China Officially Launches Operation of a New “Silk Road Fund”

The People’s Bank of China (China’s Central Bank) announced on February 16 that its new “Silk Road Fund” had officially started operations.  The $40 billion fund is being established to fund Chinese projects in Central Asia that are designed to support a new, enhanced communications and transportation network connecting the Chinese market with Central Asia and, ultimately, Europe.  The fund will also support China’s “Maritime Silk Road” initiative.  These projects will include the construction of new roads, railways, ports and airports across Asia and into the Mediterranean.

The fund will reportedly function like a long-term private equity venture.  Central Bank Assistant Governor, Jin Qi, has been appointed to chair the new fund.  A senior official from the State Administration of Foreign Exchange (SAFE) will serve as General Manager and oversee the daily operations of the fund.  The fund’s shareholders will be SAFE (65%), China Investment Corporation (15%), the Export and Import Bank of China (15%) and the China Development Bank (5%).

Central Bank Governor, Zhou Xiaochuan, stated, “The fund has already started operations, with registration on Dec. 29 and the first board meeting on January 6.  As for how it will be similar to global funds, it is somewhat like the World Bank’s IFC (International Finance Corp), the African Development Bank’s mutual development fund and the China Africa Development Fund.  The primary difference is that those funds are financed by a handful of investors instead of raising funds from the public.”  Zhou also indicated that the fund would consider setting up subsidiaries and branches in various industries and regions abroad.

Beijing’s pursuit of its “Silk Road” and “Maritime Silk Road” initiatives come with significant strategic consequences, given the role of Chinese state-owned enterprises in engineering, constructing, owning and operating the infrastructure that they are putting into place across a number of important regions and geographic locations, including ports.  These initiatives have encountered some push-back as a result of the influence and ownership stakes that are involved.  Nevertheless, a number of projects are underway and the overall construct of these initiatives is taking shape.