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Provide Belt and Road a Financial Guarantee System with Risks under Control

Submit Time:18-07-2017 | Zoom In | Zoom Out

Author:Li Zhuo and Ruan Zhen | Source:Guangming Daily

Abstract:

  The construction of infrastructures and interconnectivity are the core contents in pursuing the Belt and Road Initiative, and solving issues concerning financial integration is a key factor in pursuing the Belt and Road Initiative and pushing the enterprise to “go global”. It demands huge amount of investment to pursue the Belt and Road Initiative, and to widen the investment cooperation channels, it is necessary to develop multi-level financial support system for the Belt and Road. Furthermore, the complexity of geographic politics and economy along the line of Belt and Road has also raised objective requirements on the risk management for the financial system.

  Since the Belt and Road Initiative was proposed in 2013, attractive results have been obtained in its development, with the joint efforts by the international, regional and domestic financial institutions. First, financial sectors including banks, foundations and insurance actively undertook the responsibility of service. By the end of 2016, 9 Chinese-funded banks had set up 62 tier-I institutions in 26 countries along the Belt and Road lines, including 18 subsidiaries, 35 branches and 9 representative offices. The China Development Bank played its full role in superiority of development finance and as a main bank, issuing loans totaling 168.2 billion US dollars for the Belt and Road Initiative, and undertaking the bilateral cooperation planning of China with 8 countries including Kazakhstan, and the planning of 3 economic corridors of China, Mongolia and Russia. As a medium and long-term development investment institution specifically set up by China to push ahead the Belt and Road Initiative, the Silk Road Fund, for the purpose to provide investment and financing support for economic and trade cooperation and bilateral and multilateral interconnectivity, has signed contracts for 15 projects, undertaking to make investment totaling 6 billion US dollars, involving total project investment exceeding 80 billion US dollars. Since 2013, China Export Credit Insurance Company, the only policy-based insurance company of China, has arranged insurance over 440 billion US dollars in supporting the export and investment in the countries along the Belt and Road, underwriting insurance for 1,097 projects “going global” of various types, including the Central Asia natural gas piping project, and paid compensations to enterprises and banks totaling 1.67 billion US dollars.

  “With distinctive focus, these new financial mechanisms and traditional multilateral financial institutions such as the World Bank complement each other. A multi-tiered Belt and Road financial cooperation network has taken an initial shape”, President Xi Jinping pointed out the development principle and prospect guidance for the finance to serve the Belt and Road Initiative in his keynote speech at the opening ceremony of the Belt and Road Forum for International Cooperation. With distinctive focus —— banks provides credit support, funds function on investment and financing, and insurance provides compensation for risks, all playing their respective roles and taking their respective responsibilities. For example, the Export-Import Bank of China will set quota for Belt and Road special loans (equivalent to Renminbi 100 billion yuan) and special loan quota for Belt and Road infrastructures (equivalent to Renminbi 30 billion yuan), to provide more financing support to the Belt and Road. Complement each other —— complement across sectors and specialties, policy-based and commercial complement, and domestic and international complement. For example, China Export & Credit Insurance Corporation signed with the Ministry of Industry and Information Technology the cooperation memorandum on “Pushing industrial communication enterprises to go global to implement the Belt and Road Initiative”, to actively solve the risk and financing problems faced by the industrial communication enterprises. Multi-tiered —— it should be united and powerful and also has clear division of work. For example, the Ministry of Finance of China has signed memorandum of understanding for strengthening cooperation in relevant areas under the Belt and Road Initiative with 6 multi-lateral development institutions including the Asian Development Bank, Asian Infrastructure Investment Bank, European Bank for Reconstruction and Development, European Investment Bank, New Development Bank and Work Bank Group. Taken an initial shape —— It is participated by more institutions, with broader areas of cooperation, larger quota in cooperation, wider international influence and more apparent results. For example, the Asian Infrastructure Investment Bank, officially established in 2015 with China as the sponsor country, now has 77 official member countries, and it has provided loans of 1.7 billion US dollars for 9 infrastructure projects in the Belt and Road participating countries.  

