26 October 2016
Hong Kong is seen as an important financing hub for One Belt, One Road projects. Photo: HKEJ
Hong Kong is seen as an important financing hub for One Belt, One Road projects. Photo: HKEJ

Belt and Road: Opportunities and risks

I attended the Silk Road Business Summit in Xi’an recently. I had been contemplating several questions.

How could Hong Kong people and institutions participate in this grand project?

Certainly, Hong Kong people are keen to use their expertise to earn fees and create jobs.

President Xi Jinping made a speech during the Hangzhou G20 summit, calling for people to seize One Belt, One Road as an investment platform.

As Xi said, those who are “hesitant, slack or weak will never catch the opportunities. Only those who grow with the times will have a bright future”.

The Belt and Road initiative spans more than 60 nations, with a combined population of 4.4 billion and economic output worth US$21 trillion.

That represents a huge market and would help solve China’s problem of excess capacity.

The Chinese government and companies will lead these projects and need to raise massive capital, mostly denominated in Chinese yuan.

Thus, the Chinese currency is likely to be heavily used in countries along the Belt and Road route, speeding up the internationalization of renminbi.

China has achieved great success in its opening-up over the past three decades but that has come at a price — environmental pollution.

President Xi highlighted green economy in the Belt and Road initiative to create a win-win situation for all parties.

Both the Chinese government and private sector have been stepping up efforts to tap opportunities from the program.

Some of the projects include setting up an e-Silk Road to facilitate information exchange.

Meanwhile, the Silk Road International Exposition and Silk Road International Museum play a key role in promoting cultural exchanges among Belt and Road nations.

In terms of specific investment, consumer products, food, tourism, financial services, technology, transport and logistics are some of the most popular.

While the outlook is bright, investors should pay attention to risks like liquidity, valuation, exit and hedging mechanism, credit rating and execution capability, etc.

This article appeared in the Hong Kong Economic Journal on Sept 9

Translation by Julie Zhu

[Chinese version 中文版]

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Founder and Managing Director of Pegasus Fund Managers Ltd.

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