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Tuesday, July 12, 2016, 23:24

HK set to realize Asia’s infrastructure miracle

By Luo Weiteng
HK set to realize Asia’s infrastructure miracle
A highway under construction in Jakarta, Indonesia. Indonesia was among the destinations that received the first batch of loans approved by the China-led Asian Infrastructure Investment Bank. Asia’s infrastructure financing needs may surpass US$8.2 trillion from 2010 to 2020, with about US$4 trillion to US$6 trillion in investments going to countries and regions covered by the Belt and Road strategy, according to the Asian Development Bank. (Photo by Dimas Ardian / Bloomberg)

Hong Kong sees the golden opportunities arising from Asia’s growing thirst for infrastructure investments as a bold move to polish its brand as the region’s infrastructure fundraising hub under the Beijing-led Belt and Road Initiative.

At the Boao Forum for Asia (BFA) held in the SAR last week, the city’s top policymakers and business heavyweights from around the world pitched infrastructure investment as the “new force” and “immediate engine for growth” that a sluggish global economy calls for at present.

Hong Kong is also poised to join, and has been promised, a special seat in the Beijing-backed Asian Infrastructure Investment Bank (AIIB) by year-end, underpinning its crucial role in financing Belt and Road infrastructure projects.

The AIIB, touted as “the World Bank of Asia” and launched in January this year, is focusing its firepower on infrastructure in Asia’s yet-to-be developed regions.

AIIB President Jin Liqun told the forum that nearly 30 countries and regions would “catch the second bus” to join the bank next year, bringing the total number of members to 90.

Infrastructure stands “at the center of Asia’s economic miracle”, says Stephen Groff, vice-president of the Asian Development Bank (ADB).

The region’s infrastructure financing needs will reach an estimated US$8.2 trillion or even much more from 2010 to 2020, with about US$4 trillion to US$6 trillion in investments going to countries and regions covered by the Belt and Road strategy, according to the ADB.

Local governments or sovereign funds may not be entirely relied upon to plug the huge funding gap. Although the Chinese mainland is taking the lead by allocating 22 percent of its gross domestic product (GDP) to infrastructure, most Asian countries only invest an average of 5 percent of their GDP in infrastructure, Groff notes.

Thus, mobilizing finances to get infrastructure projects off the ground will be a real issue for Asian nations, says Philippe Le Houerou, executive vice-president and chief executive officer of International Finance Corporation.

The nature of infrastructure investments requires large sums of money to be chipped in and a lengthy construction period, which is no easy task for most Asian economies that have been grappling with financing bottlenecks in their less-developed domestic financial markets, reckons Zhou Wenzhong, secretary-general of the BFA.

Besides, there’s a dearth of expertise in initiating, operating and managing bankable projects.

Echoing the region’s clamor for a fundraising center with a big pool of capital and talents, as well as a flexible financial system, Hong Kong is precisely positioned to facilitate its Asian peers’ fundraising approaches, says Zhou.

The Boao forum was the first activity organized by the Infrastructure Financing Facilitation Office (IFFO) — a new entity launched last week by the Hong Kong Monetary Authority — the SAR’s de facto central bank.

HK set to realize Asia’s infrastructure miracle
Cranes stand on a construction site for residential buildings in the Sembawang area of Singapore. Experts believe there is no shortage of infrastructure financing opportunities in the Belt and Road economies.  (Photo by SeongJoon Cho / Bloomberg)
Consisting of 41 financial partners, including multilateral lenders the Asian Development Bank and International Finance Corp — the World Bank’s private-sector arm — the IFFO highlights Hong Kong’s push to be the financing hub for Belt and Road infrastructure projects.

The Belt and Road Initiative — a massive trade and infrastructure project first mooted by President Xi Jinping in 2013 — spreads across more than 60 countries and regions, with the aim of building up an interconnected network of expressways, as well as rail and logistics lines linking land and sea ports, special economic zones, industrial corridors and transportation hubs from the coasts of China to Europe.

Dismissing the market’s complaints about a lack of bankable projects in the Belt and Road economies due to worries over corresponding solvency risks and debt sustainability, Jin told the Boao gathering that “solvency risk is not a big issue”.

“I’m not worried about the solvency risks as long as the project is good for that country. It’s much important whether the project can be financed and get off the ground right away rather than to wait for five to six years.

“If you can get a project done as soon as possible, you don’t even have to worry about high interest rates. A little bit of interest rate is not that much, but a project can be costly if it’s delayed again and again into implementation,” he said.

The China-spearheaded global development bank approved its first four loans totaling US$509 million to finance four projects in Asia late last month, three of which are co-financed by the World Bank, the ADB and the European Bank for Reconstruction and Development.

Hu Xiaolian, chairman of the Export-Import Bank of China, stressed there’s no shortage of infrastructure financing opportunities in the Belt and Road countries.

“Many of their economic ministers have already visited China, usually with a long list of investment projects. Basically, I will ask them which projects they want to prioritize for financing,” he said.

Since 2014, the Export-Import Bank of China has financed nearly 70 projects in the Belt and Road countries, with investments exceeding US$30 billion and about 70 percent of the money poured into the railway, road, airport, aviation, electricity and telecommunication sectors.

Although Britain’s departure from the European Union has left Hong Kong’s economic prospects up in the air, Zhou believes that Brexit may trigger a fresh bout of capital inflows into Asia in the long run, offering some respite for the region that has been plagued by a capital exodus for years.

Typically, Hong Kong would “further profit from Asia’s continued ascendancy”, said Financial Secretary John Tsang Chun-wah.

“Asia, in particular the Chinese mainland, will continue to be the main engine of growth for the world economy in the 21st century. With its enviable location at the heart of Asia and its extensive economic and cultural connections, Hong Kong can play a unique role directing capital between Asia and the rest of the world,” Tsang said.

Over the past decades, Hong Kong facilitated about 40 percent of foreign direct investments on the Chinese mainland to back up the rapid development in the world’s second-largest economy.

“Now, as the Chinese mainland transforms itself into a net exporter of capital, pinning high hopes on Belt and Road infrastructure projects to come on stream in the years ahead, Hong Kong is a ready-made offshore market. More efforts should be devoted to consolidating such a unique role,” said Zheng Zhijie, vice-chairman and president of the China Development Bank.
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