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International relations

China's Belt and Road builds trail of stakes in Asian bourses

Shanghai-Shenzhen group beats Indian bid for share of Bangladesh's main exchange

The Shanghai and Shenzhen stock exchanges teamed to buy a 25% stake in Bangladesh's main bourse. They also will provide $37 million in technical support. (Photo by A.Z.M. Anas)

DHAKA/NEW DELHI -- China's expanding Belt and Road Initiative added its latest investment into a foreign stock exchange Monday as a consortium of the Shanghai and Shenzhen bourses snapped up one-quarter of the shares in Bangladesh's Dhaka Stock Exchange.

President Xi Jinping's signature foreign policy venture, known for forging global trade links through building infrastructure such as roads and ports, has extended into finance, as Chinese bourses led by the Shanghai Stock Exchange began establishing footholds around Asia last year.

The bid by the Chinese consortium for the Dhaka exchange defeated an offer from an Indian group, in a deal that fortifies Beijing's economic influence in India's backyard.

On Monday, the Shanghai and Shenzhen exchanges signed an agreement to buy over 450 million shares in Bangladesh's main bourse for 21 taka (25 cents) each, for a total price of $120 million. They also will provide $37 million in technical support. The Chinese exchanges have a combined market capitalization of $8 trillion, compared with $51 billion for the Dhaka bourse.

Wang Jianjun, president and CEO of Shenzhen Stock Exchange, highlighted the importance of the Belt and Road Initiative in his speech at the signing ceremony held in Dhaka on Monday, saying his bourse "has actively served the Belt and Road Initiative to promote financial infrastructure cooperation [and] expand market connectivity."

In contrast, the National Stock Exchange of India offered 15 taka per share and did not specify the amount of its technical assistance. The Indian bourse also sought two seats on the Dhaka Stock Exchange's board, compared with only one by the Chinese consortium.

The Dhaka exchange's board approved the juicier offer by the Chinese group in February. The Bangladesh Securities and Exchange Commission had appeared to favor the Indian bid, ordering the Dhaka bourse to scrutinize the proposals further. But having no grounds to halt the deal, the regulator finally allowed the signing.

Chinese investments involve bourses across Asia. A consortium led by Shanghai took a 40% stake in the Pakistan Stock Exchange in January 2017. The group also included Shenzhen, the China Financial Futures Exchange and local financial institutions, of which the three Chinese bourses held 30% in the Karachi-headquartered exchange.

Shanghai Stock Exchange also signed an agreement last June with the authority for the Astana International Financial Center in Kazakhstan to co-invest in building the Astana International Exchange. The Shanghai bourse will hold one-fourth of the shares in the new Astana exchange.

"It is a new major measure of the SSE to implement the fruits achieved at the Belt and Road Forum for International Cooperation and strengthen the financial cooperation for the BRI," the Shanghai Exchange said in a statement, referring to the Belt and Road Initiative.

This tapping of foreign exchanges for the Belt and Road Initiative is evident in the Middle East.

Shanghai reached a memorandum of understanding last month to establish a "Belt and Road Exchange" in the United Arab Emirates capital of Abu Dhabi. The new market "will serve as a key international capital-raising platform supporting Chinese enterprises, foreign companies and global organizations to finance their investments," a joint statement said.

Executives from the Dhaka, Shanghai and Shenzhen exchanges attend Monday's signing ceremony in Bangladesh. Chinese investors may secure funding more easily for special economic zones that Beijing is building in Bangladesh. (Photo by Yuji Kuronuma)

Que Bo, deputy president of the Shanghai Stock Exchange, expressed hope in the statement that the partners would "determine the operational model, product offerings and critical path to success in achieving the common objective of establishing a world-class One Belt One Road Exchange."

Investing in overseas bourses offers Beijing both strategic and tactical benefits.

With China building special economic zones in Bangladesh, the investment in that country's exchange would help Chinese investors access funds through a joint listing on the Dhaka bourse and the Shanghai and Shenzhen exchanges.

"China will also have an interest in developing the bond market in Bangladesh, and that should be good for [both countries]," said Ahsan H. Mansur, executive director at the Policy Research Institute of Bangladesh, a Dhaka-based think tank.

Chinese investment in capital markets across Eurasia also underscores Beijing's attempt to challenge the "unipolar" financial system led by the U.S. and its currency.

"This is part of the geopolitical ambition of China," Mansur said. "China is investing in everything in the world as it has surplus funds."

India appeared less interested in the Dhaka deal. Vikram Limaye, CEO of the National Stock Exchange, flew into Dhaka in February to request that the Bangladeshi securities regulator consider the close relationship between their nations separately from a comparison of their bid prices. But New Delhi made no official comment supporting NSE's bid.

A  senior expert at a Delhi-based think tank who is well-known in geopolitical analysis said that "over a period of time ... China's capital and systems may help [the Dhaka bourse]. In that sense, you can say India has lost out, but I don't see anything great about it right now."

The tie-up lets Beijing support its flagship Belt and Road Initiative through not only infrastructure, but also capital integration, said Shahab Enam Khan, an associate professor of international relations at Jahangirnagar University in Bangladesh.

"This is the Chinese way of new globalization," Khan said. Aside from the rivalry between New Delhi and Beijing, the trail of capital market acquisition reflects the Chinese president's ambition. "This is part of the game."

Nikkei staff writer Yusho Cho in Shanghai contributed to this report.

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