China Investment Corporation, the country’s sovereign wealth investment fund, is seeking global partners to jointly establish a special cross-border investment instrument which will further finance Belt and Road projects, said a senior company executive.
“We call it the Belt and Road cooperation fund,” Tu Guangshao, CIC vice-chairman and president, said in an exclusive interview. Other arrangements, including the fund’s scale, specific investment methods and investment currency, are all “too early to be determined”.
A cooperation fund usually selects projects and makes investment decisions based on all shareholders’ common interests. A legal framework and clear governance structure will be set at the initial stage. This method could also avoid investment destination countries imposing restrictions on any single fund member.
The fund’s potential shareholders may cover international organizations and countries along the BRI routes, Tu told China Daily last week when he attended the annual session of the Chinese People’s Political Consultative Conference in Beijing.
“The fund will be a new way to inject capital into BRI projects, facilitate international cooperation and share mutual benefits.”
As Belt and Road construction advances, there is a rising need for fundraising and infrastructure development in participating economies in Asia, the Middle East, Europe and Africa.
But some countries worry that BRI projects may create debt traps for nations seeking funds. Their concerns have led to delays and reductions in some proposed projects.
As a response, State Councilor and Foreign Minister Wang Yi said earlier this month that, “Plenty of facts are proof that the BRI is not a debt trap that some countries may fall into, but an economic pie that benefits local populations. It is not a geopolitical tool but a great opportunity for shared development.”
David Lubin, an economist at Citigroup, is concerned that China alone may lack the capacity to meet the megaproject’s investment goals. So the country needs to accumulate global resources to finance BRI projects.
Through the fund, according to analysts, China may convince more global investors to join long-term and high-cost BRI projects such as ports and railways.
Infrastructure investors are finding new ways to recycle capital, as financing costs rise in some traditional ways, such as rising interest rates for bank loans, said the Asian Infrastructure Investment Bank.
To improve international cooperation in BRI investment, “Sponsors should work to counter increased caution against globalization and trade, as increased geopolitical tensions are also likely to boost these sentiments,” said Principal Economist Jang Ping Thia at AIIB.
“This underscores the need for projects to be of high standards, with good governance transparency and openness. For projects fostering regional connectivity, there will be a need to ensure mutual benefits and respect for countries’ concerns,” he said.
CIC began exploring new investment methods in 2017. It aims to diversify overseas investments and share risks. The latest manifestation of this was the establishment of the China-Japan Cooperation Fund, a bilateral fund, in October 2018.
The China-Japan fund aims to invest in companies from both countries, as well as in “third-party countries”. Investment sectors include manufacturing, communication and media, healthcare, and consumer goods and services, CIC said.
The China-Japan Cooperation Fund’s scale is expected to be $1 billion. Other similar investment mechanisms, including the 1 billion euro ($1.13 billion) China-France fund, is under preparation, said Tu. “We are also considering transferring part of the bilateral funds into the Belt and Road fund.”
CIC, the country’s $940 billion sovereign wealth fund, is also a shareholder of the Silk Road Fund, which mainly provides investment and financing support for BRI projects. CIC now holds a 15 percent share in the Silk Road Fund, which has a total capital of $40 billion and 100 billion yuan ($14.9 billion).
The Belt and Road cooperation fund will be different from the Silk Road Fund, said Tu, because the latter’s sponsors are mainly domestic.
Taking responsibility for managing part of the country’s foreign exchange reserves, CIC seeks maximum returns for its shareholders within an acceptable risk tolerance range. It achieved a record high of 17.59 percent net return on overseas investment in 2017. Its 2018 financial results will be released this summer.