Multi-Channel Financing for Asia`s Infrastructure

Integrating multiple channels to support Asian infrastructure construction

Firstly, after the mortgage crisis, a number of sovereign wealth funds and pension funds established by international organizations, developed countries and countries with sufficient funding have started to bring stability and security back to the world of investment. With its great development prospects and huge infra-structure investment opportunities, Asia has attracted the attention of these international investors. It has effectively mobilized this type of equity investment fund, which includes enormous sovereign wealth funds and pension funds amassed by Asian countries. Participation in Asian infrastructure construction can reduce the financing cost of infrastructure projects while expanding the financing sources. It can also help the internationalization and professionalization of the project financing experience, protecting the smooth progress of the project and delivering profits to the investors. It is a win-win scenario. For example, the China-ASEAN Investment Cooperation Fund set up by the Chinese government has already successfully invested in many infrastructure projects in a number of ASEAN countries in shipping, ports, telecommunications and other fields. This has alleviated some infrastructure funding tension in various ASEAN countries, promoting local economic development, thus achieving the approval of local governments and populations.

Secondly, in addition to equity financing, bond market financing is also widely used in the inter-national financing of infrastructure. Despite recent significant progress made in the Asian bond market — as of the second quarter of this year the bond in the emerging East Asia region reached almost US$ 7 trillion — the amount of infrastructure financing among Asian countries accounted for by bond financing is not very high, with a lot of room for development. Asian countries need to develop their local currency-denominated bond markets, encourage the issuance of long-term finance bonds for infrastructure and, on this basis, gradually strengthen regional bond financing cooperation to establish a united Asian bond market, pushing the majority of infrastructure projects to go through this market when seeking financing. This will not only reduce dependence on an indirect financing model, but will also reduce the risk of currency and maturity mismatch and effectively utilize the funds of the Asian bond market which are more than sufficient to meet the mid- and long-term, low-cost financing needs of infrastructure construction.

Thirdly, project financing as a universal means of raising money in large scale international infrastructure makes it easier to attract international funding. Project financing has already found widespread use in infrastructure financing in several East and South-east Asian countries, and should play an even more important role in the future. Actively encouraging infrastructure projects to primarily use project finance models such as BOT, TOT and PPP will attract the participation of different types of investors—including international multilateral financial organizations, multinational banks and investment funds. Besides utilizing the international capital market to expand sources of investment, it can effectively fill the funding gap in Asian infrastructure construction and is especially suited to the financing needs of large-scale connectivity projects.

3. Giving full play to Asian infrastructure investment banks as a financing platform

In October 2013, during a visit to Indonesia, President Xi Jinping proposed the establishment of an Asian infrastructure investment bank, with an aim to providing financial support for infrastructure construction in the developing countries of Southeast Asia. After its establishment, the Asian infrastructure investment bank would complement the multilateral financial institutions already developed within the region and effectively mobilize Asian high value savings into investment. This would promote the use of Asia’s vast foreign exchange reserves, improving the capital usage rate within the region, and easing the Asian infrastructure financing bottleneck.

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This BLOG  looks at pensions and their impact on what are called Public Private Partnerships or P3’s these are not really about private funding at all but about two streams of public funding, pensions and government with private capital a third partner.

We will also deal with other pension matters, such as Defined Contribution Plans (DC) vs Defined Benefit (DB) PLANS, the weakness in private plans, the need for pension reform in public pensions to have shareholder rights, directorships and ethical investment directives and policies. 

Finally taking the long view we will show how these funds are forms of evolving social capital that is dominating private capital as we evolve into socialization of capital. 

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