As we look forward to 2017, we see many interesting things emerging from China’s ‘Belt and Road’ (B&R) initiative also called the New Silk Road Plan as part of China’s ambitious strategy to target the economies along the B&R which account for approximately 63% of the world’s population and 29% of global GDP.
The ‘Belt’ shall target infrastructure connectivity through investments in a network of overland roads, high-speed railways, oil and natural gas pipelines that shall stretch from central and western China through Asia and ultimately reaching London. The ‘Road’ refers to a 21st century Silk Road maritime equivalent consisting of a network of ports and other coastal infrastructure projects that dot the map from Southeast Asia to East Africa and the Mediterranean Sea. Thus, the B&R initiative allows China to promote investment and trade facilitation, financial cooperation and renminbi internationalization with countries across Asia, the Middle East and Africa.
Infrastructure development is the key emerging need of many countries in Asia, the Middle East and Africa and requires significant investment and tapping into every available pool of liquidity. Islamic finance can play a significant role in providing alternative means of financing. In addition, many countries along the B&R have well-developed Islamic financial systems, thus it is anticipated that Islamic capital markets will receive a boost from these initiatives. The initiative is also likely to provide a channel for China’s savings and construction expertise to be shared with the countries along the B&R and help resolve their infrastructure needs.
The UAE and in particular Dubai, is already recognized as a regional financial hub and has made great strides toward achieving its target of becoming the capital of the Islamic economy, exemplified in 2015, when NASDAQ Dubai overtook Malaysia and London as the world’s leading center for international Sukuk listings. The UAE’s expertise in Islamic finance provides China with the ability to access regional liquidity and strengthen ties with Muslim-majority countries in terms of inbound investments from China. The B&R initiative offers China a gateway to use Islamic finance to build business relationships and foster increased cooperation on infrastructure projects with the Middle East and the Muslim-majority Southeast Asian and African countries. In particular, export credit agencies and multilateral organizations are already well-versed in Islamic finance and can provide political risk insurance and guarantees which broaden the scope and allow new issuers to diversify their investor bases.
Furthermore, the B&R initiative offers the prospect for Chinese entities to raise financing offshore through previously untapped markets and the UAE is ideally positioned to act as a hub through which both Islamic and conventional investments into China can be routed through from the wider Gulf region. Similar to the UK, Hong Kong made its first foray into Islamic financing through its inaugural Sukuk issuance in 2014 and again less than a year later in 2015, demonstrating it is possible for non-Muslim majority countries to take the steps to establish an Islamic financing framework in order to be a player and participate in Islamic investments in the region and the global platform as a whole.
The B&R will likely have a transformative economic impact on Asia and Africa, especially for smaller, less-developed countries with high infrastructure requirements. In addition, it can offer Chinese entities an opportunity to raise financing offshore through an untapped market, which will help to strengthen its relations with some of its most important trade partners and spur inter-regional trade and economic openness among countries adopting the B&R strategy.
As China further opens up its cross-border capital movements and client needs in renminbi grow, Standard Chartered Bank with its long 150-year history in China and presence along key renminbi offshore centers, is ideally placed to capitalize on the B&R initiative. Combined with Standard Chartered Saadiq, an established leader in Islamic banking, with a presence in core Islamic markets and solid experience in cross-border, project finance and capital markets, we are the perfect partner to advise on B&R opportunities to sovereigns, corporate and institutional clients and we look forward to realizing its full potential.