The banks that (almost) define BRI

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The Belt and Road Initiative began as a bold plan focused mainly on infrastructure investment, and while construction may still be the policy focus, banks are using BRI as a catch-all for a growing set of cross-border business opportunities.

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Chinese president Xi Jinping raises his glass to toast those attending the Belt and Road Forum in April

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© 2019

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Chinese president Xi Jinping announced his ambitious Belt and Road Initiative on his visit to Kazakhstan and Indonesia in late 2013. During the trip, Xi raised the idea of jointly building the Silk Road Economic Belt and the 21st Century Maritime Silk Road.

Since then, there have been two BRI forums (one in 2017, the other in 2019) plus several international cooperation summits. The initiative has led to the building of railroads and other infrastructure, created new jobs, spurred deals and caused some culture clash.

So far, over 120 countries have signed up to BRI. By the end of 2018, the volume of goods traded between China and BRI countries and regions surpassed $6 trillion. China signed currency swap agreements with 20 BRI countries and formed renminbi clearing arrangements with seven.

Chinese corporations invested a total of $15.6 billion in BRI countries in 2018, 13% of total investments made that year. The total value of new contracts signed by Chinese enterprises in BRI countries has reached $125.8 billion. 

China has also brought in international investors using the BRI hook. While China’s outbound direct investment peaked at $196 billion in 2016 and gradually declined to $130 billion in 2018, foreign companies’ investment into China has continued to rise, reaching $135 billion in 2018.

Definition

Inevitably there is a snag. No one is quite sure what BRI really means. Even China’s government-run official website does not have an ‘about’ section. Instead, the website describes the project as “originated in China, but belonging to the world”, and “focused on Asia, Europe and Africa, but open to all partners”.

An executive at a foreign bank voices the concerns of many: “Everything can be BRI. The difficulty of selling the BRI to local corporations is that the initiative lacks a concrete definition.”

While some have argued the lack of definition is an intentional move, banks leading the BRI race have been forming their own definitions of the initiative and acting accordingly.

To fully grasp the opportunities embodied in BRI, banks not only need international capabilities but also the vision, confidence and risk appetite to get deals done in sometimes difficult market conditions 

Early on, BRI projects focused on infrastructure modernization. Chinese banks typically provided the money for Chinese state-owned enterprises (SOEs) to build ports and railways overseas. But that narrow process has become something bigger. The connection of countries and regions has naturally brought about the connection of people, trade and markets.

As new connections emerged, new challenges have followed. How can banks efficiently repatriate the salaries of Chinese expatriate workers in far-flung locations back to China? How can infrastructure projects diversify their funding model? How can Chinese and foreign banks alike manage their credit risk when lending in unfamiliar countries? 

Financial problems demand solutions, and those solutions tend to bring in revenue for nimble banks.

China alone does not have the answers to all these questions. Nor does it have enough money, manpower or experience operating in overseas markets to fulfil the potential of BRI. Yet foreign governments, and some investors, are wary. After all, as global as the BRI has become, few deny the political ambition of its initiator.

Success

For BRI to succeed, China must work to include international banks, preferably by starting with a common definition of the project. International banks, in turn, need to shoulder responsibility. 

To fully grasp the opportunities embodied in BRI, banks not only need international capabilities but also the vision, confidence and risk appetite to get deals done in sometimes difficult market conditions.

The winners of Asiamoney’s 2019 New Silk Road Finance Awards, revealed over the following pages, are doing exactly that. Some have helped clients move money generated along the BRI. Others have worked hard to diversify the investor base for BRI-themed bonds. They have worked to persuade new countries to join the initiative and hosted numerous events to introduce the concept to international investors.

Although these awards cannot recognize all the achievements of these banks, it hopes to recognize at least their determination, drive, and the courage the world’s leading financial institutions have shown along the way.