Since the Belt and Road Initiative was first introduced five years ago, a number of major projects have been implemented to promote connectivity as well as trade and economic cooperation in Belt and Road countries. The Initiative and the Belt and Road projects are continuously benefiting the world with cooperative development and win-win results. It is also noted, however, that there exists a huge financing gap for the Belt and Road projects, especially for infrastructure projects.
On the one hand, global liquidity is generally adequate. On the other hand, the real economy growth in developing countries is facing significant financing difficulties due to constraints such as the inadequate capacity of their markets and governments, a global monetary system based on settlements in third-party reserve currencies like the US Dollar and the Euro, as well as the overburdened debts of these countries. On the whole, the financing difficulties faced by the Belt and Road projects are structural ones. To a large extent, their fundamental cause lies in the ineffective match of capital supply and demand. To tackle these issues, financial cooperation needs to be deepened and investment and financing systems need to be further reformed.
As a medium to long-term development and investment fund, the Silk Road Fund is committed to implementing “openness, inclusiveness and mutual benefit” to specific projects and generating real revenues so that the Belt and Road countries can share the real benefits of the Initiative. We aim to integrate China’s experience, capital strength and high-quality equipment manufacturing capabilities accumulated over the past three decades - since China’s reform and opening-up - into the host countries’ development planning, industrial advantages and the requirements of specific projects.
Up to date, approximately 70 percent of our committed capital has been invested in infrastructure projects in the Belt and Road countries. Over 70 percent of our committed capital has taken the form of equity investments, demonstrating the nature of the Fund as a medium to long-term equity investment fund. With the Fund’s support, several overseas greenfield projects that require very large amounts of investments and long construction periods have commenced construction smoothly, and some have already commenced operation. According to preliminary estimates, the aggregate investment amount of the projects with the Silk Road Fund’s participation has reached USD 80 billion.
In an open global economic system, a successful investment project can pull together different parties across the globe, mobilize and consolidate advantageous resources to achieve optimal allocation and facilitate the parties to realize their respective interests. The Hassyan Clean Coal Power Plant Project in Dubai which the Silk Road Fund invested in 2016 serves as a convincing example. This project is an integral part of the “Integrated Energy Strategy 2030” of the United Arab Emirates (UAE) and is a landmark large coal-fired power plant under a PPP mode, contracted through bidding in the Middle East. It is a representative project based on cross-border cooperation and involved parties from several countries. The Dubai Electricity & Water Authority (DEWA) is the tenderer representing the host country government. The consortium of Saudi Arabian International Power and Water Company (ACWA) and China Harbin Electric International (Harbin Electric International) has been granted the right to finance and develop the project. Shareholders of the project company consist of ACWA, Harbin Electric International, DEWA, and the Silk Road Fund. The general EPC contractors of the project include Harbin Electric International and General Electric (GE). The project is financed by a club of four Chinese banks and international banks. It is an ultra-supercritical power plant that will be leading globally in terms of utilizing development technologies and meeting environmental protection standards. It is designed to comply with the most stringent Industrial Emissions Directive (IED) of the European Union as well as the guidelines of the International Finance Corporation (IFC). In respect of project construction, Harbin Electric International has successfully gained access to overseas high-end markets for electric power development and has transformed from being an overseas EPC contractor to an investor and developer. In terms of investment and financing structure, the transaction is carefully structured to ensure viable returns for shareholders at the same time of achieving optimum electricity pricing under competitive tendering.
The success of the project also lies in the fact that parties also have gained benefits in other aspects. The UAE government can thus promote its goal of diversified energy development. ACWA is able to achieve the dominant role in operating the plant with a concession period of up to 25 years. Harbin Electric International is able to introduce its advanced coal combustion technology to the international market and gain the access to the Middle East market. As an investor, the Silk Road Fund is able to accumulate experience in investing and financing in the high-end power market through collaborating with globally leading power enterprises. GE is able to explore business opportunities under the Initiative in addition to participating in the project. GE has separately proposed cooperation with our fund to establish a joint investment platform targeting greenfield or brownfield projects in the Belt and Road countries in the areas of power, oil and gas, and new energy industries. The Hassyan project therefore represents the best testimony to the “mutual benefit” philosophy of the Belt and Road Initiative.
Moreover, the Silk Road Fund has received an additional capital injection in RMB. Therefore, we can provide financial support to the Belt and Road projects in multi-currencies. The availability of multiple currencies is conducive to the expansion of capital sources for the Belt and Road projects and can satisfy different needs of the Belt and Road countries for cross-border payment and settlement. It can also promote more trade and economic exchanges among countries. The Silk Road Fund has been exploring and promoting effective ways of investment in RMB. We look forward to working with our counterparts to discuss and develop new investment and financing modes, taking better advantages of RMB denominated investment. We hope that the availability of diversified currencies will serve as a golden bridge connecting the Belt and Road countries and bring in mutual economic benefit.
The Belt and Road Initiative represents a great exemplar of strengthening international cooperation, advancing globalization, and promoting common prosperity. It injects a strong and lasting drive to the course of building a community of shared future for mankind. As an implementer of the Initiative, the Silk Road Fund will continue to cooperate with all parties to realize mutual benefit and win-win results under the principle of “extensive consultation, joint contribution and shared benefits”.
(The author is chairman of the Silk Road Fund. The article is translated based on the article published on Page 6 of People's Daily Overseas Edition on March 27, 2018)
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