CHEN Yulu, Deputy Governor of People’s Bank of China

Since the convention of the first Belt and Road Forum for International Cooperation (BRF), under the leadership of the CPC Central Committee and the State Council, and hand in hand with other institutions of the financial system, the PBC has forged ahead to blaze new trails in promoting financial integration under the Belt and Road Initiative (BRI), and made many achievements by earnestly practicing the philosophy of “seeking shared growth through consultation and collaboration” and adhering to the principle of business-led, market-driven, and mutual beneficial development.

I. Fully implementing the 1st BRF’s achievements on financial integration

In the past two years, the PBC fully implemented the achievements on financial integration made at the 1st BRF in collaboration with various financial institutions.

The injection of an additional capital of RMB 100 billion into the Silk Road Fund was completed. In May 2017, President Xi Jinping announced at the opening ceremony of the 1st BRF that China will contribute an additional RMB 100 billion to the Silk Road Fund. In April 2018, under the joint efforts of the PBC and the Silk Road Fund, the required procedures were completed. Investment made in RMB by the Silk Road Fund registered rapid growth. As of end-Q1 2019, the total value of RMB-denominated investment contracts amounted to RMB 18 billion.

The overseas RMB fund business developed smoothly. On the basis of intensive research with financial institutions concerned, the PBC clarified the scope of overseas RMB funds, and launched pilot programs in 11 financial institutions.And recently, the program was expanded. At the end-Q1 2019, the scale of the overseas RMB fund business exceeded RMB 300 billion. Besides, some pilot institutions planned to launch seven funds with a total scale of RMB 50 billion.

Capacity building cooperation with the International Monetary Fund (IMF) was advanced. Jointly established by the PBC and the IMF, the China-IMF Capacity Development Center (CICDC) was inaugurated in April 2018. As of end-2018, CICDC has successfully held 20 training sessions and seminars for around 600 trainees from nearly 40 countries in Southeast Asia, Central Asia, Africa and Latin America.

Commercial banks were supported to establish a regular cooperation and exchange mechanism with major banks in BRI countries. The mechanism was established in May 2017. Its members have actively explored for investment and financing cooperation opportunities and developed business partnerships. Now the mechanism has a membership of 85 financial institutions from 45 countries and regions, who work in collaboration in over 40 BRI projects, issuing loans of nearly USD 40 billion.

II. Actively exploring to establish and improve the cooperation framework for outward investment and financing under the BRI

In promoting financial integration, the PBC valued the importance of summarizing the ideas and principles of promoting investment and financing cooperation under the BRI and explored to establish a cooperation framework for outward investment and financing under the BRI.

In the past two years, the PBC has been adhering to the following principles in BRI investment and financing cooperation. The first is “to seek shared growth through consultation and collaboration” and mobilize resources at all fronts. This is the core spirit of the BRI as well, which is aimed at securing medium to long-term capital for the development of countries along the Belt and Road through multiple channels on a sustainable basis. The second is to pursue “business-led, market-driven and mutual beneficial development”, so as to ensure the long-term and stable development of BRI investment and financing cooperation. The third principle is to increase the use of local currency, which is reflected in the whole framework. The fourth is to ensure the sustainability of investment and financing cooperation, including the sustainability of finance, environment and society.

In adherence to the above principles, the PBC gradually put in place the cooperation framework for outward investment and financing under the BRI. From the perspective of market-government relations, the market played a dominate role in financing while the government mainly used its funds to leverage private capital. In terms of fund providers, multiple participants including international financial institutions, and countries and capital markets along the Belt and Road were all mobilized, thus forming a development situation featuring multi-participation and mutual complementation. As to the investment and financing pattern, the PBC encouraged commercial financing, and gave full play to the benefits of developmental finance, so as to reduce concessional funds, and form a multi-tiered and network-based investment and financing structure. When it comes to the currency for investment and financing, the use of local currency was boosted to satisfy the demand of market entities and economic development of the countries along the Belt and Road. Besides, the PBC placed a high priority on sustainability, took effective actions to manage risks, and proactively promoted the development of green finance.

III. Facilitating the use of local currency in countries and regions along the Belt and Road

In recent years, in addition to guiding the development of overseas RMB fund business, the PBC adopted measures to promote more use of local currency in the building of Belt and Road, and made improvements to the supporting systems.

