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September 20, 2017

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Bold steps called for Belt and Road Initiative

As discussions continue around the Belt and Road (B&R) initiative, Shanghai should consider ways how to use its established financial resources as a starting point for its development in context of B&R.

Financing platforms

The B&R requires enormous financing commitments. PwC estimates that over the next decade, the initiative will gather up to US$1 trillion for outbound state financing. A majority will be preferential debt funding, though equity will also be used. To facilitate financing, China has established platforms in addition to the State banks including the New Silk Road Fund (NSRF) and the Asian Infrastructure Investment Bank (AIIB). Still, the sheer scale involved presents enough financing challenges to ensure there will be an array of opportunities for Shanghai to meaningfully contribute, while reaching toward its civic ambitions.

The Shanghai Stock Exchange is a major asset, and stands out as having the highest market value of all bourses along the B&R. One option Shanghai can consider to convert the asset to an advantage, is by establishing a Belt and Road Sector on the Shanghai Stock Exchange, with a view to attracting influential companies from beyond China involved in projects along major routes.

Benefits include creating pathways for raising capital with Renminbi on the A-Shares market, along with the flexibility to choose US dollars via B-shares, enabling enterprises associated with development projects to access capital, promoting economic cooperation with countries along the B&R, while providing more investment opportunities for local investors as well as extending the international sway of Shanghai’s already prosperous exchange. Such a development would, in all likelihood, entail enabling exclusively foreign enterprises to list in the Chinese mainland for the first time, a move that would add to the city’s international appeal.

Another avenue for exploring new financing options for B&R relates to Shanghai’s capacity to accelerate issuance of bonds by enterprises and governments of countries on the trade routes. Singapore is currently the only economy along the B&R to have a higher credit rating than Chinese mainland (AA-) according to Standard & Poor’s (S&P) global ratings. Further, while China’s bond market is constructed around three supporting pillars; the Shanghai and Shenzhen stock exchanges, the interbank market (with China Foreign Exchange Trade System and National Inter-Bank funding Center both set in Shanghai), and commercial banks, the Shanghai Stock Exchange can be argued to be the most direct channel for entities along the B&R to issue bonds in Shanghai. Consequently, there is real scope for Shanghai to have a big impact in this arena.

Steps in this direction could begin by focusing on the countries along the route with S&P credit ratings of A or above, as well as the high performing companies from countries along the B&R.

Internationalisation of RMB

In addition to enabling Shanghai’s Stock Exchange to support financing for B&R projects, expediting bonds would lend further support to the internationalization of RMB. Yuan-denominated bonds could help increase capital for enterprises from regional countries, which could increase circulation along the B&R routes, in addition to direct trade with China.

Shanghai may also consider granting preferential policies supporting financial institutions from B&R countries, predominantly banks, in establishing a presence in Shanghai, possibly via its pilot free trade zone.

The B&R affords a natural path for Shanghai to play a significant role promoting international use of RMB as a currency of trade. In fact, success will be more likely when beginning with economies developing along the B&R before engaging with developed countries that are already attached to established systems.

Additionally, with the city’s advanced port acting as a key hub for the Maritime Silk Route connecting, ultimately, with Venice, and Africa, Shanghai occupies a strategically valuable position along the route, so has a direct role in extending the use of RMB via trade along the B&R routes. That China’s oil and gas trade with Russia already uses Renminbi to set and settle pricing forms a solid base on which to engage with other economies along the B&R. Given that, Shanghai may look at ways at further extending Renminbi’s role related to trade, especially with energy and minerals, in close collaboration with central authorities.


Fintech is an increasingly relevant development that has the potential to radically enhance financial connectivity throughout the B&R. Efforts to position Shanghai at the heart of fintech development along the B&R offer a clear direction for extending Shanghai’s standing as an international financial centre, while the broadening of access points for local enterprises can help increase productivity and facilitate engagement among the developing regions along the routes.

Concurrently, with financing requirements looking to take advantage of options such as public-private partnerships (PPP), and private equity (PE), arenas in which Shanghai has established competence, there is merit in evaluating the most useful ways to mobilize support on shared projects. Shanghai could get a head start by encouraging B&R PE funds in the city or the free trade zone, as well as paving the way for a dedicated PPP financing center which could enhance local capabilities, and serve as a focus for major players to gravitate to the area.


Though challenges exist, including technological issues, geographical and geopolitical considerations, Shanghai is in a position to take bold steps that will support success along the B&R, while propelling the city forward toward its long-term goals. Meeting the challenges will rest on the prospects of making use of established advantages as a hub for trade and finance, building trust in financial sophistication, openness and dexterity.


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