Making sense of Belt and Road – The Chinese policy bank: China Development Bank
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Making sense of Belt and Road – The Chinese policy bank: China Development Bank

China Development Bank (CDB) is, along with China Eximbank, a policy bank under the jurisdiction of the government and the State Council. It dates from March 1994 and has a history of infrastructure funding that long pre-dates Belt and Road. Signature developments include the Three Gorges Dam and Shanghai Pudong International Airport. It will be absolutely vital to Belt and Road.



“As a development finance institution, CDB has unique advantages in supporting the Belt and Road Initiative,” says Zheng Zhijie, CDB’s president, in Beijing. Zheng is also a senior Communist Party man and a senior economist with a PhD, who has also been president of China Construction Bank.

Those advantages? Relying on national credit, Zheng says, CDB can raise long-term capital to meet the correspondingly long-term financial needs of big infrastructure projects. It has a track record of improving market mechanisms and the credit environment, he adds, “which helps to prevent financing risks; CDB follows the business principle of guaranteed profit instead of profit maximization, which allows the bank to lower the financial cost for major projects”.

It is strong in planning and it can use its specialist subsidiaries, such as CDB Capital, CDB Securities and CDB Leasing, to offer diversified financial services where they are needed.

Zheng and his team have been busy leveraging these advantages ever since Belt and Road was announced. By the end of June 2017, CDB had issued over $170 billion in loans to Belt and Road countries, “mainly to support such sectors as infrastructure connectivity, cooperation on production capacity, energy and resources, as well as people’s livelihoods,” he says.

He adds that the non-performing loan ratio of CDB has been below 1% for 49 consecutive quarters, so “the repayment of capital with interest is in good condition for most international cooperation projects and the quality of assets remains stable.”

In May, Xi Jinping announced at the Belt and Road Forum that CDB would establish a special loan equivalent to Rmb250 billion to support Belt and Road projects. It was perhaps the single most important concrete step announced at that forum.

“This move will facilitate CDB to coordinate internal resources, further promote the development of projects involved in the Belt and Road Initiative and help make new financial breakthroughs,” Zheng says.

Specifically, the facility exists to provide long-term, stable, sustainable and risk-controllable financial support for Belt and Road, Zheng says. It is made up of three separate facilities: Rmb100 billion for infrastructure connectivity, Rmb100 billion for cooperation on production capacity and Rmb50 billion for financial cooperation.

The bank, Zheng says, will implement projects eligible for these special loans “with a first completed, first implemented principle,” and aims to fulfil its loan commitment in about three years.

'Sound principles'

Like all state institutions involved in Belt and Road, Zheng is keen to depict CDB’s contribution as being based on sound commercial principles. He says the bank will “attach great importance” to risk management and control, and will promote the establishment of market and credit mechanisms.

“At the same time,” Zheng says, “CDB wants to use the special loans to guide and attract more social capital” to participate in Belt and Road.

Zheng Zhijie,

The special loan model is not unique to Belt and Road. CDB has used it several times since 2009, including structures for African small and medium-sized enterprises, China-Asean infrastructure, China-Kazakhstan production capacity cooperation and Middle East industrialization. “Special loans will play a truly positive role in supporting the Belt and Road Initiative,” Zheng says.

Asked for an example, CDB highlights something else, the Tsingshan ferronickel smelting project, a 300,000 tonnes-a-year project of four production lines and a power station in Indonesia’s Sulawesi province.

It is the first project in Indonesia by China Tsingshan Holding Group and follows a financing agreement signed by president Xi in October 2013, committing $384 million. That was, importantly, just one month after Xi first spoke of the Silk Road Economic Belt (a title that has since gone through some evolution) at Kazakhstan’s Nazarbayev University in September 2013. So these were early days, and this was perhaps a more important project than it first appeared.

CDB also highlights this project because it is working. It went into production on April 8, 2015 “without a hitch,” says Zheng.

In Indonesia, it was important as the first nonferrous metal smelting plant to be put into production after the government prohibited the export of crude ores. Indonesia now uses it as a role model for mining projects, and it is useful for Chinese funding to have been at the heart of something so valued to the Indonesian government.

CDB followed up with another $574 million loan to a project involving the production of 1 million tonnes of stainless steel casting billets a year and the construction of a power plant.


“By the end of June this year,” Zheng says, “these projects had created jobs for over 11,000 local people, paid taxes of more than $120 million to Indonesia, and generated an export value in excess of $150 million for Indonesia.”

This is crucial: China wants to depict Belt and Road as something that raises prosperity in the countries along the way.

Asked about cooperation with other commercial banks and development finance institutions, Zheng turns to another project for illustration, a long way from anything that looks remotely like Belt and Road – the White Rock Wind Farm project, which sits to the west of the town of Glen Innes on the tablelands of northern New South Wales, Australia. Zheng highlights it because it is financed by a A$293 million ($231 million) syndicated loan featuring CDB alongside Australia’s big four commercial banks (CDB put in A$73.44 million).

Whether that is Belt and Road or not, Zheng wants to suggest that CDB is ready to co-finance with anyone.

“As a development finance institution, CDB cooperates with and complements many policy banks, commercial banks and international multilateral development finance institutions to support the Belt and Road Initiative,” he says.

It is also developing a mechanism, he says, to pool government, social and corporate capital through the public-private partnership (PPP) model, “so as to open a new stable investment and financing channel” for the BRI.

In terms of international cooperation, “CDB also has its own style,” Zheng says. It has led multilateral financial cooperation mechanisms such as the Shanghai Cooperation Organization Interbank Association, the China-Asean Interbank Association and the Brics Interbank Cooperation Mechanism.

If CDB truly runs on commercial lines, how does it manage and control business risks across the myriad Belt and Road economies? As Zheng himself says, BRI involves countries whose economic, social, political and legal frameworks “differ from each other greatly”. Plus, he adds, “the projects financed by CDB generally feature huge capital needs and a prolonged cycle of capital recovery.”

Zheng says that whenever CDB finances projects, it does so through market principles and that it has several approaches that help control risks. He names four: linking governments and markets to cultivate more highly rated borrowers with decent markets and structures to operate in; strengthening research and judgment on situations to improve risk management and control; improving internal risk and compliance systems while maintaining an effective bottom line; and encouraging the establishment of overseas offices in countries along the road with the right volumes and environment for good project management and risk control.

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