The construction of infrastructure for RMB cross-border use was promoted. Steady progress was made in the construction of China International Payment System(CIPS). CIPS Phase II allows settlement of RMB cross-border trade, investment and financing business, RMB cross-border cash pool, as well as financial market business, which has greatly enhanced the efficiency of RMB cross-border settlement, and facilitated the use of RMB in settlement of trade and investment under the BRI framework. As of end-2018, CIPS has covered 41 countries and regions along the Belt and Road.

The bilateral currency cooperation further deepened. As of end-2018, the PBC has signed bilateral local currency swap agreements with central banks of 21 countries and regions along the Belt and Road, and made RMB clearing arrangements with seven RBI countries and regions.

RMB-denominated settlement was improved. In April 2016, Shanghai Gold Exchange released the world’s first RMB-denominated gold benchmark price. In March 2018, crude oil futures denominated in RMB were listed for trade on the Shanghai International Energy Exchange.

Vigorous efforts were made to develop the RMB bond market. As of end-2018, a total of RMB 60 billion worth of Panda Bond were issued by Hungary, Poland, the Philippines and other BRI countries as well as several global enterprises including China Merchants Port. What’s more, Bond Connect linking the bond markets of Mainland China and Hong Kong was officially launched, which served to advance the opening-up of the RMB bond market. The rapid development of the RMB bond market not only broadened sources of funds for the BRI, but also eased the risk of currency and maturity mismatching, deepened financial market reforms, and enhanced the resilience of the financial market.

IV. Practicing the philosophy of opening-up and joint contribution in strengthening third-party cooperation

The BRI features inclusiveness and openness. The PBC has always been attaching great importance to stepping up third-party cooperation. In line with the principle of seeking shared growth through consultation and collaboration, the PBC maximized the use of resources at all fronts to ensure the sustainability of investment and financing cooperation, and secure a win-win situation for all parties involved.

Getting engaged in co-financing with Multilateral Development Banks (MDBs). The PBC has conducted co-financing with several institutions including the International Finance Corporation (IFC), the European Bank for Reconstruction and Development (EBRD), African Development Bank (ADB), Inter-American Development Bank (IDB), and European Investment Fund (EIF). As of end-Q1 2019, the PBC has approved a total of 177 programs to be launched in areas including Europe, Central Asia, Africa, and Latin America, covering such fields as drinking water hygiene, transportation, agriculture, and youth employment, which vigorously promoted local economic development and improved people’s livelihood.

Signing third-party cooperation agreements with EBRD. EBRD is an important financing source for market entities in Central and Eastern Europe, and also one of the earliest international institutions to respond to China’s Belt and Road Initiative. Cooperation between the PBC and EBRD enabled both parties to better leverage their respective advantages, and provided new impetus for the financial integration of the BRI. In 2016, the PBC became a contributor to the Equity Participation Fund of EBRD. Since then, it has been encouraging Chinese financial institutions to engage in co-financing with EBRD. In 2019, the PBC and EBRD signed a memorandum of understanding on strengthening third-party market cooperation, to push forward investment and financing cooperation in Central Asia, and Central and Eastern Europe along the Belt and Road.

Promoting capacity building cooperation with major international institutions. The capacity building cooperation is vital for the construction and improvement of soft environment for investment and financing in countries along the Belt and Road. Aside from the establishment of the CICDC with the IMF, the PBC joined hands with ADB, West African Development Bank (BOAD) and some other African international organizations in setting up bilateral technical cooperation funds. Through joint research reports and international seminars, Chinese experience and techniques were disseminated in Africa, which bolstered capacity building in many African countries. In collaboration with the IDB, the PBC initiated a fund for capacity building and technical assistance, and held the LAC-China Policy and Knowledge Summit for multiple times, facilitating exchanges in such fields as micro credit, customs, agriculture and urbanization between China and Latin American countries.

Additionally, Chinese financial institutions also tapped into their own strengths, and provided intellectual support for financial institution partners along the Belt and Road. For example, the Industrial and Commercial Bank of China (ICBC) organized several sessions of training on project financing risk management, product design and green finance for members of the “regular cooperation and exchange mechanism for banks along the Belt and Road”. Focusing on risk management at the project level, these trainings effectively supplemented capacity building of government authorities primarily in improving macroeconomic policy framework.

