Funding the Belt and Road Initiative (2022)

  • To increase cross-border trade between the east and the west, the Belt and Road Initiative will connect cities in more than 65 countries
  • The infrastructure development needed to make these links will require a substantial amount of investment from a wide range of capital sources
  • Whether building new or improving existing infrastructure, projects will also need to meet international standards and sustainability goals, which is expected to open the door for more green financing

The Belt and Road Initiative (BRI) is all about simplifying and increasing cross-border trade by connecting more than 65 countries in Asia, Europe and Africa. Making that happen will require significant infrastructure development to ports, roads, railways and airports throughout Asia. It will also bring an increased focus on expanding and enhancing power plants and telecommunications networks to help create a higher-value economy focused on innovation.

The Asian Infrastructure Investment Bank (AIIB), Silk Road Fund and the New Development Bank have already committed approximately US$1.1 trillion in BRI infrastructure investment. The Asia Development Bank estimates, however, that projects in Asia alone will need US$1.7 trillion a year through 2030 compared to the US$881 billion currently being invested annually. This funding gap means that additional capital-raising and investment activity both inside China and out is needed, via traditional financing as well as green financing to support sustainability goals.

Video: Industry and funding sources of the Belt & Road Initiative (OBOR) | A Refinitiv Data Moment

Traditional Financing

With an array of products and services such as syndicated and capital markets financing, commercial banks are in an excellent position to increase investment and trade flows in Belt and Road countries. HSBC, for instance, is already involved in approximately 100 BRI projects – acting both as an adviser and as a participant in financing.

According to HSBC Global Research1, international financial centres will also be good sources for project finance and risk management services to help enhance operational efficiency and reduce currency risk. Those located in Hong Kong and London, in particular, may offer an advantage because they have a well-developed financial infrastructure and deep, liquid FX markets.

Video: Why China's Belt & Road Initiative could benefit from multi-source financing

As China continues to work toward capital market liberalisation, global investors will be able to put money into Chinese equities and bonds as well – further helping to fund BRI projects. All this will lead to opportunities for foreign financial and professional services firms to build links with businesses and governments along the Belt and Road and help investors determine which projects are investable, legal, feasible and sustainable. As an example, HSBC applies all the same standards to BRI projects as we do to any others to help our customers identify opportunities – looking at factors such as jurisdiction, other investors, project structure, risk allocation and expected returns.

Green Financing

BRI projects are being designed to stand up to international standards, which includes sustainability goals. The result is an increased focus on building green infrastructure – creating even more diverse investment opportunities. HSBC Global Research2 says they are already starting to see investors growing their use of sustainable finance. In a September 2017 survey, HSBC found that 97 per cent of European investors, 85 per cent in the U.S. and 68 per cent in Asia planned to increase their climate-related or low carbon investments. To meet our client’s growing interest in these type of investments and support our own sustainability commitment, HSBC has provided US$100 billion in green financing to develop clean energy and lower-carbon technologies through 2025.

Video: China's One Belt One Road Could Make Or Break This Poor European Country (HBO)

China has become a key driver for growth in the global market for green bonds as it has turned its focus toward low-carbon sectors and technologies. (Green bonds are much the same as standard bonds, but proceeds are explicitly used to fund environmentally responsible projects and businesses.) Roughly US$30 billion of Chinese green bonds were issued in 2017, up from just US$1 billion in 2015. The country even recently hosted an International Green Finance Forum in Beijing to discuss green bonds as well as other instruments such as green loans, securities and funds and even green banks and green insurance.

Chinese banks are now also beginning to issue BRI-focused green bonds. In September 2017, the Industrial and Commercial Bank of China (ICBC) issued its first One Belt One Road Green Climate Bonds offshore in Luxembourg. Issued in USD and EUR, the bonds raised US$2.15 billion that is earmarked for financing a range of green projects – from renewable energy, to low-carbon and low-emissions transportation, to energy efficiency and sustainable water management and more.

Video: What’s happening with the Belt and Road Initiative?

1 "On the New Silk Road VI: Financing the BRI – where the money is coming from," HSBC Global Research, 31 May 2017

Video: The Economic Effects of Joining China's Belt and Road Initiative

2 China's BRI challenge: The greening of the Belt and Road, HSBC Global Research, 10 January 2018

FAQs

How is belt and road being funded?

