Financial system's shortcomings 'need to be filled'

Southeast Asia lacks wherewithal to play role in helping to bring One Belt, One Road together, experts say

As the One Belt, One Road initiative unfolds, Chinese policymakers have the chance to finally give finance and the financial system the prominence they deserve as the country works with its neighbors in Southeast Asia, experts say.

"China has been very successful in exporting goods to the rest of the world over the past 30 years, and now is the time for it to strengthen its financial system to set up the rules for regional collaboration," says Liu Jinxin, dean of the China-Kunming Trans-Asia Transport Logistics Research Institute.

Because the financial system is highly abstract, local government leaders often dismiss it as secondary to what they regard as the "real economy", Liu says. Evaluating the performance of the economy based on GDP has hampered local leaders' motivation to innovate financially, he says.

Yunnan province is the gateway to South and Southeast Asian countries, including Myanmar, Thailand, Cambodia, Vietnam, and India, which will be important partners in China's One Belt One Road initiative. The central government has initiated financial reforms to allow Yunnan and neighboring Guangxi Zhuang autonomous region to do experiments with their financial systems.

"It's easy to build roads and ports to connect countries in regional development," Liu says. "But it's not always easy to ensure the financial system plays its critical role in funding these projects, distributing the benefits and sharing the responsibilities."

Liu cites an agreement between India and Bangladesh on a road connecting the cities of Agartala in India and Chittagong in Bangladesh. The cost is estimated at between $200 million (180 million euros) and $300 million, but there are not enough funds, and China can help with financing in the capital market, Liu says.

A shortage of funds for water and dairy industry infrastructure projects in Bangladesh could also receive support from joint capital markets among the four countries, he says.

"A very important aspect of cross-border finance is the dominant currency. If China wants to internationalize the renminbi, it needs to start in the regional market. Without financial innovation, the renminbi is not going to be accepted by neighboring countries, which will hamper China's stance in regional collaboration in Asia even if goods can be moved more smoothly from one country to another."

The financial sector in many South Asian countries is underdeveloped, Liu says. In Vietnam and Cambodia, for example, banks still use handwritten documents in routine transactions. Systems are not set up to use the Internet and information technology to do more sophisticated business with Chinese banks beyond making deposits and borrowing and lending money.

Luo Tao, chief manager of the international department of the Yunnan branch of China Construction Bank, says: "A big effort needs to be made to improve the service capacity of these banks before there can be more collaboration with them."

The bank branch is said to have been the first in China to sign a renminbi settlement agreement with Myanmar, with the purpose of servicing the China-Myanmar oil and gas pipeline project.

"The expansion of Chinese companies overseas requires great financial support from Chinese banks," Luo says. "These companies do not feel reassured putting their money in foreign banks, which are mostly privately owned. Some have to do capital transactions through foreign companies because of a lack of partnerships in renminbi settlements between Chinese and foreign banks."

yangziman@chinadaily.com.cn