Chinese financial institutions expected to increase presence along Belt and Road countries: former finance minister

Although the COVID-19 pandemic and growing anti-globalization sentiment have hit financial cooperation across the globe, Chinese financial institutions are expected to increase their presence in countries and regions along the Belt and Road Initiative (BRI) routes during China’s 14th Five-Year-Plan (2021-25) period, a move that will also help advance the internationalization of the yuan, said a former senior official.                      

Most countries and regions along the BRI routes are developing countries with relatively slow economic growth that lack complete financial service systems, and where financial integration cooperation has been affected since last year by the pandemic dragging down global economic development, said Lou Jiwei, former Finance Minister and director of the Foreign Affairs Committee of the Chinese People's Political Consultative Conference.

But the pandemic is not the only factor. Growing anti-globalization sentiment in recent years is also making some companies and financial institutions think twice when exploring projects in markets along the BRI routes, Lou told the Belt and Road Portal in a recent interview.

“Chinese commercial banks need to take many factors into consideration, such as risks and profits, before they seek growth overseas, which may result in their taking a more conservative pace in ‘going global’,” Lou said.

Some risks are not obvious in the domestic market, but will emerge in the global context, Lou added. For instance, in some countries, as their domestic rules and laws take precedence over international ones, companies or countries may be sanctioned if they hit the country’s bottom line when doing business in that market, he said.

“It was not easy for Chinese banks starting to ‘go out’, but we still encourage them to make long-term considerations and accelerate their rollout in the world,” Lou noted.

Despite the challenges, China’s investment in BRI markets has remained stable in 2020. Last year, China's non-financial direct investment in the countries and regions along the BRI routes reached $17.79 billion, up 18.3 percent year-on-year and making up 16.2 percent of the country’s foreign investment, official data showed.

During the 14th Five-Year Plan period, the development of the BRI will not only focus on the construction of infrastructure, but also further support Chinese companies, and private firms in particular, to seek expansion in overseas markets, according to Lou.

For some time to come, the US dollar index will structurally weaken, while the yuan will appreciate structurally, Lou said, noting that “the yuan will be preferred in international transactions.”

Chinese banks are expected to keep up with Chinese companies that make investments along the BRI markets in offering financial services to China’s enterprises, and to overseas industrial parks in particular, Lou said, noting that this would also help drive the internationalization of the yuan.

“During the 14th Five-Year Plan period, third-party market cooperation under the BRI is expected to be pushed forward,” he said. “We can carry out not just third-party market cooperation with countries like Japan and South Korea, but can also cooperate with multilateral development financial institutions such as the World Bank and the Asian Infrastructure Investment Bank.”

“We should learn from the successful management experience of the multilateral financial institutions, especially in risk control, which could help share risks and impose less geopolitical pressure,” Lou said.