【IMIWorkingPaperNo.1912[EN]】RoleforChineseCommercialBanksintheBeltandRoadInitiative

China’s meteoric rise to become second economy in the world is not only a tribute to the size of China but also to the hard work of the Chinese population and the wise policy by the Chinese leadership.
In addition to a big manufacturing base, a major link in the international value added chain, China is now the major commercial power in the world, acting as major trading partner for more than 50 countries world wide. The partnership is not only on the export side but also on the import side. In addition, Chinese know-how and prowess is visible in more than 70 countries after President Xi Jinping launched the Belt and Road Initiative (BRI) in 2013.

While commerce has become mainly a private affair, with trading partners concluding agreements and exchanging goods, the BRI so far has been a government to government affair. The work is done by Chinese government linked enterprises financed by the policy development banks, first and foremost the China Development Bank (CDB) and the China Import and Export Bank (CMXB). It seems to be accepted that after the initial push, there is ample room now for other enterprises to join and financing being provided by the major Chinese as well as foreign commercial banks.

The article will first present historical examples of banks following trade and investment by previous global powers, the United Kingdom (UK) and the Unites States of America (US). In their cases the banks followed the flag, providing finance for trade and investment of their private companies. Thanks to this strategy, British banks still play a global role long after the demise of the British empire and US banks still enjoy a global role thanks to the US economic global predominance in the 20th century.

In the second part, the presence of Chinese banks in the current global environment will be scrutinised. How is their global presence organised, such as financing from the head office and their branches and subsidiaries abroad and how important are their cross border activities? Are they following the international banking model or have already turned into global banks? How do they rank among the other global banks in the Bank Internationalisation Index?

In the third part the Belt and Road strategy, in particular the financing side will be analysed. While the Chinese policy banks have shouldered the main burden of the BRI, the Chinese leaders have opened the door to a different business model, with financing provided by the commercial banks and private investors. This is not only confined to Chinese banks but could also involve foreign banks.

Finally, if Chinese commercial banks were to play a bigger role in the BRI, what would that mean for the form of their participation. While there is no doubt about the top down leadership defining the BRI, the implementation could be an excellent business case for Chinese banks to show their prowess. They could seize the financial and reputational incentive when the policy banks reach their limitations. Would they simply act as agents of the Chinese government or would they participate in their own right? The latter would require the necessary safeguards, such as compliance with international standards such as due diligence and feasibility assessment.

The article will conclude, that Chinese commercial banks can and should pick up the challenge, showing the world, both the investment partners and critiques that they are not in game for political ends but for purely commercial reasons, providing finance for sound infrastructure projects.

Herbert Poenisch, member of International Committee, IMI, former senior economist, BIS