To fully fund the total BRI project volume of estimated USD 4 to 8 trillion, diverse funding channels such as BRI bonds, private capital investment and public-private partnerships (PPP) but also State-Owned Enterprise (SOE) investment will be crucial for the success of the Initiative.

How does China benefit from the Belt and Road Initiative?

Announced in 2013, the Belt and Road Initiative (BRI, also known as One Belt, One Road) aims to strengthen China's connectivity with the world. It combines new and old projects, covers an expansive geographic scope, and includes efforts to strengthen hard infrastructure, soft infrastructure, and cultural ties.

How much is the Belt and Road Initiative worth?

China's engagement in the Belt and Road initiative (BRI)

Of this engagement, about US$13.9 billion was through investment, and US$45.6 billion through contracts (partly financed by Chinese loans). China's overall engagement is a steady development compared to 2020, when Chinese engagement was about US$60.5 billion.

How many BRI projects have been completed?

As of January 2019, the list totals 790 projects. Loans from China to Venezuela reached at least $50 billion by 2017, or one-third of the Chinese Development Bank investment in the continent.

Who funds the new Silk Road?

Silk Road Fund
TypeState backed investment fund
OwnerState Administration of Foreign Exchange, Export Import Bank of China, China Investment Corporation, China Development Bank
Websitewww.silkroadfund.com.cn
5 more rows

Who is financing BRI?

state-owned policy banks and state-owned commercial banks are the major sources of BRI financing. They account for the majority of BRI funding, providing 81 percent of total BRI funding (see Figure 6).

How much land does China own in the world?

An incredible image shows how powerful countries are buying up much of the world's land. China, home to 20 percent of the world's population but only 8 percent of the world's arable land, has gone abroad in search of farmland.

Is BRI successful?

Many of the projects have been successful; for example, one study launched in 2018 by Rand Corporation found that BRI transportation connectivity can boost trade and foreign direct investment, and speed up industrialization and economic growth.

Is China's Belt and Road Initiative good for the global economy?

Despite potential gains for the United States, BRI poses significant risks to U.S. economic interests. BRI's size and scope give it the potential to boost global gross domestic product (GDP) by as much as $7.1 trillion by 2040 and reduce global trade costs by up to 2.2 percent.

How much is China spending on the belt and road initiative?

It is primarily a program to fund infrastructure. About two-thirds of the financing goes to power and transport. Total funding has been on the order of $50-100 billion per year.

How much does BRI cost China?

The Asian Infrastructure Investment Bank, first proposed in October 2013, is a development bank dedicated to lending for infrastructure projects. As of 2015, China announced that over one trillion yuan (US$160 billion) of infrastructure-related projects were in planning or construction.

Who owns all the land in China?

China applies a system of public ownership to all land. As a general rule, land in urban areas is owned by the State and land in rural areas is owned by 'collectives' (rural collective economic organisations) and can only be used for agricultural purposes. The State retains ownership of state-owned land at all times.

What is the current status of the belt and road initiative?

Is the Belt And Road Initiative successful? At present the BRI appears to be successful. It has faced a lot of Western criticism however appears to have been able to finance and build infrastructure in poorer nations that would otherwise not had the opportunity.

Who is financing China?

Japan and the United States are the largest shareholders, followed by China and India. The AIIB is a multilateral development bank formed at China's initiative in 2015, having 56 member states as contributors. China is the largest shareholder followed by India and Russia.

What is the purpose of the Belt and Road Initiative?

China's Belt and Road Initiative (BRI) (一带一路) is a strategy initiated by the People's Republic of China that seeks to connect Asia with Africa and Europe via land and maritime networks with the aim of improving regional integration, increasing trade and stimulating economic growth.

What did China get from the Silk Road?

2. What did China trade on the Silk Road? China exported tea, silk, porcelain, ornate bronze mirrors, lacquerware, medicines, and paper. In return, China received many kinds of products ranging from precious metals to horses, weapons, woolen goods, glassware, gold and silver, and precious stones and jewels.

How are BRI projects funded?

Most of the financing of BRI projects is done through bilateral agreements between the lending banks and recipient governments – meaning that the terms of funding agreements are typically not made public.

How many countries are involved in China's Belt and Road Initiative?

In March 2022, the number of countries that have joined the Belt and Road Initiative (BRI) by signing a Memorandum of Understanding (MoU) with China is 146*. The countries of the Belt and Road Initiative (BRI) are spread across all continents: 43 countries are in Sub-Saharan Africa.

Does China own USA?

