Banking on Belt and Road
The rollout of Belt and Road projects is already presenting opportunities for companies that develop physical infrastructure such as highways, ports and pipelines. The secondary aspiration of the plan is to stimulate economic activity in countries that are home to nearly two thirds of the world’s population. That means it is going to be a boon for cross-border trade and finance, and for the institutions that support it.
For an insight on how HSBC is planning to capitalise on Belt and Road, and for his views on how Hong Kong can capture more of the business that it brings, WiC talked to Peter Wong, Deputy Chairman and Chief Executive of The Hongkong and Shanghai Banking Corporation, who is based in Hong Kong.
Bigger picture, how is HSBC responding to Belt and Road?
When Xi Jinping launched the initiative in 2013 we looked at the outlines of the plan on the map. It is very ambitious: the overland route stretches from Xi’an all the way to Rotterdam, and the maritime route from Fuzhou to Venice. It encompasses more than 60 countries, with trade worth $2.5 trillion.
Initially, we’ve chosen to focus on countries in the Asia-Pacific region where the project proposals look more concrete. In places like Thailand, Singapore and Malaysia, the plans are more advanced and they look more likely to deliver commercial opportunities for the bank, such as the planned railway from Kunming in China, through Laos, Thailand and Malaysia, down to Singapore.
The Middle East could be another early focal point, simply because China is buying a lot of oil from the region. Much of that supply is going through the Strait of Malacca and the Chinese want to develop alternative trade routes through new ports, pipelines and railways.
But Southeast Asia remains home to many of the most interesting projects, including new zones being developed around the ports of Malacca and Kuantan in Malaysia. These projects are going to be important. As they pick up momentum, Belt and Road will start to bear fruit. Once other countries see the progress, more of them will want to participate.
Is HSBC part of any of the blockbuster deals in ports and railways?
It’s less likely that HSBC will be providing the lending for some of the headline infrastructure projects.
We are concentrating on capturing the opportunities that the new roads and railways are going to create. For instance, Belt and Road is prompting a series of investments in Thailand, like the new rail route between Bangkok and Rayong. The railway might not yield the highest return as a standalone project. But our focus is more on what is going to be built nearby – the line is passing through a region that generates 60-70% of Thailand’s GDP and the development around it should be significant. Some of the companies in the new commercial and industrial zones will be Chinese but many will be from Thailand and other parts of Asia. That kind of scenario will be replicated along much of the new railway network linking Kunming with Singapore.
Are these companies already HSBC clients?
Many of the larger firms are already our customers. That’s one of the benefits of our franchise: we have been in these markets for many years and we know the local landscape. But we are also targeting newer customers in the supply chain as trade and investment start to develop.
In fact for years HSBC has been focusing on bilateral flows in corridors like China-Australia and India-Singapore, simply because it plays to our strengths in cross-border business and international connectivity.
This started long before Belt and Road became an official policy, although clearly the plan is going to create new corridors and stimulate commercial activity in the existing ones. It’s good news for us. Perhaps a client needs steel and cement for a project. That means trade and, as a bank, we are well positioned to support it.
What are main services on offer to Belt and Road clients?
Our trade corridor strategy starts with a mapping exercise. We identify the sectors and projects in the main corridors; we map the companies that are likely to be involved in them; and then we focus on the types of products that each customer might need.
This is the model we are deploying for countries in Southeast Asia and we will introduce it to highlight similar opportunities in other Belt and Road markets.
It means identifying the Chinese companies set to work on the main initiatives, but we are also looking at the local firms that they are partnering with. Because we already have so many customer relationships, we can talk to the companies that are involved and know their plans well.
The important point is that we want to establish relationships with customers that go beyond credit and loans. Rather than offering a single service to clients, we can offer a full range of them.
When a company wants debt financing, it probably wants foreign exchange as well. Maybe it needs bridge loans or project finance, and as we become more familiar with the customer, we can help with trade settlement and cash management too.
How about Hong Kong? Is it grasping the Belt and Road opportunity?
Hongkongers have a better understanding of Belt and Road than they did a year or two ago. But there is still a lot of work to be done before people fully understand how important it is for the city.
The financial sector is starting to understand it better because businesses that need capital for Belt and Road projects want to raise it here. Particularly for Chinese firms, at this point in time Hong Kong is the only international financial centre where that can happen.
Some of Hong Kong’s other sectors have been slower to grasp the plan’s significance. Maybe that’s because the city isn’t a direct recipient in the same way as the countries receiving the direct investment in roads and railways. But Hong Kong is an important facilitator for Belt and Road, especially financially, and it can definitely benefit from it.
So at the moment we are at a stage where interest is growing, but the real momentum isn’t there yet. My view is that we can do a lot more. Take the railway in Thailand, or the railway that is being built between Jakarta and Bandung in Indonesia. Hong Kong firms need to go to these markets, find joint-venture partners and invest.
Look back at how the Guangdong economy developed in the 1980s. Companies from Hong Kong set up businesses there. They raised funds in Hong Kong and invested them across the border in China. Something similar can happen in the Belt and Road markets, with Hong Kong firms bringing their capital and their expertise.
For fundraising for Belt and Road, where might Hong Kong focus?
We are starting to see different areas where the demand could be significant. The market for green bonds is a huge opportunity in its own right, for instance, and they will feature much more in financing projects in areas such as transport and sustainable energy.
The situation is similar for Islamic finance. HSBC already has a major operation issuing Islamic bonds in Malaysia, but there’s room for improvement in Islamic finance across Hong Kong’s financial sector in general. Again, this is an education process and it takes time.
Dim sum bonds are a third area of focus, especially as the renminbi becomes more of a global currency. As China’s economy grows, it is going to consume more of the world’s commodities. And as a major customer for these commodities, the Chinese will want to use their own currency to pay for them.
In fact there are parallels between the prospects for Belt and Road and the internationalisation of the renminbi, a process in which Hong Kong has also enjoyed first-mover advantage.
I was part of the team that went to Beijing in 2002 to discuss the opportunities for an offshore renminbi. Two years later we got the first yuan-denominated products in Hong Kong. Next dim sum bonds were issued and China allowed trade settlement in yuan. Importantly, Hong Kong’s yuan deposits surged from Rmb50 billion to Rmb1 trillion in three years, providing a platform for investment with the yuan, and now Hong Kong has the Stock Connect schemes with Shanghai and – soon – Shenzhen.
So renminbi internationalisation has moved steadily ahead in Hong Kong. Now it’s a case of capitalising on the Belt and Road policy, which should bring benefits to the city as well.
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