China president Xi Jinping has announced that the State Council will allocate $40 billion to an ‘infrastructure and trade’fund to finance transport infrastructure from Beijing to Western and Southern Asia and ultimately to boost intra-Asia trade.
The fund will be the country’s first inter-government cooperation fund of such a size and the clearest embodiment of China’s dream vision of an interconnected region.
In a speech given at the last APEC conference hosted in Beijing last month, Xi Jinping gave some colour to his vision of an Asian connectivity project saying: “Linking Asian nations is not merely about building roads and bridges, or connecting different places. More importantly it should be a three-way combination of infrastructure, institutions and people-to-people exchanges, and progress in five areas including policy communications, infrastructure connectivity, trade links, capital flow and understanding among peoples.”
The project includes the creation of an “Economic Belt”, a network of highways, railways and other infrastructure linking China to Central and South Asia, the Middle East and Europe as well as a maritime route with the construction and expansion of ports and industrial parks in Asia, the Middle East, Africa and Europe.
Up to 65 percent of the the fund's capital is reported by local press to come from the government’s foreign currency reserves, with the rest being pooled from sovereign wealth fund China Investment Corporation, the Export-Import Bank of China, and the China Development Bank Capital Co. (CDB), with contributions of 15 percent, 15 percent and 5 percent respectively.
There is speculation that Jin Qi, currently governor of China’s Central Bank, will become the platform's chief executive.
President Xi stressed several challenges lying in the way of Asian countries' rise, namely further regional economic integration, overcoming the fragile economic balance of a region still impacted by the financial crisis, the need to level economic growth and turn it into inclusive growth, and efficiency building. “We are duty-bound to create and fulfill an Asia-Pacific dream for our people,” he said.
The fund is one of four ambitious outbound investment structures recently initiated by the Chinese government to fill a regional infrastructure financing gap estimated by the Asian Development Bank at almost $730 billion annually. The others are a $50 billion Asian Infrastructure Investment Bank announced in October, a $100 billion Shanghai-based BRICS’ New Development Bank launched last July, and a $1.2 billion Sino-Mexican cooperation fund to boost bilateral cooperation in infrastructure, tourism and energy projects.
Debate among analysts highlight that the biggest test for the fund will be to dissociate its objectives from the political agenda of its’ stakeholders, and to build the necessary relationships of trust with the region’s governments as well as cooperating with regional financial institutions.