US-China trade war, financial transparency to spur more belt and road projects, says Standard Chartered
- China’s commitment to adopt key elements of financial practices used by World Bank and IMF to ensure projects’ debt sustainability will lead to more lending opportunities in countries covered by belt and road, says banker
The ongoing US-China trade war and Beijing’s commitment to adopt internationally recognised best financial practices will lead to more infrastructure projects in countries covered by the Belt and Road Initiative, according to Standard Chartered.
The global bank, which serves Chinese clients’ project financing needs in 45 markets across belt and road, expects continued growth in business this year despite earlier criticism that some projects have mired host nations in “debt traps” because of their questionable economics.
President Xi Jinping, who launched the project in 2013 to foster closer trade and investment between China and its partners, said last month it will adopt internationally recognised principles to ensure they were more environmentally and financially sustainable and multilaterally financed.
To help achieve this, Beijing said it will advise governments involved in the initiative to adopt key elements of the sustainability analysis framework used by multilateral bodies like World Bank and International Monetary Fund.
“The belt and road’s progress will not be hampered by debt trap concerns; on the contrary, it will be bolstered by China’s signal during last month’s summit in Beijing that it will encourage practices to ensure projects’ debt sustainability,” said Kelvin Lau Kin-heng, senior economist for Greater China at Standard Chartered.
“What’s more, as US-China trade conflict continues, China will need more investment and trading partners elsewhere. Emerging markets in Southeast Asia, the Middle East and Africa are the top choices.”
US President Donald Trump’s decision to raise tariffs on many Chinese products from 10 per cent to 25 per cent earlier this month has forced firms to speed up plans to relocate or set up new plants in nations covered by belt and road to get around the tariffs.
Wang Heng, an associate professor and co-director of Herbert Smith Freehills China International Business and Economic Law Centre at the University of New South Wales, Sydney, said the process could be time consuming and challenging as it entails a myriad issues, including local talent acquisition and legal risk management.
Miguel Zaldivar, chief executive for Asia-Pacific and the Middle East at international law firm Hogan Lovells, said compliance with World Bank standards will certainly attract co-lending opportunities with multilateral lending agencies and commercial banks.
“Procurement of engineering services and equipment supply will need to be sorted through competitive bidding processes, fostering more transparency, and projects will be subjected to enhanced social and environment standards,” Zaldivar said.
Murphy Mok, a Hong Kong-based lawyer at Herbert Smith Freehills, said he expects more funding will be directed at countries that score well within the framework.
Standard Chartered last year took part in financing and advisory roles in close to 100 belt and road projects – over half of them in transport infrastructure, up from 50 in 2017. The total financing raised by the bank and other institutions in these projects was US$20 billion.
“As we had said in late 2017 that we would like to be a facilitator of belt and road projects worth US$20 billion by 2020, we have beaten our target by two years,” said Carmen Ling, global head of yuan internationalisation and belt and road at the bank.
The bank’s revenue sourced from Chinese clients’ projects in belt and road markets grew 16 per cent year on year to US$680 million in 2018. Ling expects it to grow by more than 10 per cent this year.
The bank is hiring tens of Mandarin-speaking bankers to serve clients with financing needs for projects in Africa, United Arab Emirates, India, Sri Lanka and Southeast Asia.
