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August 5, 2019

Private capital participation in 'Belt and Road' infrastructure projects

KPMG China launched a new report at the 10th International Infrastructure Investment and Construction Forum in Macao in May 2019. Charting the course of 'Belt and Road' cooperation together: Enhancing international private capital participation in 'Belt and Road' infrastructure projects was written in collaboration with the Institute of Market and Price of the NDRC, and China International Contractors Association.
     Attending the Forum, Honson To, Chairman, KPMG China and Asia Pacific said, "Increasing the supply of international private capital is important because public sector resources will not be enough to meet the infrastructure investment needs in countries along the 'Belt and Road'. While China has already made significant contributions, it cannot bridge the infrastructure investment funding gap alone. Cooperation among governments, businesses, multilateral organisations and professional firms will be critical to achieving this objective."

Below are some key findings and recommendations from the report:

Shortage of private capital is not the primary challenge for infrastructure projects in countries along the 'Belt and Road'. The wider issue is the lack of pipelines of bankable opportunities in these markets. Which means there is a lack of projects that are financially viable, with an acceptable risk profile, and which are structured appropriately to enable them to be considered 'investable' by providers of international private capital.
     Providers of international private capital are interested to participate in 'Belt and Road' infrastructure projects and have capabilities and experience that could assist governments as they work to improve infrastructure connectivity. At the same time, Chinese companies need to work with providers of international private capital, not only to help bridge project funding gaps, but more importantly to learn from their experience of managing, constructing, financing and operating infrastructure assets to improve the success of these projects, and open up new market opportunities, including in developed markets. 
     Notwithstanding this, many of the Chinese companies we talked to said that because of the higher risks associated with 'Belt and Road' infrastructure projects and various institutional constraints or capability limitations, it is difficult to raise project financing on acceptable terms, manage financial risks and achieve sustainable, profitable returns. These challenges with de-risking 'Belt and Road' projects result in potential providers of international private capital taking a cautious approach towards financing them.
     To overcome this, the key recommendation of our report is that governments, companies, multilateral organisations and professional firms have to work together to strengthen institutional capacity, build risk management systems, expand financing channels and establish platforms for public-private cooperation in the promotion, financing and delivery of 'Belt and Road' infrastructure projects, to create a market which is conducive to international private capital participation in these projects. 




Cotai, Macao (Photo: Kell Long)

 



 


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