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Silk Road Projects to Expand Chinese Business Abroad

Dec. 10, 2014 (EIRNS)—An article in the December issue of Caixin, a Chinese business magazine, covers the implications of the Silk Road Fund for Chinese investment abroad. While the article gives the background to the Silk Road project, noting the importance of the AIIB (Asia Insfrastructure Investment Bank) and the NDB (New Development Bank) in that context, it hones in on the more recent Silk Road Fund proposal by Chinese President Xi Jinping as the immediate source of funds for the infrastructure investment. As it is solely financed by China, it can be put into operation very quickly.

The State Council will tap the nations foreign currency reserves for about 65 percent of a new US$ 40 billion infrastructure and trade financing mechanism called the Silk Road Fund. The rest of the fund’s cash will come from the government’s sovereign wealth fund, China Investment Corp. (CIC), and two policy banks, the Export-Import Bank of China and China Development Bank Capital Co. (CDB), sources said. CICs share of the tranche is 15 percent, while the banks will contribute 15% and 5%, respectively. Future injections may be ordered if investment demand warrants.

The crying need for infrastructure in the surrounding countries and the excess capacity now developing in China with the reduction of West European export, will open new vistas for some of the Chinese companies, particularly in rail and in construction equipment. It is estimated that the countries in the region will need around $730 billion worth of annual infrastructure investment combined by 2020. The Asia Development Bank (ADB) and the World Bank have the capacity to funnel only about $20 billion into Asia every year, and only half of that goes to infrastructure.

The Silk Road Fund will be managed like the China Investment Corporation, the country’s sovereign wealth fund, but with stricter regulation. The fund will benefit China, says Zhao Changhui, chief state risk analyst at the Export-Import Bank of China, but at the same time, "it is multilateral and cannot only serve China," Zhao said. "Its project selection requirements will be stricter than CICs, and every decision must be based on a member-country consensus. Although China is the lead country, it has to negotiate with other members," Zhao said. "Because local government support is fundamental to a project’s operation. China must have a framework for operating the fund that considers everyone’s interests," Zhao says, "while creating external demand [for Chinese companies] and boosting the domestic market."