Making sense of Belt and Road – The China bank overseas subsidiary: ICBC Standard Bank
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Making sense of Belt and Road – The China bank overseas subsidiary: ICBC Standard Bank

ICBC Standard Bank is an interesting institution. It is a legacy of ICBC’s landmark acquisition of a 20% stake in South Africa’s Standard Bank 10 years ago. In 2015, ICBC acquired a controlling stake in Standard Bank’s London-based global markets business. Today it stands as a financial markets and commodities bank serving ICBC clients’ global markets needs, with a separate business in the distribution of African risk. Still London-based, it focuses on global commodities, fixed income, currencies and equities.



So what does Belt and Road mean for an institution like this, China-owned but global? “ICBC has the most widespread network in the Belt and Road countries,” says Wenbin Wang, chairman of ICBC Standard Bank, in an interview at the bank’s London headquarters. “It is deeply involved in the projects, infrastructure, manufacturing and financing in those counties.

“But the assets and currencies there lack liquidity, can fluctuate and sometimes come with unique risk,” he says. “Sitting here at the west end of the Belt and Road, we have a unique advantage to help our clients understand the risks and opportunities, and to provide risk solutions.”

An example would be ICBC being involved in a large power project in a country, with long-term dollar-denominated lending but a cashflow in local currency. ICBC Standard would come in to provide structured solutions to swap interest and forex risk. Movements in commodity prices around Belt and Road projects and the internationalization of the renminbi create opportunities for the venture.

Nevertheless, ICBC Standard has faced the same challenges in quantifying and explaining Belt and Road as everyone else has, so in July it launched two new indices in partnership with Oxford Economics. The ICBCS Belt and Road Economic Health Index is a macro index designed to show the relative attraction of Belt and Road economies based on 45 country indicators and the ICBCS Belt and Road China Connectivity Index is designed to illustrate economic connectivity between China and individual Belt and Road economies.

“We probably have a similar aim to you: demystifying a large, ambitious, sprawling project,” says Gary Licht, director of trading at ICBC Standard. “How do we make it more concrete?

“Most obviously, Belt and Road is an investment plan – a large, ambitious investment plan. And to take part in any investment plan, you need data in order to make decisions.”

The indices are designed to use available data to create a framework for investors to assess the opportunities coming out of BRI. “You can use it as a toolkit to break down the various components that will affect your asset,” says Licht.

Interesting conclusions

A look at the indices shows some interesting, and not at all obvious, conclusions. In the economic health index, which splits into a macroeconomic performance score and a risk outlook score, Turkmenistan ranks above Singapore and Estonia beats them both. On the China Connectivity Index, the Maldives and Oman rank above the Philippines today, and the top 10 risers from 2011 to 2015 include Armenia, Montenegro and Serbia.

Licht, who can cite underlying numbers behind these rankings verbatim, has an explanation for each. Turkmenistan has huge gas resources and pretty much no risk of a change in government; it has a small and wealthy population with strong social cohesion. Estonia, although small, distinguishes itself for its investment climate. “Each has identifiable drivers,” Licht says. “You as an investor decide if those drivers are important to you.”

Wenbin Wang,
ICBC Standard Bank

The connectivity index is made of three key components: trade, capital and people, each of which are broken down into a number of underlying categories. By back-testing, the index shows that the overall connectivity score for Belt and Road countries is up 60% since 2005 and that proximity to China has become progressively less important over time (although neighbouring Mongolia does still lead the ranking). “For me, the really interesting stuff is in looking at the evolution of the details,” Licht says.

“We see that China is no longer the workshop, but increasingly the supplier. And we see that as China has sought to rebalance its economy, there has been a rise in clients further to the west.”

The bank’s pitch is that information is not just power but efficiency and, therefore, reduced cost.

“The way I see it,” says Licht, “cost is a barrier for people wanting to invest in a lot of these countries, and that is because the research process is so difficult. You have to find the data, arrange it in such a way where you can do meaningful analysis and justify it to a board.

“Ultimately the function we hope to serve is to reduce that initial cost barrier to understanding and interpreting the underlying data.”

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