China's ambitious plan to
recreate the old Silk Road trading routes across Eurasia and Africa is facing a serious
financing challenge, according to the country's senior bankers and government
researchers.
Speaking on Thursday at a forum in Guangzhou, capital of southern
China's Guangdong province, Li Ruogu, the former president of Export-Import
Bank of China, said that most of the countries along the route of the
"Belt and Road Initiative", as the plan is known, did not have the
money to pay for the projects with which they were involved.
Many were already heavily in debt and needed "sustainable
finance" and private investment, he said, adding that the countries'
average liability and debt ratios had reached 35 and 126 per cent,
respectively, far above the globally recognized warning lines of 20 and 100 per
cent.
"It would be a tremendous task to raise funds for the countries'
development," Li said.
China's new central bank chief Yi Gang said on Thursday that Beijing was keen to work with
international organisations, commercial lenders, and financial centers like Hong Kong and London to diversify funding
sources for the plan.
Wang Yiming, deputy head of the Development Research Centre of China's
State Council, said at the forum that although many belt and road projects were
funded by major financial institutions — including the Asian Infrastructure
Investment Bank, New Development Bank, China Development Bank (CDB), the
Export-Import Bank of China and the Silk Road Fund — there was still a huge
funding gap of up to US$500 billion a year.
The limited participation of private investors, narrow financing
channels and low profitability levels were major problems, Wang said.
"Countries involved in belt and road projects have low financial
capabilities and high liability ratios" he said. "It is important to
encourage financial innovation to raise funds to support the development of the
belt and road."
He called for the creation of an international fundraising mechanism
to attract private investors, and a separate system to measure the credit risks
associated with each project.
Li said that private investors were also often put off by the
complexity of having to deal with the different tax regimes, labor laws,
customs clearance procedures and currencies of belt and road host nations.
To make the financing propositions more appealing, local governments
should consider copying China's model and offer preferential policies to
foreign investors, he said.
Liu Yong, chief economist at CDB — the nation's main policy lender —
said the bank always considered the medium to long-term risks faced by Chinese
companies involved in belt and road projects.
While there were "non-performing asset problems" with some
schemes, they were "within our tolerance range", he said.
The credit ratings of all countries and projects "were carefully
and jointly evaluated", he said.
On the issue of CEFC China Energy, one of CDB's highest profile clients,
which is in serious financial trouble after the disappearance of its chairman,
Ye Jianming, Liu acknowledged the public concerns but declined to make any
further comments.
This article appeared in the South China Morning Post print
edition as: Silk Road projects hit financingroadblocks
Source: CNBC