Belt and Road Forum Brings Clarity but Not Yet Fees

Euromoney, June 12 2017

The B&R forum held in Beijing brought a little clarity to a so far rather nebulous concept.

The summit in May brought, for example, the commitment of a further RMB780 billion to overseas initiatives in 60 countries, split between the Silk Road Fund, the two policy banks – China Development Bank and China Eximbank – and Chinese commercial banks.

International banks say there are Belt and Road (B&R)-related projects to bid and work on now, in Pakistan for example, though there is already a steady creep of unrelated projects under the umbrella of B&R during bank pitches.

In the past month, one bank has tried to present the mooted Singapore-Kuala Lumpur rail link as a B&R project, and another banker confesses that he just uses the topic in an emergency when conversation with a client dries up: “So, done any Belt and Road lately?”

There’s an argument to be made that B&R is just a slogan for infrastructure that would have been developed anyway. One senior banker calls it a supercharger for an existing theme; another, among the senior leadership of one of China’s largest banks, calls it a paraphrasing of globalization.

But, nevertheless, things are now happening, and the next question is how banks can get involved, and whether they should.

At the vanguard will obviously be the Chinese policy banks, plus the Silk Road Fund and China’s own multilateral, AIIB – though that institution claims that any alignment with B&R is just a coincidence of interests.

Then it will be Chinese commercial lenders. ICBC alone publicly claims to have taken part in 212 projects in the B&R area, with financing facilities worth more than $67 billion, and an expected 400 further projects to come with lending in the hundreds of billions of dollars.

Ambitions

Other major mainland banks have big ambitions too. These banks also insist they will do so on commercial terms.

“If we do not do it in a commercially based way, it is unsustainable,” says one senior Chinese banker. “We cannot be a part of it.”

It remains to be seen if this is borne out in practice. They will be expected to do their bit by the state.

Local banks in recipient countries will expect to step up on the financing side, too, but projects such as these are unlikely to be attractive to multinationals and their balance sheet unless there is a quid pro quo that they will get other work as a consequence of putting their money on the line.

First port of call in that respect will be project finance advisory mandates, but over time there should be clear opportunities in trade finance, then potentially FX hedging, cash management, broader commercial banking and eventually capital market takeouts. Local currency bond markets logically ought to benefit too.

However, international bankers should expect fees to be razor thin. Work for Chinese state-owned enterprises is rarely a quick way to get rich and there is no reason to expect state-directed and Chinese-funded projects in the B&R area to be much different.

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