Purpose and positioning of Silk Road Fund
What are the mandate and vision for the Fund?
While Chinese President Xi Jinping was visiting countries in Middle Asia and Southeast Asia in September and October 2013, he put forth the idea of working together for the grand initiative known as the Silk Road Economic Belt and the 21st Century Maritime Silk Road. This Initiative has attracted great attention from the international community. President Xi Jinping announced that China would contribute US$40 billion to establish Silk Road Fund at the APEC Dialogue on Strengthening Connectivity Partnership on November 8, 2014. On December 29 the same year, the Fund was officially established in Beijing. Setting up the Fund is a major component of the efforts for implementing the Belt and Road Initiative.
The Fund has a philosophy of openness, inclusiveness and mutual benefit. It provides funding and financing support to strengthening economic and trade cooperation, and bilateral and multilateral connectivity between China and relevant countries and regions. It works closely with domestic and foreign enterprises and financial institutions to promote development and prosperity of both China and countries and regions involved in the Initiative.
What is the Fund's positioning on the Belt and Road Initiative?
The Fund is established in accordance with the Company Law of the People's Republic of China as a medium to long-term development and investment fund with the goal to promote mutual development and prosperity of China and other countries and regions. Like a medium to long-term private equity fund, the Fund makes outbound investment in a variety of forms, primarily through equity investment in sectors such as infrastructure, resources and energy development, industrial capacity cooperation and financial cooperation.
Why does the establishment of the Fund reflect the development concept of mutually beneficial cooperation?
The Belt and Road Initiative provides great promise and opportunities for the development of the participating parties. The demand for infrastructure development and the need for industrial cooperation and development are great in the Belt and Road area. Addressing these issues could create many employment opportunities in line with the common efforts and expectations of the international community. China has gained quite a bit of experience since the reform and opening up that could be useful for helping relevant countries, especially the emerging markets and developing countries, to promote development. Leaders of involved countries have gradually reached a consensus on the Belt and Road Initiative. The establishment of the Fund is to take advantage of this opportunity to provide corresponding financial support and services. In this way, the Fund demonstrates the realization of its philosophy of cooperation for mutual benefit.
How to understand the establishment of the Fund in terms of capital supply and demand?
The progress of the Belt and Road Initiative will give rise to diverse investment and financing demands. From capital demand perspective, many projects will need equity investment. Private equity (PE) funds usually have an investment horizon of 7–10 years, which is a bit short for infrastructure construction in developing countries. There is a demand for medium and long-term funds with an investment horizon (10-15 years), longer than those of typical PE funds. From capital supply perspective, with the announcement of the Initiative, China can launch medium and long-term equity funds or cooperates with other financing models. Therefore, the Fund is launched in response to the joint effects of capital supplies and demands of our time.
Is the Fund a type of aid agency?
No, the Fund is not a type of aid agency. The term of investment is relatively long, but the Fund must maintain financial sustainability over the medium and long term and create a reasonable economic return. The Fund does not offer any foreign aid or donation.
Is the Fund a sovereign wealth fund?
No, it is not a sovereign wealth fund. A sovereign wealth fund is more focused on financial gains, resulting in a diverse pattern of asset allocation, with significant exposure to stocks, bonds, and mergers and acquisitions. Project investment, mainly through equity investment, is the main business of the Fund. In addition, the shareholding structure of the Fund is diverse. It is open to domestic and overseas investors, different from a sovereign wealth fund.
Would it be fair to call the Fund China's version of the Marshall Plan?
The Marshall Plan was a product born of America's unique postwar position. Average per capita GDP of China is currently about US$7,000, making it a middle-income country, very different from America's position in the world at that time. China has a high savings rate, with a fairly large scale of foreign reserves. Some of those reserves are needed for the “go global” effort. A major part of the Fund's work is to make good use of China's foreign reserves. Therefore, the Fund and the Marshall Plan are different in their essence.
What are the differences and relations between the Fund and other funds set up by China for external cooperation?
The Fund was set up as a limited liability company in accordance with the Company Law of the People's Republic of China. It is different from other Chinese funds for external cooperation in terms of operational model, scope and areas of investment. The Fund welcomes the participation of and cooperation from other funds and investors.
Does the Fund plan to become a Multilateral Development Institution?
The Fund was established in accordance with the Company Law of the People's Republic of China. It is a medium to long-term development and investment fund that mainly engages in equity investment, like private equity. At present, it has no plan to become a multilateral development institution.
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