July 5, 2016 1:30 am JST

New Hong Kong entity to support China's 'Belt & Road' financing

JENNIFER LO, Nikkei staff writer

Asian Infrastructure Investment Bank President Jin Liqun, second from left, attends the launch of an entity to facilitate infrastructure financing for the China-led bank, in Hong Kong on July 4. (Photo by Jennifer Lo)

HONG KONG -- The Hong Kong Monetary Authority, the territory's de facto central bank, launched a new entity on Monday to facilitate fundraising for projects related to China's "One Belt, One Road" infrastructure initiative.

The Infrastructure Financing Facilitation Office, as the entity is called, boasts some 40 partners, from asset managers such as Blackrock to multilateral lenders such as the Asian Development Bank and International Finance Corp., the World Bank's private-sector arm.

Other heavyweight partners include Bank of Tokyo-Mitsubishi, General Electric, the listed units of state-owned lenders Agricultural Bank of China and China Construction Bank, and oil giant China National Petroleum Corp., the parent of PetroChina. Victor Fung, honorary chairman of global sourcing company Li & Fung, will be an adviser.

In describing the office's functions, its director, Eddie Yue, said, "It will not play the role of an investor," nor will it be used to "facilitate deal-matching."

Yue, who is also deputy chief executive of the HKMA, said the office would merely provide a channel for experience and knowledge exchange on infrastructure financing. However, he stressed that its mission of market promotion and product development would make it "the first of its kind" in the region.

The creation of the office is widely seen as an attempt by Hong Kong to serve as a fundraising hub for the Asian Infrastructure Investment Bank, a Beijing-led financial institution created to support regional infrastructure development. The "Belt and Road" initiative unveiled by Chinese President Xi Jinping in 2013 is expected to help drive fundraising demand across some 60 countries in South and Central Asia, the Middle East and Africa, with a combined population of 4.4 billion.

Germany, France and the U.K. are among the Western countries that have joined the 57-member AIIB, which is seen by some as a rival to the Washington-backed World Bank and Japan-led ADB. The U.S. and Japan are two notable absentees from the AIIB.

"A fundamental feature of Asia is that it is awash with liquidity but not so good in its ability to recycle its huge savings," said AIIB President Jin Liqun. Speaking at the launch ceremony for the new entity on Monday, he said it would help to "guide liquidity from private and institutional investors into productive investments."

Asia's infrastructure investment needs will total an estimated $8 trillion over the 2010-2020 period. Bank of China subsidiary BOC Hong Kong, a partner of the new entity, said such a large figure shows how much opportunity there is for the bank to expand its lending business in the region.

BOC Hong Kong chief executive Yue Yi said the bank's loans to Belt and Road countries would reach $100 billion over the next three years, with most of that money flowing into infrastructure projects in such areas as telecommunications and energy.

Its loans to Southeast Asian businesses so far this year have reached 20 billion Hong Kong dollars ($2.57 billion), double the total for all of last year. "We expect our loan growth in Southeast Asia to overtake that in Hong Kong and even [mainland] China in the future," Yue said.

Another partner of the office -- U.K.-based Standard Chartered Bank, which generates the bulk of its revenue in Asia -- sees private investors, and not just state-owned banks, as playing a key role in bridging the funding gap.

Asked about the risks involved in lending to developing countries, Benjamin Hung, regional chief executive for North Asia at Standard Chartered Bank, said the participation of more private lenders would help identify bankable and commercially viable projects. "But don't expect financing of such projects to materialize overnight," he said. "It's more a long-term process."

Asia300

Agricultural Bank of China

China

Market(Ticker): HKG(1288)
Sector:
Industry:
Finance
Regional Banks
Market cap(USD): 182,916M
Shares: 324,794M
Asia300

China Construction Bank Corp.

China

Market(Ticker): HKG(939)
Sector:
Industry:
Finance
Major Banks
Market cap(USD): 214,017M
Shares: 250,011M
Asia300

PetroChina Co., Ltd.

China

Market(Ticker): HKG(857)
Sector:
Industry:
Energy Minerals
Integrated Oil
Market cap(USD): 208,414M
Shares: 183,021M
Asia300

Li & Fung Ltd.

Hong Kong

Market(Ticker): HKG(494)
Sector:
Industry:
Distribution Services
Wholesale Distributors
Market cap(USD): 3,991.89M
Shares: 8,469.96M
Asia300

Bank of China Ltd.

China

Market(Ticker): HKG(3988)
Sector:
Industry:
Finance
Major Banks
Market cap(USD): 176,448M
Shares: 294,388M

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