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China to lure foreign investment into Belt Road
China is looking for foreign private capital to support Belt Road projects, as indicated by the State Council. SAFE is adjusting the rules for its domestic forex derivatives market in order to bring in more foreign bond buyers.
Michael Marray 1 Apr 2017

China is actively looking for foreign private capital to support projects under the Belt and Road initiative as indicated by the State Council, and is also adjusting the rules for its domestic foreign exchange derivatives market in order to bring in more foreign bond buyers.

Foreign institutions that invest in the interbank bond market will now be able to trade products including forwards, swaps, cross-currency swaps and options with domestic settlement agents, the State Administration of Foreign Exchange (SAFE) said in a statement posted on its website in late February. Access is limited to the hedging needs relating to onshore bond investments made by private sector investors.

The State Council has also outlined the attractiveness of Belt and Road projects to Western investors in a recent article. It notes that last year alone, Chinese enterprises invested at least US$14.5 billion in markets which make up the network that connects Asia, Europe and Africa, and covers more than 60 countries and regions with a population of about 4.4 billion. They have also set up some 65 trade cooperation zones along the way.

"Although most of the projects are about infrastructure connectivity, meaning considerable funds are often needed to start them and making profits can take some years, participating enterprises, particularly those in the West, can manage to grab a decent share of the profits if they play along", says the article.

It notes that, as a long-term strategy endorsed by global economies, the Belt and Road initiative has great potential to continuously create investment opportunities, because most of the countries it covers are emerging or developing economies where demand is huge and will keep on rising.

In their initial stages, the Belt and Road projects will focus on infrastructure; investment opportunities are often embedded in the construction of ports, railways, airports and telecommunication facilities in developing countries. But as their hardware conditions improve and demand for high-end manufacturing, technological innovation, medical and financial services increases, western enterprises will be able to make the most of their expertise in these sectors and translate it into considerable profits.

"Unlike their Chinese counterparts which simultaneously invest, build and operate in overseas infrastructure projects, western enterprises have flexible investment options, ranging from investing in green projects to cooperating with Chinese investors or other third-party participants", the article says.

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