In the afternoon of 6 June, KPMG China held a closed-door event at the Diaoyutai State Guesthouse to launch a new flagship report on the ‘Belt and Road’ Initiative.
Titled Charting the course of ‘Belt and Road’ cooperation together: Enhancing international private capital participation in ‘Belt and Road’ infrastructure projects, the report was written in collaboration with the Institute of Market and Price of the National Development and Reform Commission (NDRC), and China International Contractors Association (CHINCA).
The event was attended by around 170 invitees, including 47 senior officials from foreign embassies, 72 senior executives from MNCs, and senior representatives from the Chinese Government, chambers of commerce, industry associations and think tanks.
KPMG Asia Pacific and China Chairman, Mr. Honson To, delivered welcoming remarks noting that: “in his keynote speech at the opening ceremony of the second Belt and Road Forum for International Cooperation, President Xi Jinping said ‘[w]e welcome the participation of multilateral and national financial institutions in BRI investment and financing and encourage third-market cooperation. With the involvement of multiple stakeholders, we can surely deliver benefits to all.’ The theme of our report is very consistent with this. We hope this report provides a useful framework of recommendations for how governments, companies, multilateral organisations and professional firms can participate in ‘Belt and Road’ infrastructure development.”
Ms. Yueru Zang, Director of the Institute of Market and Price of the NDRC, and Mr. Qiuchen Fang, Chairman of CHINCA, delivered each opening remarks.
Dr. Zheng Zeng, Head of Research Division of the Institute of Market and Price of the NDRC, and Vaughn Barber, Global Chair of KPMG Global China Practice, presented the key findings of the report, including the following:
1. Shortage of private capital is not the primary challenge for infrastructure projects in countries along the ‘Belt and Road’. The wider issue is the lack of pipelines of bankable opportunities in these markets. Which means there is a lack of projects that are financially viable, with an acceptable risk profile, and which are structured appropriately to enable them to be considered ‘investable’ by providers of international private capital.
2. Providers of international private capital are interested to participate in ‘Belt and Road’ infrastructure projects and have c apabilities and experience that could assist governments as they work to improve infrastructure connectivity. At the same time, Chinese companies need to work with providers of international private capital, not only to help bridge project funding gaps, but more importantly to learn from their experience of managing, constructing, financing and operating infrastructure assets to improve the success of these projects, and open up new market opportunities, including in developed markets.
3. Notwithstanding this, many of the Chinese companies we talked to said that because of the higher risks associated with ‘Belt and Road’ infrastructure projects and various institutional constraints or capability limitations, it is difficult to raise project financing on acceptable terms, manage financial risks and achieve sustainable, profitable returns. These challenges with de-risking ‘Belt and Road’ projects result in potential providers of international private capital taking a cautious approach towards financing them.
4. To overcome this, the key recommendation of our report is that governments, companies, multilateral organisations and professional firms have to work together to strengthen institutional capacity, build risk management systems, expand financing channels and establish platforms for public-private cooperation in the promotion, financing and delivery of ‘Belt and Road’ infrastructure projects, to create a market which is conducive to international private capital participation in these projects.
Senior representatives from the Chinese Government, foreign embassies, Chinese and foreign companies, professional service firms, and a multilateral organisation made comments on the report leveraging their respective fields of expertise; and participated in a panel in which they provided recommendations on how to attract international private capital to Belt and Road infrastructure projects, and in which they shared success cases of projects that have achieved this.