The Belt and Road Initiative financial support system is unique
From the perspective of capital, China's policy and development financial institutions are the most important capital investors in the construction of the "Belt and Road". Most of the countries along the "Belt and Road" are developing countries, and the demand for large-scale infrastructure projects is large, and there is a lack of mature commercial profit models, and the financing capacity of traditional models is limited under the current stage. The China Development Bank and the Export-Import Bank of China provide low-cost financing support for domestic and foreign enterprises and large-scale projects in the Belt and Road Initiative. Large commercial banks are important participants in the financing of the Belt and Road Initiative, and their importance is gradually increasing. The main advantage of commercial banks in participating in the investment and financing of the "Belt and Road" is that they have a wide range of overseas branches. For example, the cross-border financial service solutions launched by SPD Bank for the "Belt and Road" cover many fields such as settlement, investment and financing, mergers and acquisitions, guarantees, fund management, risk control, overseas listing, overseas bond issuance, and financial advisoryBank of China issued US$4 billion of Belt and Road themed bonds in four currencies, including RMB, US dollar, euro and Singapore dollar. International financial institutions and development finance institutions in developed countries are also important participants in the financing of the Belt and Road InitiativeAmong them, emerging multilateral development financial institutions such as the Asian Infrastructure Investment Bank and the BRICS Bank have begun to emerge. In recent years, the World Bank and the Asian Development Bank have met the project financing needs of countries along the Belt and Road through loans, donations, equity investments and guarantees. The Asian Infrastructure Investment Bank (AIIB) has 102 member countries, nearly two-thirds of which are along the Belt and Road. In addition, China's Silk Road** and various special investments** are the most important investment channels for the Belt and Road Initiative. Silk Road adheres to the concept of leading and market-oriented commercial operation, and implements the principle of risk even in major projects, which makes it remarkable. As of June 30, 2023, Silk Road** has invested US$23 billion, invested in more than 60 projects, and achieved a 10-year rolling investment return of 1942% and 8% cash dividend rate.
From the perspective of project financing mechanism innovation, the construction of the "Belt and Road" and its investment and financing, which are mainly promoted by Chinese enterprises, have also formed a unique financing model in the exploration, showing some characteristics that are different from the transnational infrastructure investment and financing led by developed countries. One of the significant trends is the shift from simple engineering contracting to the integration of investment, construction and operation. There are two main reasons behind this shift: first, the domestic industry environment is highly competitive, and China's general contractors are too strong to actually exceed the needs of the domestic market;Secondly, the competitive pressure brought by international contractors is also increasing day by day, especially the strong performance of Turkish contractors in the Xi'an, Middle East and North Africa markets, which has caused a lot of pressure on Chinese contractors. Therefore, the integration of investment construction and investment, construction and operation has become an important trend of the industry. In the overseas infrastructure construction of the "Belt and Road", the integration strategy of investment, construction and operation has given birth to a variety of innovative financing models, such as equity financing, debt financing (including industrial financing, strategic financing, private placement) and direct financing. In addition, the public-private partnership (PPP) model has been seen as the preferred strategy to promote infrastructure development in countries along the Belt and Road. However, the complex political and social environment of the countries along the Belt and Road makes the PPP model face many risks in practice, the most important of which is how to fairly distribute the benefits and risks among the participants.
From the perspective of the "Belt and Road" infrastructure investment and financing rules and international coordinationIn recent years, we have issued the "Belt and Road Financing Guidelines", as the main programmatic document of the "Belt and Road" infrastructure financing, proposing to encourage development financial institutions, policy financial institutions, and export credit agencies in various countries to provide financing support for the construction of the "Belt and Road", and continue to use public funding channels such as cooperation between countries and foreign aid. In 2019, China's Ministry of Finance drew on the International Monetary Organization (IMO) and the World Bank (WB) to introduce the Belt and Road Debt Sustainability Framework, encouraging Chinese financial institutions, Belt and Road countries and international institutions to use it voluntarily, so as to improve the scientific decision-making and debt management of investment and financing and achieve sustainable and inclusive growth. In November 2018, the Green Finance Committee of the China Society for Finance and Banking and the City of London Green Finance Initiative jointly released the Green Investment Principles for the Belt and Road. As a set of codes of conduct that encourage voluntary participation and signatory by investment companies, the Principles set out seven principled initiatives from three levels: strategy, operation and innovation. In addition, China's Ministry of Finance has jointly established the Multilateral Development Financing Cooperation Center (MCDF) with eight institutions, including the Asian Infrastructure Investment Bank, the Asian Development Bank, the Latin American Development Bank, the European Bank for Reconstruction and Development, the European Investment Bank, the Inter-American Development Bank, the International Agricultural Development Bank**, and the World Bank Group, as a multilateral cooperation and coordination mechanism for infrastructure development financing.
