Avgouleas and Arner: "Belt and Road Needs Its Own Asset Class" (Caixin)

"Opinion: Belt and Road Needs Its Own Asset Class"
Emilios Avgouleas and Douglas Arner
Caixin

14 August 2019

By some estimates, annual infrastructure investment needs across the Belt and Road Initiative participant countries are at least $1.7 trillion until 2030. Naturally, global funding needs for essential infrastructure are much greater and rising and this is before factoring in the expenditure to implement the UN’s sustainability gap in the context of environmental, social and governance (ESG) and green investment.

     Some of the countries facing the largest gap are located on the Eurasian plateau and the African regions that the Belt and Road is targeting. With its focus on connecting people and cultures as well as economies, the funding and connectivity scheme of the Belt and Road should have been enthusiastically embraced given also that actual investment and committed funding from Chinese development banks and other Chinese funded institutions is in excess of $250 billion.

     Yet the Belt and Road has raised issues for both geopolitical reasons as well as due to earlier structural weaknesses. The latter include placing an emphasis on credit over equity investment, lack of an embedded debt and environmental sustainability framework, and lack of an explicit link to the implementation of the UN Sustainable Development Goals (SDGs)

      The Chinese leadership has already taken measures to redress these shortcomings drawing public praise for the revamped Belt and Road, so-called Belt and Road 2 by the head of the IMF Christine Lagarde during her keynote speech to the Belt and Road Forum on April 29 in Beijing. For example, President Xi Jinping said at the second Belt and Road Forum in April that China needs to help participating countries build affordable, durable and high-quality infrastructure projects to promote greater interconnection.

     In this spirit, the Export-Import Bank of China Chairwoman Hu Xiaolian has recently stated that the new phase of the Belt and Road should include an “investment, construction and operation” integration model whereby Chinese enterprises can participate in a part of the investment and get involved in the long-term benefits of the project to reduce project owners’ debt pressure.

     These are all very welcome developments in the evolution of the Belt and Road’s implementation. However, to secure the successful application of these principles and also close the infrastructure and SDG funding gap China and its Belt and Road partners have to devise credible ways to attract private finance. The sources of such finance may be Western institutional investors but also Asian pension funds and other private investment schemes...