China is an important driver of the global economy, and the large-scale surplus liquidity of the Islamic financial system can play a role in the Chinese economy. To fully utilize the effectiveness of this liquidity depends on whether both the Islamic world and China can have a deeper understanding of Islamic finance. China has put forward two important strategies and initiatives: the establishment of the Asian Infrastructure Investment Bank (AIIB) and the Belt and Road Initiative (BRI). These allow financial institutions and companies to plan investments in a large number of infrastructure projects in emerging markets. This is a great opportunity for the Islamic financial community to obtain high-quality assets.
Review of 2020
After the dragon nation’s economy was adversely affected by the COVID-19 pandemic in the first quarter (Q1) of 2020 with a contraction of the GDP by 6.8%, the Chinese government did tremendous work in combating the pandemic and achieved a successful recovery of the nation’s economic performance as well as safety and stability for the daily lives of its people. At the time of writing this report, according to a survey by Allalah Consulting, China has already restored its economy and accomplished a 5.8% GDP growth in Q3 2020, and it is anticipated that China will produce an annual GDP growth of 2.2% for 2020. Nevertheless, not much progress has been made by China in terms of Islamic finance and the Halal industry during the year.
Preview of 2021
Islamic assets are mainly concentrated in places where Muslims gather in the Middle East, North Africa, Southeast Asia and South Asia. With the Muslim immigration wave, it is expected that in 2021, as the pandemic goes away, many non-Muslim regions such as the UK, Luxembourg, Singapore and Canada will be actively developing Islamic finance.
The Middle East is one of the important regions involved in China’s BRI. There are many Islamic countries along the BRI. Hence, the development of Islamic finance in this region is important. Specifically, there are plenty of opportunities for Islamic finance in this region in the coming years.
Many countries strongly support the development of Islamic finance and many along the BRI have adopted Islamic finance as part of their national strategy for development. Among them, Malaysia, Bahrain, Saudi Arabia and Dubai have developed rapidly. In addition, some well-known international institutions have also started Islamic financial services, while Islamic financial services with good liquidity have been formed in some regions and cities. On this basis, under the leadership of China, strengthening cooperation between the AIIB, the Silk Road Fund and local financial institutions will allow Islamic finance to play a huge role.
In 2021, the role of financial communication will be strengthened. The most important thing for investment in countries along the BRI is infrastructure construction. At present, it is difficult to sustain trillions of dollars in demand by relying solely on traditional bank financing or public–private partnership projects. Consequently, investment must go through international markets including Islamic finance, which gradually guides the entry of financial institutions and private capital. In addition, given that the region is dominated by Muslims, the development of Islamic finance can gain support from the local people. As a result, the support of the people and funds will effectively guarantee a smooth progress for the BRI. There is a huge demand for the development of Islamic finance, which is an important step in the internationalization of China’s financial industry.
In addition to the aforementioned, starting from the first year of the second decade of this century, China’s further development of Islamic finance, in terms of Islamic finance legislation by Beijing, a Sukuk listing platform by Shanghai and Shenzhen, a Halal industry by Xinjiang and Ningxia, and most importantly, Islamic finance education across the nation’s cities, would definitely enable Islamic finance to flourish in the world’s second economic superpower.
Looking ahead, the promotion of the BRI aids in China’s financial penetration and innovation. Most of the Islamic countries along the BRI are developing countries, with a lack of financial products and insufficient financial innovation. However, with the advancement of global economic and financial integration, financial controls are gradually being abolished, and financial supervision will pay more attention to prudence and openness. And transparency is the best embodiment of the development and innovation of Islamic finance. From 2021 onward, being the leading Islamic finance advisory firm in the Greater China region with ample governmental, practitioner, academic and investor network resources, Allalah Consulting will help China’s financial market strengthen cooperation with Islamic nations in the BRI framework, which will be of great help to China’s financial penetration and innovation in the Middle East, thereby effectively accomplishing the ultimate objective of the BRI which is the well-being of both China and Islamic nations along the route.