions, enterprises, multilateral development institutions and governments, says Jin Qi, CEO of the Silk Road Fund  . . . 

China has already signed Belt and Road memoranda of understanding with about 30 countries, including Russia and Hungary, according to Jin Qi, Chief Executive of the Silk Road Fund.

Qi, who was previously an Assistant to the Governor at the People's Bank of China, told a Belt-and-Road Seminar in Hong Kong that Russia and China have signed a joint statement on co-operation on construction of joint Eurasian Economic Union and Silk Road projects. Beijing has also signed an MOU with Hungary to jointly promote construction of Belt-and-Road.

She said China’s major step in advancing the Belt-and-Road Initiative was the creation of the Silk Road Fund. China plans to contribute US$40 billion to the fund, which she said, is positioned as a medium to long-term development and investment  Vehicle.

Its aim, she said, is to provide investment and financing support for bilateral and multilateral economic, and trade exchanges and connectivity under the Belt-and-Road framework.

Since the Silk Road Fund was established last year, it has invested in three projects. It supports the China Three Gorges Corporation to develop hydropower and clean energy in Pakistan and other south Asian countries; the China Chemical Industry Group in its acquisition of a controlling stake in the Italian tyre company, Pirelli; and the acquisition of a stake in Russia’s Yamal LNG.

These three projects represent the fund’s attempts to support a “going global” of China’s technical standards and equipment, to bring in international advanced technologies and management expertise, promote industrial structural reform and upgrading, and initiate international energy co-operation, she said.

The fund is dedicated to supporting infrastructure, resources and energy development, and industrial capacity co-operation projects under the Belt-and-Road framework, Qi said. “These projects often involve large-scale investments and longer payback periods, and require the support of equity investments.”

She added: “Among China’s foreign investments in recent years, equity investment has increased from representing less than 10 per cent to more than 20 per cent. Yet it is still below the actual financing needs of enterprises.

“To galvanise more capital investments, the Silk Road Fund can provide smaller equity capital to projects, thereby increasing confidence in them and helping the projects achieve a more reasonable financing structure.”

Qi said the fund’s key investment considerations include alignment with the host countries’ development strategies and industry planning, contributions to the host countries’ real economic development, the impact on the acceleration of industrialisation, urbanisation and economic structural reform, and promotion of industry structuring, industry chains and sustainable economic development.

The Silk Road Fund is not a “policy-related or aid agency” she said. “We invest in quality projects that create reasonable economic returns and allow us to maintain financial sustainability over the medium and long term.” The Fund will only invest in commercially-viable projects, she added.

The Silk Road Fund’s first capital instalment of US$10 billion was contributed by the China Investment Corporation, the Export-Import Bank of China, and China Development Bank.

Although its core focus is the Belt-and-Road regions, investments are not restricted to Belt-and-Road, she said. “We can work on different projects so long as they are conducive to connectivity and are market-oriented. We do not have strict geographical restrictions.”

The Silk Road Fund invests primarily in equity, but also in debt and other funds. It can also manage entrusted assets and commission others to invest to address the different needs of enterprises and project financing.

“We hope to build close partnerships with financial institutions, enterprises, multilateral development institutions and governments, both domestic and abroad, to enhance information exchange and experience sharing and work together on joint investment and financing or seed funding,” she said.