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Business trends

Belt and Road offers path into China for foreign financial firms

Investors offer vital funding for projects with eye toward looser ownership rules

HONG KONG -- China's Belt and Road Initiative has begun luring international investors and financial institutions that view the foreign policy venture not only as a business opportunity, but also as a way to buy Beijing's goodwill before the country relaxes foreign ownership restrictions.

The state-owned Bank of China floated corporate bonds to fund BRI projects on Hong Kong's stock exchange in April. The bonds were issued in U.S. dollars, euros, Australian dollars and New Zealand dollars to attract foreign investors. It is the bank's fourth issuance of BRI-branded corporate bonds, helping it raise a cumulative total of over $10 billion for the infrastructure projects.

Individual investors also can grab BRI-related products on the Hong Kong exchange. Having received permission in March to create a BRI bond fund, U.S. asset management company Invesco will choose government and corporate bonds tied to Belt and Road infrastructure projects that are expected to bring high growth.

Private money will be essential for the massive infrastructure venture spanning over 60 countries and regions. Swiss Re forecasts that BRI projects will consume $7.44 trillion by 2030, but the Chinese state-owned Silk Road Fund totals only about $55 billion and the Asian Infrastructure Investment Bank has granted just $4.4 billion in financing. A Chinese government think tank estimates that $500 billion in annual funding will be insufficient, according to Hong Kong media reports.

Chinese banks also hope to accelerate development through coordination with Beijing's policies. The Industrial & Commercial Bank of China debuted an Asia-Pacific financial cooperation center in April as part of its policy to increase overseas financing and yuan settlements. The bank holds a strong presence in Africa and likely is already involved in over 200 Belt and Road projects.

Global financial institutions see the Belt and Road as a golden opportunity to expand their Chinese businesses. In July, HSBC will establish a new post in Hong Kong to oversee BRI-related affairs, while Citigroup has signed memorandums of understanding for tie-ups with the Bank of China and China Merchants Bank. Japan's Mizuho Bank also signed a comprehensive cooperation agreement with Export-Import Bank of China.

A survey by a joint venture of the Hong Kong, Shanghai and Shenzhen stock exchanges found that about 65% of companies listed on those bourses plan to expand BRI-related business over the next three years. Financial institutions anticipate greater need for services such as lending, settlements and fund management as private-sector involvement accelerates.

But participation in China's Belt and Road carries a political dimension for these companies, as Beijing has said it will ease restrictions on foreign ownership of brokerage and asset management companies in the country.

"Cooperation on the BRI will help businesses expand their Chinese operations," an executive from a Hong Kong investment bank said.

Yet many projects for the BRI, branded as the modern-day Silk Road, pose a special risk because they are in developing nations. Such uncertainly suggests private money will become plentiful only over time.

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