Belt and Road a path to fi­nan­cial in­te­gra­tion

China Daily (USA) - - VIEWS -

Fi­nan­cial in­te­gra­tion is one of the five ar­eas of co­op­er­a­tion pri­or­ity for the China-pro­posed Belt and Road Ini­tia­tive, but it seems this topic has not re­ceived the con­sid­er­a­tion it de­serves. Rather, most analy­ses have fo­cused on its am­bi­tious in­fra­struc­ture in­vest­ment goals of the Belt and Road Ini­tia­tive in the coun­tries along the two routes, be­cause big amounts of money easily grab at­ten­tion. For in­stance, the Fi­nan­cial Times has sug­gested the “colos­sal un­der­tak­ing” could cost tens of tril­lions of dol­lars to fi­nance.

If we de­fine fi­nan­cial in­te­gra­tion as en­hanc­ing cap­i­tal mo­bil­ity across bor­ders, can we find in­di­ca­tions that the Belt and Road Ini­tia­tive will pave a path in that di­rec­tion?

To help an­swer that ques­tion, three doc­u­ments are es­pe­cially use­ful. The first is the March 2015 “Vi­sion and Ac­tions on Jointly Build­ing Silk Road Eco­nomic Belt and 21st Cen­tury Mar­itime Silk Road”, which pro­vides the ini­tial frame­work for the con­cept pro­posed by Pres­i­dent Xi Jin­ping in the fall of 2013. It states that “fi­nan­cial in­te­gra­tion is an im­por­tant un­der­pin­ning for im­ple­ment­ing the Belt and Road Ini­tia­tive”, and offers a long list of op­tions in the fi­nan­cial space, in­clud­ing cross-bor­der eco­nomic co­op­er­a­tion zones, bond mar­ket de­vel­op­ment, reg­u­la­tory co­or­di­na­tion, de­vel­op­ment of new in­sti­tu­tions such as the Asian In­fra­struc­ture In­vest­ment Bank and the Silk Road Fund, and credit rat­ing co­op­er­a­tion.

If im­ple­mented, th­ese plans could re­sult in a re­duc­tion of reg­u­la­tory bar­ri­ers to cross-bor­der fi­nan­cial trans­ac­tions, and in­crease in gross cross-bor­der port­fo­lio in­vest­ment, gross for­eign di­rect in­vest­ment and cross-bor­der bank­ing ac­tiv­ity. In other words, we would see signs of more money mov­ing more freely along the Belt and Road.

The sec­ond doc­u­ment, the com­mu­niqué is­sued at the Belt and Road Fo­rum for In­ter­na­tional Co­op­er­a­tion in May, in­cludes “en­hanc­ing fi­nan­cial in­fra­struc­ture con­nec­tiv­ity”, and “pro­mot­ing open­ness and con­nec­tiv­ity among fi­nan­cial mar­kets in­clud­ing through co­op­er­a­tion on pay­ment sys­tems”, which, if suc­cess­ful, will ex­pand the ar­eas where the Belt and Road Ini­tia­tive can re­duce bar­ri­ers to fi­nan­cial in­te­gra­tion.

And the “Guid­ing Prin­ci­ples on Fi­nanc­ing the De­vel­op­ment of the Belt and Road”, also is­sued at the fo­rum, calls for “the or­derly open­ing-up of lo­cal and re­gional fi­nan­cial mar­kets” and the “steady ex­pan­sion of mar­ket ac­cess of bank­ing, in­sur­ance and se­cu­ri­ties sec­tors”, as well as strength­en­ing co­op­er­a­tion in cross-bor­der su­per­vi­sion, which could in­crease cap­i­tal flows across bor­ders.

The three doc­u­ments may not be bind­ing, but the Belt and Road Ini­tia­tive is pro­vid­ing new op­por­tu­ni­ties and per­haps more im­por­tant, new in­sti­tu­tions (such as the Silk Road Fund) that could foster tan­gi­ble move­ment to­ward fi­nan­cial in­te­gra­tion among coun­tries.

Per­haps the more im­me­di­ate re­sults will be seen in lo­cal and re­gional bond mar­kets. For ex­am­ple, top Chi­nese banks are de­vel­op­ing new prod­ucts for do­mes­tic as well as over­seas mar­kets, in­clud­ing a stan­dard­ized bond for use specif­i­cally in the re­gion. And their ac­tiv­i­ties linked specif­i­cally to in­fra­struc­ture in­vest­ment could of­fer much­needed long-term in­vest­ment ve­hi­cles for pen­sion and in­sur­ance in­vestors, and start to fill an im­por­tant gap as a low-cost alternative to bank fi­nanc­ing, es­pe­cially as the pro­jects move into op­er­a­tional phases.

Per­haps the mo­men­tum of the Belt and Road Ini­tia­tive it­self might be enough to cre­ate op­por­tu­ni­ties for new in­stru­ments, new mar­ket prac­tices, and new mar­ket ac­cess that en­dure and stim­u­late the ben­e­fits that at­tribute to well-in­te­grated fi­nan­cial mar­kets. The Belt and Road could also be the routes along which the ren­minbi in­creases its weight as a global cur­rency, or might help cre­ate path­ways served by new fi­nan­cial in­fra­struc­ture pro­jects that op­er­ate in par­al­lel to ex­ist­ing sys­tems. After all, as Xi said at the the May fo­rum: “Fi­nance is the lifeblood of mod­ern econ­omy. Only when the blood cir­cu­lates smoothly can one grow.”

... the Belt and Road Ini­tia­tive is pro­vid­ing new op­por­tu­ni­ties ... that could foster tan­gi­ble move­ment to­ward fi­nan­cial in­te­gra­tion ...

The au­thor is a PhD can­di­date at Paul H. Nitze School of Ad­vanced In­ter­na­tional Stud­ies. Source: chin­aus­fo­

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