Beijing floats IPO plan to help turn ‘Silk Road’ dream into reality

Projected to cost $1 trillion, the colossal Belt and Road Initiative has dragged in Chinese companies that could now turn to Hong Kong for funding

 

When it comes to twists and turns, China’s grandiose Silk Road project is starting to resemble a theme park rollercoaster.

In the latest development, Beijing is considering allowing companies involved in the Belt and Road Initiative to raise cash through yuan-dominated initial public offerings in Hong Kong.

Under the proposed plan, the Chinese government would “pick” leading firms linked to this massive program to boost their liquidity.

“The government hopes Hong Kong would be able to play a greater role in facilitating the initiative on the investment front and further promote the internationalization of the yuan,” Zhang Xiaoqiang, vice-chairman of the China Center for International Economic Exchange, told the Chinese media after being consulted about the scheme.

Rolled out in 2013 by President Xi Jinping, the awkwardly-named Belt and Road Initiative is a highly ambitious development project, connecting modern-day economic “Silk Roads” through Asia, the Middle East, Africa and Europe.

The scale and depth of the venture is massive, with China planning to inject about $150 billion into the $1 trillion-plus program each year.

“Already $900 billion in projects are planned or underway,” Fitch Ratings highlighted in a report last year.

With mind-blowing numbers like these, it is hardly surprising that Beijing is keen to raise money on the international markets.

But like most tentative proposals, the Chinese government has yet to put forward a timeframe, or a list of companies, for the IPOs, China Daily reported.

“Hong Kong’s lack of restrictions on capital and currency convertibility make it ideal as a core center for Belt and Road-related fundraising,” Zhang, a former vice-director of the powerful Chinese National Development and Reform Commission, told the state-owned newspaper.

At first glance, the whole “initiative” has a bewildering look to it. The “road” is not actually a road but a sea route linking China’s southern coast to East Africa and the Mediterranean. The “Belt” is various overland corridors, connecting China with Europe, via Central Asia and the Middle East.

“It is a very confusing name,” Peter Cai, the author of Understanding China’s Belt and Road Initiative for the influential think tank Lowy Institute, told The Guardian newspaper in London.

Translated from the Chinese yi dai yi lu, which tends to roll off the tongue in Mandarin, “One Belt, One Road or Belt and Road” sounds like a car component company.

Still, the blueprint is impressive. Kevin Sneader, a senior partner at global consultancy McKinsey, stressed that the project could even dwarf the United States’ Marshall reconstruction plan, which was unveiled after World War II.

“Some people have talked about this being the second Marshall Plan,” he said in a podcast. “It is worth recalling that the Marshall Plan, which regenerated Europe after World War II, was one-twelfth the size of what is being contemplated in the One Belt, One Road initiative.”

At the heart of this venture is a colossal development program, involving up to 65% of the world’s population and one-third of global GDP. The aim is to produce a series of “land and sea conveyor belts” which will move goods and services through a vast infrastructure network.

Financing this has been a massive undertaking and is fraught with risks. “Raising more money in the offshore market will be helpful to fill the financing gap related to the initiative,” Huang Shaoming, head of the macroeconomy research department at Haitong International Securities, told China Daily.

But serious concerns persist about the project since many of the 60 countries and emerging economies involved have political and financial hazards lurking beneath the surface.

“There is no doubt in my mind that there will be a large number of projects that will have unforeseen problems,” Bjorn Conrad, vice-president at the Mercator Institute for China Studies, told CNBC recently.

“There are considerable risks of nonperforming credit in many of these projects and high risks of default. A risk to China’s banking system is, by default, a risk to the global banking system,” he added.

But then, rollercoaster rides have never been for the faint-hearted.

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