Cementing Bilateral Economic Relations

Industrial globalization best-serves the local community of OBOR countries; while external financing markets best serve the exit strategy for Chinese monetary capital.

 

Oswald Wong, President & CEO of China International Development and Investment Corporation Limited, feels capital outflow for industrial localization is an upcoming trend for implementing the Chinese national strategy “One Belt One Road” initiative.

 

The non-Chinese financial markets such as NASDAQ Dubai and non-conventional financial products such as Sukuk can be the considerable exit strategy for Chinese monetary capital. According to Oswald, the “One Belt One Road” initiative is launched in good faith to bring the local community of each and every OBOR countries to benefit but with the condition that the Chinese capital is being utilized effectively. Such benefits shall be counted in terms of employment, GDP, infrastructural convenience, living efficiency, etc.

 

Similar to many other funding resources such as Export Credit Agency, Export Import Bank of the US, etc., various constraints do impose on granting the Chinese monetary capital; such constraints may be in terms of the minimum Chinese elements to be involved, the repayment guarantee to be required, the exit strategy to be implemented, etc.

 

I would like to define “Chinese elements”. Traditionally speaking, “Chines elements” mainly refers to the materials, equipment, machineries that are manufactured in China and the human workforce from China; however, I would define it as “industrial globalization created by Chinese enterprises with bringing economic benefit to Chinese community through the Government globalized comprehensive tax system”.

 

Industrial globalization can result in various advantages including but not limited to operational cost reduction with creating job opportunities to the local community; higher efficiency with less lead time for delivering the necessary materials and equipment to the project and shift of Chinese pollutive industries in return for job creation in the developing countries.

 

It also helps avoid the regional tariffs and taxes for Chinese enterprises resulting a higher capital return to the investment, encourages less resources wastage via transport resulting in better environment protection and creation of more infrastructural projects such as power station, sewerage treatment plant, etc.

 

It keeps local civilization with Chinese culture rooted, speeds up Chinese CNY internationalization; encourages diversity of the asset portfolio and converts Chinese economy from labor intensive to technical export, etc. These elements bring mutual benefits and a higher and newer development model to the Chinese economy.

 

Nevertheless, industrial globalization will have short but immediate affects to the Chinese economy such as increase in unemployment ratio for the unskilled jobs, less orders for the existing China based manufacturing firms, etc. Normally speaking, there are always better policies in terms of land cost, tax rebates, utilities cost if one starts consciously.

 

Apart from industrial globalization, the alternative financing source for project finance and refinancing as exit strategy for Chinese monetary capital. Except the concessional loan from Chinese policy banks (such as China Development Bank, Export Import Bank of China and Agricultural Development Bank of China) and other Chinese governmental supportive funding sources, the financing cost raised from the Chinese market does over 5% per annum.

 

It is much higher than the borrowing rate from the western countries. Furthermore, compared to the financing terms and conditions like the grant period for construction, the term period, the drawdown scheme, etc., in some sense, are comparatively tougher than the international market.

 

We shall consider Sukuk as it can serve as one of the re-financing channels for Chinese monetary capital as exit strategy. Similarly, YieldCo, MLP and other asset backed securities products can also serve as the other consideration. One Belt One Road initiative, in principle, supports infrastructural developments and with repayment guarantee in different form such as power purchasing agreement, service buy-back contract, etc.

 

So, once the assets are being completed and with some operation, asset owners can structure the project assets with guarantee income to Sukuk and other forms of asset backed securities products. The raised capital can be used to pay off the monetary capital raised from China in the form of equity and debt.

 

Hong Kong has limited Sukuk products issued in the market; nevertheless, Hong Kong Securities and Future Commission doesn’t have the mature setup for supporting the development of Islamic financial products as well. It is very important for Hong Kong, being the world’s top 3 financial markets, to speed up the flexibility on attracting enterprise to issue Islamic financial products in Hong Kong.

 

This is something that Hong Kong shall learn from Dubai of United Arab Emirates, especially with NASDAQ Dubai. Furthermore, it is very important for one of the OBOR related financial markets especially in China (Hong Kong, Shenzhen, Shanghai) on accepting enterprises to issue credit based structural products to support the raise of capital, i.e. structural products issued by high rating OBOR countries based enterprises to issue corporate debt that backed by the project repayment guarantee (such as sovereign guarantee, credit insurance, etc.).

 

I always have faith in the Hong Kong financial market. At the same time, I do believe the Chinese government, as before and always, will continue supporting Hong Kong in all aspects resulting in the involvement of Hong Kong in each and every national policy such as the “One Belt One Road” initiative. One day, Hong Kong will be the leading financial platform for serving all the OBOR countries on raising project finance and re-financing.

 

We have been in serious discussions with China based enterprises and international capital for developing various capital funds to do the infrastructural investments such as renewable energy, sewerage treatment plant, waste treatment plant, water related project, transportation, etc. Our intention is to be the introducing party on bringing different Chinese enterprises to cooperate on the industrial globalization concept.

 

It is tough to encourage people to adopt Chinese standard and to believe in “made-in-China” products with all the impressions left over by history; however, we can show the global market with the best price-to-value service and products with adopting international acceptable procedure and standards as the new “Made-In-China” brand.

 

Making a million dollars for the enterprise is important but creating a positive image to the country with bringing job opportunity for Hong Kong citizens is a higher priority for our company. Our intention is to build a borderless financing platform on sharing the benefits resulted from the “One Belt One Road” initiative. Financial innovation and renovation strategies can make the developments he participates in to be a self-stainable financing.

 

Focus is the key to succeed and the only channel to realize the way to minimize the investment risk. Minimizing the investment risk results in a higher chance to increase the borrowing portion.

 

With the world becoming more investment savvy, having access to information readily on their smart devices, we anticipate the next few decades will see significantly more growth as governments continue to enhance their country’s business environment through international trade and investment.

 

“One Belt One Road” initiative highlights China’s existing natural and industrial resources and we hope the international community comes on board.

 

Edited by Shereen Shabnam

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