HKMA, Silk Road Fund set up $2bn co-investment platform
China’s Silk Road Fund and the Hong Kong Monetary Authority (HKMA) have established a $2-billion joint investment platform, emphasising energy transition, infrastructure, and other ESG-related investments in Belt and Road countries.
This will direct government investment vehicles on both sides towards more sustainable investments at home and abroad, under China's Belt and Road Initiative (BRI).
Potential opportunities include renewable energy and green railway projects across Central Asia, Middle East, and Eastern Europe, according to an industrial investment expert.
On October 19, the Silk Road Fund and Hong Kong’s de facto central bank launched the joint investment platform during the third Belt and Road Forum in Beijing, as the Chinese central government revived its flagship initiative.
They will collectively contribute Rmb15 billion ($2.06 billion) or equivalent to the fund to explore both onshore and offshore investment opportunities and to provide financial support to the BRI, an HKMA spokesperson told AsianInvestor.
Both sides will leverage respective advantages in capital, information, technology, and management.
Under the platform, the Silk Road Fund (SRF) and HKMA’s Exchange Fund will establish the BNR HK Flagship Impact Fund, with SRF as the general partner. Total amount of the fund’s first phase is set at no more than $1 billion.
The fund will focus on investing in projects in areas such as energy transition, infrastructure, and other ESG-related themes.
This is in line with the Exchange Fund’s investment strategies for its long-term growth portfolio. The fund told AsianInvestor earlier this year that it will explore private market investments in industries that can benefit from structural changes, such as technology, energy transition, and healthcare, including private equity and infrastructure investments in emerging markets.
As of the end of September, the Exchange Fund managed HK$3.9 trillion ($501.2 billion) in assets — HK$52.2 billion lower than end-August.
The HKMA spokesperson declined to comment on further details of the BRI investment activities and strategies “due to market sensitivity”.
In addition, the Silk Road Fund will explore collaborations with the Hong Kong Investment Corporation (HKIC), the newly established $7.9-billion private market investment vehicle of the Hong Kong government, according to SRF’s announcement.
In response to the cooperation with SRF, an HKIC spokesperson told AsianInvestor: “We look forward to exploring investment opportunities with potential partners around the world, in line with the HKIC mandate, which is to strategically promote development of target industries, so as to enhance the long-term competitiveness and economic vitality of Hong Kong while generating investment return.”
Its target industries include fintech, artificial intelligence, biotech, life sciences, and advanced manufacturing.
The People’s Bank of China governor Pan Gongsheng (second left standing), Hong Kong Financial Secretary Paul Chan (second right standing), and HKMA chief executive Eddie Yue (first right standing) attend and witness the signing ceremony between Silk Road Fund and HKMA in Beijing on October 19, 2023. (Source: Silk Road Fund)
GREEN INFRASTRUCTURE
During the Belt and Road Forum on October 17 and 18, Chinese President Xi Jinping announced that an additional Rmb80 billion will be injected into the Silk Road Fund to offer more financing for BRI projects.
Meanwhile, he said the initiative will move away from mega-projects and promote “signature projects" and towards ones that are "small and beautiful", with a stronger emphasis on environmental and social responsibilities.
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“China highlighted green infrastructure potentials for the Belt and Road Initiative,” noted Robin Xu Bin, head of Asia industrials research at UBS Securities.
A few renewable energy projects have been addressed from the Belt and Road Forum, including solar, wind, and energy storage from Uzbekistan, Oman, Abu Dhabi, Iraq, Romania, Poland, among others, Xu said.
Railways such as the China-Europe Railway Expressway are another green infrastructure candidate that contributes towards carbon reduction by diverting traffic from roads and airlines, he added.
“Infrastructure investment decisions cannot be made purely on commercial returns, and some will have social benefits. For example, railways make travelling easier for individuals and also [provide] easier flow of freight. This will make tourism easier to achieve and [offer] logistics savings for manufacturers,” he told AsianInvestor.
He sees beneficiaries along the construction supply chain, including construction, equipment and building materials sectors, power equipment, and the solar supply chain.
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UBS estimates that annual infrastructure demand from Belt and Road countries may reach $1-$2 trillion. Geographically, South Asia (especially India), Southeast Asia, and the Middle East see the biggest potential for infrastructure buildup.
Xu noted that China’s solar panel exports have been rising fast over recent years, and the country's supply chain competitive strength will consolidate its leading position in the global solar export market.
“We see the Middle East as an important market for Chinese solar companies,” he said.
He warned that execution risk is the major risk facing all companies operating in the non-home market, as differences on climate, tradition, and religion need to be taken into consideration.