Policy banks to lead Silk Road infrastructure fund

Updated: 2014-11-05 07:50

By Bloomberg(China Daily)

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Policy banks to lead Silk Road infrastructure fund

A model wearing a local style costume at the China-Eurasia Expo held in September in Urumqi, capital of the Xinjiang Uygur autonomous region. The New Silk Road plan envisions an economic cooperation bloc through to the Mediterranean that revives the old Silk Road. [Zou Hong / China Daily]

Officials say $16.3b will be raised to improve links with foreign markets

China plans a $16.3 billion fund to finance construction of infrastructure linking its markets to foreign countries as President Xi Jinping pushes forward with his plans to revive the centuries-old Silk Road trading route.

The fund, overseen by Chinese policy banks, will be used to build and expand railways, roads and pipelines in Chinese provinces that are part of the strategy to facilitate trade over land and shipping routes, according to government officials who participated in drafting the plan.

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More policies will be announced soon to encourage Chinese lenders to finance infrastructure in countries along the route connecting China to Europe, said the officials. They asked not to be identified as they were not authorized to speak publicly about the plans. Chinese companies will also be urged to invest in the countries and bid for contracts, the officials said.

The New Silk Road plan, comprising a land-based belt and a maritime route, has been referred to as a Chinese national strategy after Xi first proposed the idea in Kazakhstan a year ago. It envisions an economic cooperation bloc through to the Mediterranean that revives the old Silk Road, where trade helped developed civilizations along the route.

"Previously, China focused on attracting foreign investment, but now the shift is being made-China's more and more encouraging its capital to go abroad," said Feng Yujun, senior researcher at the China Institutes of Contemporary International Relations in Beijing.

The State Council Information Office did not immediately respond to faxed questions seeking comment.

The fund will finance domestic infrastructure construction and will be overseen by Chinese policy banks such as China Development Bank, the officials said. Financing will be limited to regions in the plan: Central Asia, the Middle East, South Asia, Southeast Asia and parts of Europe, they said.

The plan signals "a shift in China's strategic thought", said Zhang Yunling, director of the Institute of Asia-Pacific Studies at the Chinese Academy of Social Sciences. The past three decades of China's development have been focused on "absorbing foreign investment" and the next step will be about the outflow of Chinese development to its neighbors, he said.

Initiated by China, a memorandum of understanding on establishing an Asian Infrastructure Investment Bank was signed last month in Beijing. The multilateral lender is seen as an important instrument to realize the vision of the Silk Road Economic Belt and the 21st Century Maritime Silk Road.

The bank targeted capital of more than $100 billion, with China donating up to half of that.

This May, the Fuzhou government, along with China Development Bank and the China-Africa Development Fund, signed an MOU to put up 10 billion yuan ($1.63 billion) to build the 21st Century Maritime Silk Road.

This month, a railroad to link Korla, Xinjiang and Golmud, Qinghai was approved by the National Development and Reform Commission. This project is part of a more ambitious plan to connect Chengdu to a land port in Pakistan, a route that spans more than 10,000 km. The project could be integrated into China's eastern rail network through Chengdu.

Li Ruogu, chairman of the Export-Import Bank, said earlier that on the hardware side, fund gaps remain the key bottleneck for the grand vision of the Silk Road Economic Belt. On the software side, achieving cooperation among countries with various political, religious and cultural backgrounds will be a challenge.