Fact Box: Financial Aspects of Belt and Road

(Beijing) – State and government leaders from 29 countries have gathered in Beijing to attend a forum on China’s “One Belt, One Road” project, often referred to as the Belt and Road initiative.

The Belt and Road forum, to be held in the capital city on May 14-15, is the latest in a string of events the Chinese government has organized to promote President Xi Jinping’s cornerstone initiative to more tightly connect China with Europe and Africa.

Below are answers to commonly asked questions about the initiative and the financial aspect of it.

What is the “Belt and Road” initiative?

This is Chinese President Xi Jinping’s signature diplomatic push aimed at reviving China’s influence along ancient trading routes and exporting excess production capacity. The initiative includes an overland Silk Road Economic Belt that connects China with Europe through Central Asia, and an ocean-based 21st Century Maritime Silk Road that links countries to the south of China and leads all the way to Africa and southern Europe.

Announced in 2013, the initiative covers 65 countries, which combined are home to 62% of the world’s population and contribute almost one third of global annual economic output. State-owned media such as Xinhua News, however, have stressed a more inclusive depiction that presents the initiative as open to all countries willing to participate.

What progress has it made?

Numerous objectives have been packed into the Belt and Road initiative and are interpreted broadly as seeking to boost China’s economic, financial and diplomatic influence in foreign countries.

Infrastructure investments in those countries by Chinese enterprises and financial institutions have surged. Several dozens of industrial parks have been built, policy coordination in fields such as telecoms has been strengthened between China and several countries, and financial cooperation has been deepened, according to China’s central bank officials.

In 2016 alone, core infrastructure investments made in the name of the initiative totaled $493 billion, according to PricewaterhouseCoopers, an auditing and consulting firm. The figure marked an annual compound growth rate of 33% since the initiative was announced in 2013, the firm said.

Where does the money come from?

Besides corporations’ investments, China has mobilized the resources of new and established financial institutions to support the Belt and Road initiative. A May report by the National Institution for Finance & Development, a central government-backed think tank, says that the financing of Belt and Road projects relies primarily on three types of organizations: multilateral financial institutions, Chinese policy banks and special investment funds. The National Development Bank, for example, has signed more than 140 agreements since 2013 with countries covered by the initiative, which combined involve more than $130 billion worth of investment.

Chinese commercial banks have also beefed up their presence in Belt and Road countries. As of 2016, nine Chinese banks have set up 62 top-level branches in 26 countries along the routes, the report says. As of the end of 2016, three of the country’s big four state-owned banks have provided credit lines worth a combined 1.56 trillion yuan to countries covered by the initiative, according to data released by those banks.

The Asia Infrastructure Investment Bank, a China-led multilateral financial institution established in late 2015 to fund infrastructure investment in the Asia-Pacific region, has approved investments for nine projects in 2016, worth a combined value of $1.7 billion, according to Jin Liqun, the bank’s president.

What financial cooperation does China want to deepen with Belt and Road countries?

China’s central bank officials have publicly emphasized the need to develop a market-oriented financing mechanism to fund projects and encourage the use of the Chinese currency overseas.

So far, China has signed currency swap deals with 21 countries along the Belt and Road routes and permitted six countries to invest in China’s securities market via the RMB Qualified Foreign Institutional Investor program, said Yi Gang, deputy governor of the People’s Bank of China.

China has also pursued greater participation in multilateral financial institutions to support the Belt and Road initiative and beyond, Yi said.

Contact reporter Wang Yuqian (yuqianwang@caixin.com)