China Entices Rich World's Cash Pile With Belt and Road Returns

(Bloomberg) -- Rich countries are increasingly looking to China’s Belt and Road infrastructure network as a potential opportunity to invest assets that face meager returns at home, even amid persistent controversy over Beijing’s handling of the initiative.

Britain, Switzerland and Austria will all sign agreements to cooperate on investments in developing nations at this week’s Belt and Road Forum in Beijing, on top of similar agreements already signed by France, Spain, and Australia, according to an official familiar with the talks, who asked not to be named.

A common theme of the meeting a day before the official opening of the forum was that foreign investors and banks are looking for sustainable and stable investments where they can put their money and generate strong returns in an age of near-zero interest rates in many developed nations.

“The money is there and can easily be mobilized,” according to Swiss Minister for International Finance Daniela Stoffel. She expressed confidence that Swiss financial institutions would participate, giving an example of a large re-insurance company that had told her it had many times as much money in its accounts than was needed to fill Asia’s infrastructure gap.

The Belt and Road Initiative is Chinese President Xi Jinping’s signature foreign policy - a plan to develop trade routes and build infrastructure between China and Europe and into Africa. It has become mired in criticism that it’s a debt trap for poor countries and China looks to be trying to answer those critics, both by changing how it works, and by getting more developed nations to join in. Xi will address the gathering on Friday.

Investing in the projects is an opportunity to “contribute to the creation of a global infrastructure asset class and a fresh source of quality fixed income assets,” according to Sir Douglas Flint, the U.K.’s special envoy to the BRI. The pooled savings of the demographically aging world “have the capacity to fund the infrastructure needed to secure their retirement and the economic well-being of future generations,” he said at the meeting.

Japanese Interest

Koji Fujiwara, the CEO of Japan’s Mizuho Bank, also expressed a willingness to cooperate with Chinese banks on investments overseas. Although Japan hasn’t signed up to the Belt and Road, Japanese Prime Minister Shinzo Abe last year agreed to 50 cooperation agreements on his visit to China, including on infrastructure in places like Thailand.

Many of the participants on Thursday expressed the need to ensure that projects were sustainable, ecologically friendly, transparent, and financially viable. U.K. Chancellor Philip Hammond is attending the forum, and “will make the make the case for ensuring that projects meet international standards on governance, debt sustainability, and environmental impact,” according to an e-mailed statement.

In response to criticism that the projects are a debt trap for poor nations, the Chinese Ministry of Finance released a debt sustainability framework and promised to step up debt and risk management.

But China also pushed back against some of that criticism.

“If debt increases along with improving infrastructure, people’s livelihood, labor productivity and poverty alleviation, it’s good to improve economic indicators and good for long-term, sustainable development,” said the PBOC’s Yi. “The investment can generate new cash flow, increase their debt repayment ability and it’s sustainable.”

The forum officially opens on Friday with Xi’s address, and concludes on Saturday.

©2019 Bloomberg L.P.

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