Foreign banks are divided on whether to help finance China’s new Silk Road initiative, with some seeing an opportunity in providing direct financing for the government-backed project while others opt for reduced exposure, citing concerns over poor…
Foreign banks are divided on whether to help finance China’s new Silk Road initiative, with some seeing an opportunity in providing direct financing for the government-backed project while others opt for reduced exposure, citing concerns over poor returns from large infrastructure investments and other risks. Participation by foreign banks is seen as crucial to the trade initiative’s success as even President Xi Jinping’s pledge of US$780 billion in additional funds is not enough to cover the full cost of the infrastructure plan. “The amount of funds required for the initiative, as much as US$5 trillion over the next five years, means that foreign banks will need to be involved for it to succeed, ” said Alicia Garcia-Herrero, chief economist for Asia-Pacific at Natixis. “The Chinese policy banks and commercial banks combined will not be able to fund that by themselves, and at the top level the authorities have realised that.” Moody’s Investors Service’s decision last week to downgrade the ratings on China’s policy banks has aggravated the funding problem. Not all foreign banks, however, are choosing to get involved, and a divide is emerging between those that are more cautious and those that are already involved in the scheme. “The opportunity for banks from greater intra-Asian trade flows as well as major investment projects is significant, ” said Bernhard Kotanko, managing partner for Asia-Pacific at global consultancy Oliver Wyman. “I see opportunities for the large universal banks that finance a lot of global trade, the regional banks and the Chinese banks.” HSBC Holdings and Citi fall into the first group, while mid-sized lenders such as Standard Chartered and some Singaporean banks make up the second. Perhaps the most vocal player of the banks that have chosen to get involved is HSBC, which put up advertisements around Beijing during the summit, saying “HSBC will lead the new Silk Road”.