  General Secretary Xi Jinping pointed out at the working symposium on pushing ahead the Belt and Road Initiative that, we should establish a long-term, stable and sustainable financial guarantee system that serves the Belt and Road Initiative with risks under control. Investment is accompanied by risks. The Belt and Road Initiative involves broad regions, the difference in the political systems and economic development levels has resulted in the heterogeneity of the risks in various countries, and the overall risk level is not low. Looking into the specific risks: on politics —— the politics and security situation has kept on turbulent, increasing the risks in some countries. In some developing countries, the geographic political risks are high, the political situation is not quite stable, leading to changing policies. On economy —— the unbalanced development level of economy. Emerging and transiting countries are relatively weak in resisting external risks, the macroscopic policies are not sufficiently sustaining, difficult to form a long-term and stable investment environment; the multi-currency businesses with countries along the lines contain fairly high exchange rate risks. On operation environment —— in general, the infrastructures are backward, the administrative efficiency is low and the legal systems are not quite complete. Countries along the lines are located in regions with eastern and western cultures intersecting, and religious, ethnic and racial contradictions and conflicts are likely to occur, with the features of diversity, complexity and long-lasting. How to establish a long-term, stable and sustainable financial guarantee system that serves the Belt and Road Initiative with risks under control under such conditions?

  First, the policy coordination and interconnection mechanism should be established between countries along the lines. “Coordinated policies without doing harm to neighbors is an important experience in coping with international financial crisis”. “Promoting development and controlling risks” is closely related to the long-term development of all countries, the policies to prevent and control risks formulated by all countries for their own security and by the international and regional organizations based on their own development, giving their respective features, have the identical target with many contact points that can be interconnected, so they can supplement and promote each other, to realize synergetic and joint development. Seeking common grounds while reserving difference and based on the common interest of preventing risks, the countries along the lines started cooperation from making plans, to facilitate taking cooperative actions, conducive to a situation of coordinated policies, connected planning, merged development and sharing interests. Only when the policies of different countries are interconnected, and the economic elements and development resources are integrated in the countries along the lines of Belt and Road and in a larger scope of the world, can a resultant force be formed, to product active external effect.

  Second, the risk management and control should be incorporated into the state construction system. Risk management should be taken as an important aspect of China to safeguard its overseas security and protect our overseas economic interests. It can be considered to set up a special Belt and Road risk management committee, to manage on a unified basis the risks in different overseas investment countries, make overall plan and coordination for the relevant work of related departments and policy-based financial institutions. For this purpose, coping with risks in overseas investment and cooperation with risk management mechanism and risk management and control in pursuing the Belt and Road Initiative can be made important topics in the mechanism research by the “going global” Inter-ministerial Meeting of the State Council and the leading group for pursuing the Belt and Road Initiative. We should establish an authoritative risk evaluation system as early as possible, and actively construct the global national risk database, to provide information of different countries and risk pre-warning services for the enterprises and financial institutions of China to go global.

  Finally, the role of export credit insurance in protection against risks should be brought into play. The complicated risk issues along the Belt and Road lines cannot be effectively solved only by the microscopic economic player, and the state is required to offer support with policy-based insurance. It has been stated repeatedly in the relevant documents of the State Council and reports on the work of the government that we should strengthen and improve export credit insurance, expand the scale and coverage of export credit insurance, and cover all export financing for large equipment in complete sets as far as possible. Also, management and control of risks with policy-based export credit insurance mechanism to promote the development of foreign trade is a policy-based measure permitted by international rules including WTO. Therefore in general, insurance is a financial instrument produced to avoid risks, while export credit insurance is backed up by the state finance, able to disperse political or commercial risks encountered by the Chinese enterprises and financial institutions in participating in the Belt and Road Initiative, thus playing an irreplaceable role of risk protection and financing promotion. In recent years, policy-based insurance institutions have connected to the national development strategy and established a series of products and service systems covering short-term and medium and long-term export credit insurance, overseas investment insurance, guarantee operations, credit standing evaluation, domestic trade credit insurance and management of accounts receivable. With the further pursuing of projects of Belt and Road Initiative, we should speed up the product and service upgrading for export credit insurance, and promote the operation management and institutional innovation in export credit insurance, to provide continual services for the pursuing of Belt and Road Initiative.

                                                      (Author entity: School of Economics and Management of Wuhan University)


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