V. Advancing green finance proactively, and fostering sustainable development of BRI

Green, low-carbon and sustainable development is an inherent nature of the BRI. The PBC, as well as all ministries concerned, highly values the development of green finance. In adherence to the philosophy of green development, the PBC continues to improve top-level design, so as to enhance the greenness of BRI-related investment.

In 2016 when China held the G20 presidency, green finance was first introduced into G20’s agenda. In one aspect, by encouraging the development of green loans, green bonds, green funds and other market-oriented financial instruments, China strived to develop the domestic market of green finance. In 2018, RMB 282.6 billion worth of green bonds were issued, representing a year-on-year increase of 12% and making China the world’s second largest green bond issuer. In another aspect, the PBC strongly advocated the philosophy of green finance among G20 countries and in the Central Banks and Supervisors Network for Greening the Financial System (NGFS), mobilized capital for green and low-carbon investment and thus promoting environmentally-friendly and sustainable growth. In 2018, the Green Finance Committee of China Society for Finance and Banking (GFC) and the City of London Corporation, in collaboration with several global institutions, initiated the “Green Investment Principles for the Belt and Road”, incorporating low carbon and sustainable development into the BRI. As of end-March 2019, nearly 20 financial institutions of China, the UK, Pakistan, the United Arab Emirates, and other countries and regions along the Belt and Road have signed up to the principles.

Chinese financial institutions became active players of green finance. China Development Bank (CDB) issued China’s first quasi-sovereign international green bond in 2017. Industrial Bank Co., Ltd. represented 23% of domestic green bond issues in 2018, and became the world’s second largest green bond issuer. ICBC plans to release a BRI green finance index with members of the regular cooperation and exchange mechanism. And China Everbright Group is working with EBRD and several other financial institutions to set up a BRI green investment fund.

VI. Promoting inclusive finance along the Belt and Road with Fintech

Most BRI countries are emerging and developing economies with imbalanced financial system and relevantly high cost of financial services. By freeing traditional financial services from restrictions posed by physical outlets and time, Fintech has made such services available to groups neglected by traditional service providers, and brought new opportunity and tools to inclusive finance. With the help of Fintech, countries can develop inclusive finance in a more effective way by taking the Internet and mobile banking as important carriers, and exchange experience in providing multi-channel, wide-coverage financial services for the construction of Belt and Road.

China significantly promoted inclusive finance in countries along the Belt and Road. In recent years, China has taken its advantage to advocate inclusive finance, with substantial progress in some Belt and Road regions and countries. Evidently, advanced Fintech technology can better serve partner countries, revitalize local resources, cultivate local talents and serve local people through “localized” connections.

VII. Effectively preventing and defusing financial risks to enhance sustainability of investment and financing

First, dynamic monitoring of macro risks was enhanced through international platforms and bilateral cooperation. Major risks in global economic and financial scenario and the economic and financial conditions in major BRI countries were closely tracked for prospective studies and proper preparations through important international multilateral platforms such as G20, IMF and Bank for International Settlements (BIS). Meanwhile, multilateral and bilateral coordination on major monetary and financial policies was promoted with more vigorous risks management. Second, financial institutions and relevant enterprises were encouraged to tighten risk control. Financial institutions were required to specify their risk responsibilities in line with market-based principles and to strengthen risk prevention and control for business sustainability. Domestic financial institutions were encouraged to identify risks by using the universal framework and methods of debt sustainability analysis. Third, progress has been made in risk warnings. Information on risks were timely communicated and pre-warnings were sent to relevant authorities, Chinese financial institutions and enterprises through means like risk surveys, information exchanges, special sessions and risk warnings. Fourth, questions were responded timely. We actively participated in international cooperation and discussion and faced up to skepticism. Different channels were used to enhance trust, clarify doubts, tell the Chinese story, and spread the core idea of cooperation on investment and financing under the BRI.

In the next step, the PBC will put into action the guiding principles of General Secretary Xi Jinping’s address at the symposium marking the fifth anniversary of the BRI, and take the successful holding of the second forum as a new starting point for faster completion of the policy system for financial support. We will guide more social capital into the building of the Belt and Road with enhanced risk monitoring and management, just like an architect refining the blueprint, to jointly promote the quality development of financial integration under the BRI.