Belt and Road key is in governance

China needs to pay close attention to a number of issues in order to reap the benefits of this huge international initiative

The Belt and Road Initiative was mentioned many times in the key report of the 19th National Congress of the Communist Party of China, which further demonstrated its importance for China's opening-up and global regional cooperation.

The Belt and Road Initiative could play an important role in global governance, including the economic, financial and social sectors, especially in reform of the international money system.

China's economy faces a situation of being unbalanced, both at home and abroad. At home, investment has been growing but consumption is not strong enough. Abroad, there is an international payment imbalance, and the country's foreign exchange reserve has been constantly accumulating.

The Belt and Road Initiative could be an important platform for countries involved to build economic cooperation and coordinate their macro policies.

To better use the Belt and Road Initiative as a measure for the innovation of a regional cooperation mechanism and to tackle global economic imbalance, there are six aspects that need attention.

The first is that development financing, policy-based financing and commercial banking should be given equal importance. So far, China has been pushing forward quickly with development financing and policy-based financing, but the development of commercial banking has been relatively slow. An important factor for many Chinese companies that have withdrawn from overseas markets is that they cannot get enough loans from commercial banks. Belt and Road is a huge initiative. It is important that China Development Bank should be supportive of big projects, but it is also important that more private companies and small and medium-sized companies are able to participate in the initiative and make profits. At the moment, small companies don't have enough specific financial services, and commercial banks are better than development banks or policy-based banks at providing precise financial services.

Second is that cooperation in both the infrastructure sector and the science, education and culture sectors should be given equal importance. At present, there is a lot of emphasis on infrastructure projects, but we should also strengthen China's cooperation with other countries in science, education and culture. Third is that China has confidence in its development achievements. When Chinese companies are involved in projects overseas, we should also emphasize social responsibility, and also share our development experiences and good practice with other countries.

Fourth is that China should expand the ratio of RMB use in the trade and investment cooperation with overseas countries. China has signed currency swap agreements with 21 countries involved in the Belt and Road Initiative, but only 14 percent of settlements are made by RMB, which is relatively low. China should do systematic research and plan to increase the demand for using RMB in global trade and investment.

Fifth is the ratio of State-owned companies to private ones. At present, if we calculate by the volume of investment in countries involved in the Belt and Road Initiative, private companies account for less than 30 percent. It is still difficult and expensive for private companies to get finance for overseas investment.

The Belt and Road Initiative is an innovative project for China to push forward regional cooperation, not only in the trade, investment, industrial and infrastructure sectors, but also to a great extent in the financial sector. RMB internationalization is an important aim in which the financial sector might be able to achieve a breakthrough with the development of the initiative.

So far, RMB internationalization has been pushed forward steadily. China's is the world's sixth-largest payment currency, accounting for about 1.68 percent in the global market. But this is still at early stage and RMB internationalization still has a long way to go.

To seek a breakthrough under the Belt and Road Initiative, China should make efforts in many areas. Chinese banks, fintech companies and internet financial enterprises should speed up entering the countries involved, so that they can offer the financial services needed by companies and customers.

China could also develop the regional bond market in countries and regions involved in the Belt and Road Initiative, expand the size of RMB-denominated bonds and offer more varied types of bond, which would also help to increase the flowability of RMB.

China should also strengthen the financial and currency cooperation mechanism with countries and regions involved in the initiative. Currently there are many currency swap agreements, but they are not yet frequently used and should be strengthened in the future. China should also speed up the building of offshore markets and strengthen the regulation of them.

The author is a contract research fellow of the International Monetary Institute of Renmin University of China and also a member of the Cross Border Financial 50 Forum

(China Daily European Weekly 12/01/2017 page11)