Download publication

External Publication

Hong Kong’s Intermediary Role on Funding the BRI: How does it fare against Singapore?

A look into the intermediary role of Hong Kong in financing cross-border Belt and Road Initiative projects and compare it with Singapore, a similar offshore financial center and competitor.

By: , and Date: November 4, 2020 Topic: Global Economics & Governance

This working paper was originally published by Hong Kong Univesity of Science and Technology (HKUST) through its Institute for Emerging Market Studies (IEMS).

China has rolled out the red carpet of the Belt and Road (BRI) back in 2013 drawing inspiration from the Silk Road in ancient times. The grand plan focuses on infrastructure development and investments to enhance regional and global connectivity between China and the world. It includes a Silk Road Economic Belt on land and a 21st century Maritime Silk Road at sea. Given the cross-border nature of the projects and the sheer size of financing needed to accomplish its goals (estimated at around USD 5 trillion by Chinese authorities ), it seems clear that major offshore centers should play a role in intermediating savings towards these projects along the BRI countries. In Asia, Hong Kong and Singapore are the clear choices given the proximity and relationship with Mainland China. Hong Kong is well placed to finance the infrastructure projects under the BRI as it includes a large number of foreign banks which can intermediate foreign savings to that end (Garcia-Herrero, 2017). Other than the large asset pool in hard currency, Hong Kong is also the largest offshore RMB center in the world. Given that Chinese authorities have long tried to accelerate the use of the RMB as a financing vehicle for BRI projects, Hong Kong should benefit from its pole position in the offshore RMB market (Chan, 2015). Besides, Hong Kong’s large stock market with the largest amount of IPOs globally by value in 2019 should serve as a platform to provide equity finance to companies operating in the BRI geographies (HKGCC, 2019). Finally, as part of the Greater Bay Area (GBA), Hong Kong can have more venues than Singapore to integrate BRI investment with that of GBA, which has long been the most dynamic part of China. This should make Hong Kong as the intermediator for BRI financing more appealing for investors (KPMG, 2018).  Cheung and Hong (2019) pointed though Hong Kong had the potential to be a financial hub in the BRI thanks to its transparent legal framework among other reasons (EY, 2016), but this result hasn’t happened partially due to the listing rule in Hong Kong. Infrastructure project companies are regarded as risky applicants by Securities and Futures Commission of Hong Kong. Therefore, several factors need to be fulfilled including but not limited to a large shareholding by state-owned enterprise in Mainland China, sovereign wealth fund, substantial listed company or globally active institutional investor. In this paper, we look into the intermediary role of Hong Kong in financing cross-border BRI projects (excluding projects in Mainland China) and compare it with Singapore, a similar offshore financial center and competitor. The scope of the BRI and the scarcity of data, especially for financing, make it difficult to conduct a detailed analysis so that our findings should be considered preliminary as they are based on rather scarce data. To that end, we focus on four venues for financing of international projects, namely syndicated loans, offshore bond issuance, equity financing and asset management and look at how much attention is being paid to the BRI geographies for each of these venues in Hong Kong and Singapore. The paper is divided as follows. Section 2 deals the objectives and data sources. Section 3-6 reviews the different channels, from syndicated loans to bond issuance, equity finance and asset management. Section 7 draws some policy conclusions for Hong Kong to further expand its role as intermediary of funds under the BRI. Finally, the appendix offers a detailed account of the data sources for our analysis.

Read article More by this author
 

Opinion

Why China should fear the EU's carbon border tax

Expect Beijing to soon start lobbying against the proposal.

By: Alicia García-Herrero Topic: Energy & Climate, Global Economics & Governance Date: July 26, 2021
Read about event
 

Upcoming Event

Sep
2
13:00

European banks: under global competitive pressure?

Bruegel Annual Meetings, Day 2 - European banks have lost stature and remain generally low-profitability, low-valuation in comparison to their global peers. Is that a problem? If so, what can EU policymakers do to address it?

Speakers: José Antonio Álvarez Álvarez, Mairead McGuinness and Nicolas Véron Topic: European Macroeconomics & Governance, Finance & Financial Regulation Location: Palais des Academies, Rue Ducale 1
Read article More on this topic More by this author
 

Opinion

Could the RMB dislodge the dollar as a reserve currency?

The dollar remains the world’s largest reserve currency, but it is facing both domestic and external risks.

By: Alicia García-Herrero Topic: Global Economics & Governance Date: July 14, 2021
Read article More on this topic More by this author
 

Podcast

Podcast

CCP's 100th Anniversary: Reflecting and looking forward

As the Chinese Communist Party celebrates its 100th anniversary, we looked into the past, future and present of the country's economic development.

By: The Sound of Economics Topic: Global Economics & Governance Date: July 7, 2021
Read article Download PDF More by this author
 

External Publication

European Parliament

UK banks in international markets

Implications of UK-euro area divergence in regulation and supervisory practice

By: Alexander Lehmann Topic: European Parliament, Finance & Financial Regulation, Testimonies Date: June 25, 2021
Read article More on this topic More by this author
 

Podcast

Podcast

Challenges and growth of China's private sector

Is the dynamic role of the private sector in China under threat by its economic model and the United States?

By: The Sound of Economics Topic: Global Economics & Governance Date: June 9, 2021
Read article
 

Blog Post

For the climate, Asia-Pacific must phase out fossil-fuel subsidies

An exit from coal in the Asia-Pacific region is a global decarbonisation priority.

By: Alicia García-Herrero and Simone Tagliapietra Topic: Energy & Climate, Global Economics & Governance Date: May 31, 2021
Read article More by this author
 

Parliamentary Testimony

House of Lords

The UK’s security and trade relationship with China

Testimony before the International Relations and Defence Committee at the House of Lords, British Parliament on the UK’s security and trade relationship with China.

By: Alicia García-Herrero Topic: Global Economics & Governance, House of Lords, Testimonies Date: May 27, 2021
Read article Download PDF More on this topic
 

Policy Contribution

How difficult is China's business environment for European and American companies?

Contrary to some narratives, China's business practices have improved, with a business environment that is generally more favourable than that in other large countries at similar levels of development.

By: Uri Dadush and Pauline Weil Topic: Global Economics & Governance Date: May 26, 2021
Read article More on this topic More by this author
 

Podcast

Podcast

New kid in the playground: China's antitrust push

How is China’s antitrust push being weaponised to counter western sanctions?

By: The Sound of Economics Topic: Global Economics & Governance Date: May 12, 2021
Read about event More on this topic
 

Past Event

Past Event

Global value chain reshuffling: From tight coupling to loose coupling?

As the focus shifts from efficiency to resilience in global supply chains, what does this mean for China?

Speakers: Erik Berglöf, Alicia García-Herrero, Niclas Poitiers and Kristy Tsun-Tzu Hsu Topic: Global Economics & Governance Date: May 11, 2021
Read article More on this topic More by this author
 

Opinion

Europe's crusade to fend off Chinese interference falls short

It is in everybody's interest for China to level the playing field among state-owned, private, and foreign companies so that no new distortionary measures need to be taken elsewhere.

By: Alicia García-Herrero Topic: Global Economics & Governance Date: May 10, 2021
Load more posts