China makes pitch for more private cash in cross-border projects
[BEIJING] China's Finance Minister Lan Fo'an has urged a greater role for private investment in ensuring sustainable funding for cross-border infrastructure, warning that emerging countries are running short of money to spend on development.
'World economic growth is slowing down, international development aid funds are declining, and developing countries are generally facing a funding gap for cross-border connectivity investment due to limited public resources,' Lan said on Wednesday (Jun 25).
Speaking in Beijing at the annual meeting of the Asian Infrastructure Investment Bank (AIIB), Lan said a key issue at the moment is how to 'stimulate the potential' of private investment in cross-border infrastructure and build what he called a sustainable funding guarantee mechanism.
Marshalling private capital for development is becoming a priority after international aid from official donors fell in 2024 after five straight years of growth, according to the Organisation for Economic Co-operation and Development.
A United Nations agency estimates developing countries face a US$4.3 trillion annual financing gap for sustainable development.
Established in China as an international development lender similar to the World Bank, the AIIB has committed almost US$52 billion in funding to 38 member countries, according to its website, with India the largest single recipient.
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Chinese companies – especially state-owned enterprises – have meanwhile been expanding their overseas investment and construction projects in recent years with a focus on countries along President Xi Jinping's flagship Belt and Road Initiative.
The boom has helped absorb domestic manufacturing overcapacity and strengthened China's access to critical energy and mineral resources. A saturation of infrastructure after decades of urbanisation in China has also made additional outlays on projects like roads and bridges less viable at home.
That said, China's direct spending on international development has lately shown signs of cooling to some extent, as the domestic economy slowed. And after years of costly efforts to contain the Covid-19 pandemic, Beijing's priorities also began to shift from mega undertakings to projects with small investments and quicker impact.
Official numbers about China's foreign aid are scant, albeit its total size is likely only a fraction of US funding. A paper published by the Brookings Institution in March estimated that Chinese outlays from 2013 to 2018 amounted to less than 15 per cent of what America spent.
China is the AIIB's largest shareholder with almost 27 per cent voting rights. The bank has roughly doubled the number of member countries to about 100 since operations started in 2016.
While the US and Japan both declined to join due to concerns that the bank would be controlled by China, American allies in Europe – as well as Canada, Australia and New Zealand – all became members.
Jin Liqun, the lender's president who's stepping down in January after nearly a decade at the helm, said on Tuesday during a Bloomberg TV interview that the bank remains open to all countries, including the US and Japan. Zou Jiayi, a former Chinese vice finance minister, will succeed Jin at the helm.
The US and Japan already play a major role at multilateral institutions like the World Bank and the Asian Development Bank, where they rank as the largest voting shareholders.
During his address Wednesday at the AIIB's 10th annual meeting, Lan said China wants the lender to 'strengthen communications with the governments of member countries' to leverage the guiding role played by public funding.
The Beijing-headquartered bank should promote the integration of standards and rules as well as lead to greater coordination of policies and strategies between member countries, he said. The finance minister called for efforts to reduce 'private capital's concerns over risks associated with issues such as geopolitics and defaults.'
To appeal to private investors, the AIIB should expand the application of artificial intelligence and other new technologies in projects to improve their return on investment in the long run, he added.
'Mobilising private funding more thoroughly and more efficiently will help tackle the bottleneck of insufficient public sector investment,' Lan said. BLOOMBERG
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