Capital Flows
Promoting financial cooperation and enhancing capital flows is one of the objectives of the Belt and Road Initiative. By improving existing platforms for financial cooperation, maintaining stability of monetary systems in Asia, building financing and credit system, expanding currency swap arrangements among the member states, facilitating the development of the Asian bond market, creating opportunities for multi-lateral financial cooperations1, the Belt and Road Initiative seeks to establish a trans-national platform to deepen economic cooperation and financial integration.
AIIB – Laying the Foundation for Economic Cooperation
The AIIB has become the second largest international financial institution in the world with 80 approved members
The Asian Infrastructure Investment Bank (‘AIIB’) is a crucial part of the Belt and Road Initiative. It was founded to provide financial assistance for Asian countries to facilitate infrastructure development in the region, enhancing regional connectivity and economic collaboration2.
The AIIB has gained support from the international community. Since its formation in 2014, the AIIB has become the second largest international financial institution in the world with 80 approved members, after the World Bank3. It includes 56 member states and 24 prospective members4. The Asian Development Bank, established more than 50 years ago, has 67 member states5.
AIIB has been actively involved in infrastructure investment projects in the region to offer assistance in the Belt and Road logistics and transport network. Examples include:
- On 15 June 2017, the AIIB approved loans of US$ 114 million for the Batumi Bypass Road Project in Georgia6 and US$ 60 million for the Nurek Hydropower Rehabilitation Project in Tajikistan7;
- On 26 June 2017, Carlos Dominguez III, the Philippines’ Secretary of Finance, acknowledged that the AIIB would provide funding for the Manila flood management project worth US$207 million8.
Internationalisation of the Renminbi
Bi-lateral currency swap agreements not only sustain collaborative partnerships between China and other countries, they also provide a more efficient and cost-effective alternative to currency exchange9, when transactions can be made in local currencies instead of major currencies10. As of July 2017, the People’s Bank of China has signed currency swap agreements with 32 countries, with the total amount of RMB3,340 billion11.
Hong Kong as a Cross-border Financing Platform
Investors in Hong Kong and China enjoy greater access to the capital markets in both markets
As an international financial centre, Hong Kong is renowned for its well-established and prudent financial regulations and transparent system. Having close economic ties with China, Hong Kong is one of the largest global offshore RMB business hubs.12 As of May 2016, Hong Kong’s offshore RMB liquidity pool reached RMB824 billion (approx. HK$977 billion), accounting for approximately half of the global offshore RMB liquidity pool13. Since the launches of the Shanghai-Hong Kong Stock Connect in 2014 and the Shenzhen-Hong Kong Stock Connect in 2016, investors in Hong Kong and China enjoy greater access to the capital markets in both markets14. With its proven experience in trading and financial management, Hong Kong can play a significant role in offering financial services to promote cross-border co-operations, coordinate fund-raising activities, and manage the financial regulatory regime under the framework.
With the establishment of an effective platform for financing and capital flows, financial co-operation is an important area in the Belt and Road Initiative.
[1]HKSAR Government. “Vision and Actions on Jointly Building Silk Road Economic Belt and 21st-Century Maritime Silk Road” the State Information Centre of China. HKSAR Government.
[2]Research Office, Legislative Council Secretariat. "Hong Kong's participation in the Asian Infrastructure Investment Bank" Hong Kong Legislative Council.
[3]Ruan, Zongze. "Belt and Road Initiative: A New Frontier for Win-Win Cooperation" Chinese Institute of International Studies.
[4]Asian Infrastructure Investment Bank. “Members and Prospective Members of the Bank” Asian Infrastructure Investment Bank.
[5]Asian Development Bank. “Members” Asian Development Bank.
[6] "UPDATE 1-China-led AIIB approves $324 mln in infrastructure investment" REUTERS.
[7]XINHUANET.com “亞投行宣布首個股權投資項目” XINHUANET.com
[8]Belt and Road Portal. “亞投行將為馬尼拉防洪項目融資2.07億美元” The State Information Center of China.
[9]Lee, Simon-Hoey, and Yuan, Xiao-hang. 從世界工廠到世界工程師, 43. Hong Kong: Joint Publishing (Hong Kong) Company Limited, 2016.
[10] " Use local currencies in China's Silk Road initiative for financial stability - c.bank officials" CNBC.
[11]"中國人民銀行和其他中央銀行或貨幣當局雙邊本幣互換一覽表" The People’s Bank of China.
[12]HKSAR Government. "LCQ7: Offshore renminbi business in Hong Kong". HKSAR Government.
[13]HKSAR Government. "Belt and Road - Hong Kong: A Key Link for the Belt and Road" HKSAR Government.
[14]Ibid.
