Financing the Belt and Road Initiative

SUMMARY

The Belt and Road (B&R) initiative, a global infrastructure project between China and Eurasia, was examined at this Bruegel’s event. In particular, the discussion focused on the question how this mammoth project can be financed. The panel, consistent of experts from both sides, provided the audience with an overview about current investment in the B&R initiative, highlighting future opportunities and challenges.

China’s economy is characterized by a large surplus capacity. As such, it needs a “backyard” to further expand trade and bolster economic growth. The B&R initiative could play a crucial role in achieving those goals by providing the necessary infrastructure and thus boost trade between China and Europe. By Bruegel’s estimation, the overall effect on European trade could amount to an increase of more than 6% due to a reduction of transportation costs.

The main players in financing this initiative were pointed out to be Chinese and European investment banks and corporation, together with commercial banks and funds. As pointed out by Sun Mingxi, Chinese Mission to the EU, some substantial commitments to the B&R project were already made by China. However, Alicia García-Herrero, Bruegel, warned about a worsening asset quality of Chinese banks and questioned their ability to stem the project on their own.

Alessandro Carano, European Commission, argued that there is a general openness towards investment within the entire EU. The dialogue with China has already started in 2015 and will be continued. However, future investment has to be sustainable and possess aligned priorities in order to attract investors. Overall, the Belt and Road initiative could offer high return opportunities.

Addressing questions from the audience, Sue Anne Tay, HSCB, highlighted the positive effects of the project on areas such as agriculture, medicine and tourism. Asked about the impact of the abolished TTIP agreement on the B&R initiative, the panel argued that it will not discourage investors and might even make the project a more feasible reality.

Notes by Dmitry Chervyakov

Video and audio recording

The Belt and Road initiative has the goal to promote regional and cross-continental connectivity between China and Eurasia. The ‘One Belt’ and ‘One Road’ refer to China’s proposed ‘Silk Road Economic Belt’ and ‘Maritime Silk Road’, and will consist of a series of infrastructure investments to facilitate trade between the regions involved.

Potential challenges abound with financing the planned $890bn in investments.

What will be the role of AIIB, a China-led multilateral institution with 57 member countries? Could European banks help finance the Belt and Road through cross border lending?

EVENT MATERIALS

Presentation by Alicia García-Herrero