At present, the investment and financing system and mechanism of the "Belt and Road" are facing six major challenges
First, there is no effective investment, financing and risk-sharing mechanism between China and foreign parties. Since the implementation of the Belt and Road Initiative, China has provided more than 300 billion U.S. dollars in financing support for infrastructure projects in countries along the Belt and Road. Among them, a considerable proportion of the projects are mainly or even exclusively funded by China's financial institutions.
Second, the weak international liquidity of the renminbi has severely constrained investment and financing in the Belt and Road Initiative. The weak international liquidity of the renminbi has led to the problem of currency mismatch in the funds of the "Belt and Road" projects. At present, most of the "Belt and Road" projects still use US dollars and local currencies, which has greater exchange risks.
Third, the competitive pressure of the United States, Europe, Japan and other parties is prominent. At present, as China is at the forefront of the Belt and Road Initiative, developed countries are worried that China will become a leader in standard-setting and rule-setting in infrastructure investment and financing, so they have taken some countermeasures to limit China's dominant position and influence. For example, the United States, Japan, Australia and other countries are now promoting the "Blue Dot Network" plan, which is oriented towards the definition and identification of high-quality global infrastructure. This plan is considered a "Belt and Road" aimed at China. Another example is that the United States has actively shaped the concept of the "Indo-Pacific Strategy", built a "circle of infrastructure friends" among the United States, Japan, India and Australia, and jointly launched a new infrastructure investment plan in the Indo-Pacific region, emphasizing that by increasing infrastructure investment in strategically important countries in the region, it will provide countries in the Indo-Pacific region with other options other than the Belt and Road Initiative. In October 2018, the United States announced that it would create the U.S. International Development Finance Corporation (U.D.Cs.International Development Finance Corp) will provide up to $60 billion a year in international development financing to lend energy, ports and water infrastructure projects in developing countries. Japan is also fully pursuing a strategy of high-quality infrastructure under multilateral frameworks such as the G20, increasing its official development assistance (ODA) to 25% in Asia and supporting the Asian Development Bank (ADB) to increase its lending capacity by 50% to expand its development financing influence.
Fourth, Belt and Road projects generally face financing difficulties. The general uncertainty of project profitability makes it difficult to finance projects. In order to avoid the risk of damage to rights and interests, the industry generally tends to look for local strategic partners as the lead investor. However, due to the high geopolitical and debt risks of countries along the "Belt and Road", there is a lack of excellent lead investors. The industry is prone to face the dilemma of "high-quality projects are facing competition, and projects without competition have poor profitability". Due to the lack of clear sustainable profitability of projects, international financial institutions are generally not willing to lend. The willingness of Chinese financial institutions such as the China Development Bank to invest has also declined significantly, and the project lending business to countries along the "Belt and Road" has shrunk.
Fifth, the risk control mechanism is not perfect, and the safety of overseas assets cannot be preserved. At present, Chinese enterprises are facing huge challenges in "going global", which is highlighted by the insecurity of the external business environment and the security of overseas assets. At present, we still lack an internationally credible debt default resolution mechanism and arbitration institution. Countries along the Belt and Road have defaulted on their debts. After the change of political power in some countries or the financing of other international investment institutions, even if they have the ability to repay their debts, they still require debt renegotiation with China. Since China has no law enforcement power in other countries and cannot enforce contracts to obtain collateral, even if resources are used as collateral, it still cannot alleviate the risk of debt default.
Sixth, the security of cross-border payments is threatened. There are still weak links in the construction of China's cross-border payment system, and it is facing risks such as illegal cross-border capital flow and money laundering. So far, our statistical system still lacks all-round monitoring and early warning functions, resulting in a lack of foresight, and it is difficult to achieve preventive results in daily operation and post-event supervisionInformation sharing between relevant regulatory departments is still insufficient, and the credit reporting system and anti-money laundering system are still unable to achieve complete and effective docking.
