China’s ambitious plan to recreate the old Silk Road trading routes across Eurasia as well as Africa is usually facing a serious financing challenge, according to the country’s senior bankers as well as government researchers.
Speaking on Thursday at a forum in Guangzhou, capital of southern China’s Guangdong province, Li Ruogu, the former president of Export-Import Bank of China, said of which most of the countries along the route of the “Belt as well as Road Initiative”, as the plan is usually known, did not develop the money to pay for the projects with which they were involved.
Many were already heavily in debt as well as needed “sustainable finance” as well as private investment, he said, adding of which the countries’ average liability as well as debt ratios had reached 35 as well as 126 per cent, respectively, far above the globally recognized warning lines of 20 as well as 100 per cent.
“This specific would certainly be a tremendous task to raise funds for the countries’ development,” Li said.
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China’s completely new central bank chief Yi Gang said on Thursday of which Beijing was keen to work with international organisations, commercial lenders, as well as financial centers like Hong Kong as well as London to diversify funding sources for the plan.
Wang Yiming, deputy head of the Development Research Centre of China’s State Council, said at the forum of which although many belt as well as road projects were funded by major financial institutions — including the Asian Infrastructure Investment Bank, completely new Development Bank, China Development Bank (CDB), the Export-Import Bank of China as well as the Silk Road Fund — there was still a huge funding gap of up to US$500 billion a year.
The limited participation of private investors, narrow financing channels as well as low profitability levels were major problems, Wang said.
“Countries involved in belt as well as road projects have low financial capabilities as well as high liability ratios” he said. “This specific is usually important to encourage financial innovation to raise funds to support the development of the belt as well as road.”
He called for the creation of an international fundraising mechanism to attract private investors, as well as a separate system to measure the credit risks associated with each project.
Li said of which private investors were also often put off by the complexity of having to deal with the different tax regimes, labor laws, customs clearance procedures as well as currencies of belt as well as road host nations.
To make the financing propositions more appealing, local governments should consider copying China’s design as well as offer preferential policies to foreign investors, he said.
Liu Yong, chief economist at CDB — the nation’s main policy lender — said the bank always considered the medium to long-term risks faced by Chinese companies involved in belt as well as road projects.
While there were “non-performing asset problems” with some schemes, they were “within our tolerance range”, he said.
The credit ratings of all countries as well as projects “were carefully as well as jointly evaluated”, he said.
On the issue of CEFC China Energy, one of CDB’s highest profile clients, which is usually in serious financial trouble after the disappearance of its chairman, Ye Jianming, Liu acknowledged the public concerns although declined to make any further comments.
This specific article appeared within the South China Morning Post print edition as: Silk Road projects hit financingroadblocks