China is a difficult market to penetrate, not just for foreign investors but also for foreign banks looking to provide debt for infrastructure projects, according to Peter Ho, director at Standard Chartered and head of project and export finance for Hong Kong and China at the bank.
Ho, speaking at the inaugural Infrastructure Investor: Asia 2009 conference in Singapore today, remarked that Chinese state-owned banks are providing debt for all types of infrastructure projects in the country. As such, he said, when Standard Chartered has approached local city governments to provide debt for projects, local governments have said they do not have a shortage of debt. “Local banks have already provided all the funding needed,” he added.
Therefore, as a foreign bank, there are very few opportunities to provide debt for infrastructure development in China, Ho remarked.
Surprisingly however, the same municipal and city governments have a shortfall of equity, Ho said. They don’t have enough money coming through from their fiscal budgets to finance infrastructure projects.
He added that in many Asian countries, such as China, the governments have been the biggest spenders on infrastructure projects. In many Asian countries, “the role of the second ‘p’ in public-private partnerships has been minimal,” in his view.
While infrastructure investment in China still continues to be dominated by the public sector, private investors have made some headway in certain sectors, various panelists noted. Speaking on the subject of foreign participation in infrastructure development in China, Raymond Fung, head of infrastructure investment at China Ping An Trust & Investment, said in his keynote address that sectors such as power, toll roads and ports have witnessed a high degree of foreign involvement. The likes of AES, CLP Group and Hutchinson Whampoa have been active in China and continue to do well, he said.
Fung also had a word of advice for foreign investors. He said if one wants to invest in China, developing a “very deep understanding” of the country is a must and that investing on a “fly-in-fly-out” basis will not work.
Furthermore, foreign investors need to be committed to China over the long term and bring value to the partnerships with local enterprises that they enter into. “The Chinese don’t just want your money, they want knowledge,” he said, adding that Chinese enterprises want to learn and gain skills and expertise from their foreign partners.