Transnational infrastructure investment and financing system and new trends in international coordination
At present, cross-border infrastructure investment and financing are mainly dominated by multilateral development banks, sub-regional banks and sovereign development finance institutions. Among them, the multilateral development banks mainly include the World Bank Group, the Asian Development Bank, the European Bank for Reconstruction and Development, the Inter-American Development Bank Group and the African Development BankSub-regional banks include the Andean Development Corporation, the Caribbean Development Bank, the Central American Bank for Economic Integration, the East African Development Bank, the West African Development Bank, and multilateral financial institutions such as the Asian Infrastructure Bank and the BRICS Bank, which have been newly established in recent yearsSovereign development finance institutions are represented by the Bank of Japan for Cooperation and the China Development Bank.
Different international institutions have their own ideas on infrastructure investment and financing. For example, the World Bank Group is made up of five institutions, the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA), as well as the International Finance Corporation, the Multilateral Investment Guarantee Agency, and the International Centre for Settlement of Investment Disputes. The Asian Development Bank (ADB) is a regional, inter-regional financial development institution dedicated to promoting the economic and social development of developing member countries in Asia and the Pacific, with the aim of helping developing member countries in the Asia-Pacific region eradicate poverty and promote economic and social development in the Asia-Pacific region through development assistance. The purpose of the European Bank for Reconstruction and Development (EBRD) is to help and support the transition to a market economy in Eastern and Central Europe, taking into account factors such as strengthening democracy, respecting human rights, and protecting the environment. The Asian Infrastructure Investment Bank (AIIB) promotes sustainable economic development, wealth creation and improved infrastructure connectivity in Asia through investments in infrastructure and other productive sectors. The BRICS Bank mobilizes resources for infrastructure development and sustainable development projects in BRICS countries and other emerging economies and developing countries, complementing existing multilateral and regional financial institutions to promote global growth and development.
The construction and operation of infrastructure investment and financing of international development financial institutions generally follow such a framework: first, the establishment of cooperative relations, the formulation of cooperation frameworks and operational frameworks;Second, the project life cycle workflow is used to ensure investment returnsThird, the environmental and social framework has been gradually implemented. Similarly, the World Bank project life cycle and loan management process includes the stages of project preparation, demonstration and evaluation, negotiation, implementation, monitoring and evaluation of project results.
The international coordination of infrastructure investment and financing systems is facing four new trends. First, encourage the participation of the private sector in the development of institutional frameworks. Second, we need to promote high-quality infrastructure construction. Third, build a system.
1. Standardized cross-regional infrastructure investment and financing rules. Fourth, we should explore and build advantageous projects, and formulate investment and financing plans with continuity and clear time nodes.
Build a long-term, stable and sustainable financial support system for the Belt and Road Initiative
The overall improvement of the "Belt and Road" financial support system has the following key points. First, it is necessary to coordinate the resources of various financial institutions, enrich financial products, strengthen financial cooperation, expand financial opening, and promote regional monetary and financial cooperation. The second is to formulate differentiated financing strategies according to the type of project, such as strategic projects supported by the state, purely commercial projects supported by commercial financial institutions, social and livelihood projects combined with development support and commercial financial support, and projects involving international cooperation are introduced into international financial organizations. The third is to build a multi-level investment and financing platform. Fourth, we have built a number of risk assessment models to assess potential risks based on the political stability of the host country and the changes in the relationship between our bilateral countries.
Drawing on the infrastructure investment and financing mechanisms of international development financial institutions, the improvement of the infrastructure investment and financing system of the "Belt and Road" can start from the following aspectsThe first is to establish a "partnership and cooperation framework" to promote strategic alignment with the development priorities and plans of the co-construction countries, the second is to improve the system of diversified investment and financing institutions, the third is to establish and improve the system of infrastructure investment and financing rules, explore the establishment of high-quality infrastructure standards, and the fourth is to establish a risk management framework for infrastructure projects.
In February 23, 12 24, offline open classes were held in first-tier cities across the country, and the class schedule was finally updated (human resources, finance, office, investment and financing, PPP, bidding, construction, etc.).