Enhancing international private capital participation in ‘Belt and Road’ infrastructure projects

Enhancing international private capital participation..

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KPMG China launched a new report at the 10th International Infrastructure Investment and Construction Forum in Macao today. 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: 

  1. 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.
  2. Providers of international private capital are interested to participate in ‘Belt and Road’ infrastructure projects and have c    apabilities 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. 
  3. 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.
  4. 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. 

Vaughn Barber, Global Chair of KPMG Global China Practice said, “The report offers practical recommendations for how governments, companies, multilateral organisations and professional firms can work together to develop a ‘Belt and Road’ infrastructure market. These include working with governments to build credible project pipelines and de-risk projects; develop internationally recognized benchmark standards for financing, constructing, and operating 'Belt and Road’ infrastructure; and expand private sector capacity for infrastructure investment in ‘Belt and Road’ countries”.

Also attending the Forum, Li Cui, Chief Operating Officer of KPMG Global China Practice added, “Coordinated efforts by stakeholders to develop a robust market mechanism characterised by information transparency, rules-based governance, fair competition and public-private synergy should enable providers of international private capital to participate more effectively in ‘Belt and Road’ infrastructure projects while making them more comfortable about investing in these projects, more willing to contribute to the ongoing development of the ‘Belt and Road’ infrastructure market and more confident in the institutional and policy support for their investments.”

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KPMG’s Global China Practice (GCP)

With dedicated teams in nearly 60 locations around the world, including countries and regions along the ‘Belt and Road’, the Global China Practice plays a leading role in ‘bringing China to the world’ and ‘bringing the world to China’.

We are passionate about facilitating Chinese outward direct investment (ODI) in meaningful ways, including by helping Chinese companies integrate into local business communities, and introducing them to potential partners in key overseas markets. The Global China Practice also enhances KPMG’s ability to serve foreign companies as they enter and grow in China. While many of our clients have been active in China for decades, the 13th Five-Year Plan represents an important turning point in the Chinese Government’s attitude towards foreign direct investment (FDI), and marks a new era of potential Sino-foreign cooperation in China. To succeed in the ‘new normal’ in China, foreign companies should review what contribution they can make to China’s ongoing economic transformation, align their value proposition and business strategies accordingly, and prepare for a shifting landscape of risks.

Through the Global China Practice, KPMG works alongside both Chinese and foreign companies as they navigate through dynamic business environments, shape business partnerships, and build platforms to achieve long-term market positions.

About KPMG China

KPMG China is based in 22 offices across 20 cities with around 12,000 partners and staff in Beijing, Changsha, Chengdu, Chongqing, Foshan, Fuzhou, Guangzhou, Haikou, Hangzhou, Nanjing, Qingdao, Shanghai, Shenyang, Shenzhen, Tianjin, Wuhan, Xiamen, Xi’an, Hong Kong SAR and Macau SAR. Working collaboratively across all these offices, KPMG China can deploy experienced professionals efficiently, wherever our client is located.

KPMG is a global network of professional services firms providing Audit, Tax and Advisory services. We operate in 153 countries and territories and have 207,000 people working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. Each KPMG firm is a legally distinct and separate entity and describes itself as such.

In 1992, KPMG became the first international accounting network to be granted a joint venture licence in mainland China. KPMG was also the first among the Big Four in mainland China to convert from a joint venture to a special general partnership, as of 1 August 2012. Additionally, the Hong Kong firm can trace its origins to 1945. This early commitment to this market, together with an unwavering focus on quality, has been the foundation for accumulated industry experience, and is reflected in KPMG’s appointment for multi-disciplinary services (including audit, tax and advisory) by some of China’s most prestigious companies.

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