For its part, China owned 191,000 acres worth $1.9 billion as of 2019. This might not sound like a lot, but Chinese ownership of American farmland has exploded dramatically over the last decade. Indeed, there has been a tenfold expansion of Chinese ownership of farmland in the United States in less than a decade.

What would happen if China called in the U.S. debt?

If China ever did call in its debt, it slowly would begin selling off its Treasury holdings. Even at a slow pace, dollar demand would drop. That would hurt China's competitiveness by raising the yuan's value relative to the dollar. At some price point, U.S. consumers would buy American products instead.

How much money does the U.S. owe China?

How Much Money Does the U.S. Owe China? The United States owes China approximately $1.06 trillion as of January 2022.

How many African countries are part of the BRI?

China lists 39 African countries on the Belt and Road official website, ranging geographically from Tunisia to South Africa. Of these countries, China's government financing is the principal creditor of only three countries: Congo-Brazzaville, Djibouti, and Zambia.

Is the Belt and Road Initiative causing a debt crisis for China?

The Council on Foreign Relations recently concluded that the BRI undermines global macroeconomic stability and increases the likelihood of a sustained debt crisis in emerging markets. This is compounded by America not initiating its own big projects around the world to counter China's.

How does the Belt and Road Initiative benefit other countries?

Belt and Road transport corridors have the potential to substantially improve trade, foreign investment, and living conditions for citizens in its participating countries—but only if China and corridor economies adopt deeper policy reforms that increase transparency, expand trade, improve debt sustainability, and ...

What are the negatives of the Belt and Road Initiative?

Some point out the downsides of the BRI, such as debt trap, corruption, labor conflicts, and environmental degradation. The recent renegotiation of, or withdrawal from BRI projects by Malaysia, the Maldives, and Sierra Leone illuminate the debt risk of the BRI projects.

Which country is planning and financing paying for loaning money for the belt road initiative?

Unlike funds provided by many Western governments, those loans are designed, first and foremost, to turn a profit for China, Parks said. The Belt and Road Initiative is a major element of Chinese President Xi Jinping's plan to move his country into a commanding position at the center of the global economy.

Does China owe money to us?

China has steadily accumulated U.S. Treasury securities over the last few decades. As of October 2021, the Asian nation owns $1.065 trillion, or about 3.68%, of the $28.9 trillion U.S. national debt, which is more than any other foreign country except Japan.

Can you own property in Communist China?

After the Chinese Communist Revolution in 1949, most land is owned by collectivities or by the state; the Property Law of the People's Republic of China passed in 2007 codified property rights.
...
Obtaining land use rights.
PurposeYears of Grant
Land for residential purposes70 years
Land for industrial purposes50 years
3 more rows

Can people have private property in China?

The current PRC Constitution, as most recently amended in 2004, clearly provides for the protection of “private property.” According to Article 13 of the Constitution, citizens' lawful private property is “inviolable.” The same article also states: “[t]he state, in accordance with law, protects the rights of citizens ...

Is the US part of the belt and road initiative?

The United States plans to invest in five to 10 large infrastructure projects around the world in January as part of a broader Group of Seven initiative to counter China's Belt and Road Initiative, a senior U.S. official said on Monday.

Videos

1. China’s Belt & Road Initiative Under Threat As Many Countries Face Debts Amounting To $385 Billion
(CRUX)
2. Economic Implications: “Belt and Road Initiative Economic Benefits and Risks”
(Global Development Policy Center, Boston University)
3. China's 'Belt and Road' project promises infrastructure financing for 65 nations
(FRANCE 24 English)
4. Outlook on the Belt and Road Initiative
(World Economic Forum)
5. China’s Belt and Road Initiative and Coal | ICSC Webinars
(International Centre for Sustainable Carbon)

You might also like

Latest Posts

Article information

Author: Sen. Emmett Berge

Last Updated: 03/03/2022

Views: 5901

Rating: 5 / 5 (80 voted)

Reviews: 95% of readers found this page helpful

Author information

Name: Sen. Emmett Berge

Birthday: 1993-06-17

Address: 787 Elvis Divide, Port Brice, OH 24507-6802

Phone: +9779049645255

Job: Senior Healthcare Specialist

Hobby: Cycling, Model building, Kitesurfing, Origami, Lapidary, Dance, Basketball

Introduction: My name is Sen. Emmett Berge, I am a funny, vast, charming, courageous, enthusiastic, jolly, famous person who loves writing and wants to share my knowledge and understanding with you.