Guangdong seeks overseas Chinese investment fund

The international renminbi investment and loan fund, such as the proposed economic cooperation fund in the Guangdong Free Trade Zone, can play an active role in helping domestic companies "go global" while increasing cross-border use of the mainland currency. Brent Lewin / Bloomberg

Guangdong province aims to set up an economic cooperation fund targeting overseas Chinese in its newly established Free Trade Zone to promote the nation's "One Belt, One Road" strategy.

The proposal was submitted by Wang Jingwu, head of the Guangzhou branch of the People's Bank of China at the annual two sessions which ended on March 15.

The fund is expected to raise capital from institutions of the mainland, Hong Kong and Macao and overseas Chinese to provide investment and funding services for mainland firms in their mergers and acquisition (M&A) practices.

Wang said Guangdong has a realistic foundation to establish such a fund. "On one hand, Guangdong is adjacent to Hong Kong and Macao, with a lot of overseas Chinese living in the region. The province could take advantage of its strength in geography and overseas links to raise funds from overseas Chinese, to promote the national strategy through civil power," he said.

"On the other hand, the establishment and operation of the fund would offer experience to learn from, as some local governments have already set up overseas investment and loan funds," Wang added.

The mainland's first international renminbi (RMB) investment and loan fund - Sailing Capital International - was set up in Shanghai in April, 2012. It offers a commercial operating platform for domestic companies to initiate M&As overseas, and provide them with investment and funding services.

A year later, a second similar fund, launched by Highland Capital Management, came into being.

Setting up the overseas Chinese economic cooperation fund has two meanings, said Zhang Yuge, director of the Economic and Social Development Research Centre at China Development Institute, a Shenzhen-based think tank.

"First, it's a demonstration of the mainland's increasingly opening up to the world, especially in the financial area, and an important part in the overall process of financial internationalization. Second, implementing the national 'One Belt One Road' strategy needs the participation of various institutions and individuals," he said.

Guo Wanda, executive vice-president of the institute, agrees. As he sees, the fund, which would gather capital from overseas Chinese, is a good supplement to those that were officially initiated. "Implementing the national strategy requires a large amount of money. Compared with the official side, the social power in gathering capital is stronger. Therefore, the fund could play an active role in balancing capital demand and supply."

From another perspective, the non-governmental fund would be more easily accepted by countries along the "One Belt One Road" route, Guo pointed out. "Different from official capital, which may arouse political concern among foreign governments, it would be a commercial fund that pursues economic profits. A conflict of interest would be less likely to arise, thus helping to ensure its smooth operation in other countries."

Moreover, the fund may outperform those with an official background in the management mechanism, including risk management and understanding of the market, Guo said.

"The most important issue is how to combine private capital and national strategy in a sound way so that the fund could exert its biggest role in promoting national investment, diplomacy and other practices," he added.

The international RMB investment and loan fund, as a new form of cross-border use of RMB, can play an active role in helping domestic companies "go global" while increasing cross-border use of the mainland currency, an official with deep knowledge of monetary policy said.

However, at present, overseas use of the RMB is largely based on trade, said Fang Fang, former chief executive for J.P. Morgan's China investment bank. "You need to gain acceptance when you invest. To promote it, regulatory departments, financial professionals and companies need to make a concerted effort," he said.

Compared with other forms of investment, the fund would be advantageous. For individual firms seeking overseas M&As, they have to go through a complicated review procedure. For investment companies with a government background like China Investment Corporation, investment projects have a higher possibility of failure for political reasons. The fund would have relatively high flexibility, as it would be able to make both investment and funding practices overseas.

"The fund would be promising if it's well operated," Zhang said. "On one hand, overseas Chinese could share the benefits brought by the implementation of the national strategy. On the other, the fund could help strengthen relationships between other economies and the mainland in a soft way."

Guo believes the fund's prospects would be "promising, influential and flexible". "Capital from oversea Chinese, which is now dispersive, would be gathered and presented in an influential way," he said.

sally@chinadailyhk.com

(HK Edition 03/25/2015 page8)