China has taken a firm step to implement its vision of the Silk Road Economic Belt — an initiative to integrate the economies of Asia and Europe along the Eurasian corridor — by putting into operation its $40 billion infrastructure fund for this purpose.
The fund, flagged in November last by Chinese President Xi Jinping, has started functioning on the lines of Private Equity (PE) venture. With China as the fulcrum, it is meant to finance development of roads, rail tracks, fibre optic highways, and much more, that would connect South Asia, Southeast Asia, Central Asia and Europe along an integrated land corridor.
Funds can also be allocated for the Maritime Silk Road (MSR), which envisions development of ports and facilities, mainly in the Indian Ocean. These ports will be connected to the hinterland by a string of land arteries, which will eventually hook up with the main Silk Road Economic Belt at specific junctions.
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Xinhua quoted President Xi as saying during the November meeting with officials from Bangladesh, Cambodia, Laos, Mongolia, Myanmar, Pakistan and Tajikistan that the purpose of the fund is to “break the connectivity bottleneck” in Asia.
The Chinese President had offered investors from Asia and beyond to join the Silk Road fund for the development of specific projects.
The $40 billion fund was in addition to the decision to establish a $50 billion Asian Infrastructure Investment Bank, which is also meant to help finance construction in the region.
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On Monday, the semi-official China Business News quoted Zhou Xiaochuan, governor of the People’s Bank of China (PBOC), as saying the $40 billion fund “has already started operations, with registration on December 29 and the first board meeting on January 6”.
China has poured part of its foreign exchange reserves in the fund, which include investors such as the China Investment Corp, the country's sovereign fund, and China Exim-Bank.
Analysts point out that as its economy slows down from its earlier blistering pace, China has developed large overcapacity in construction material, including cement and steel. China’s “One Road, One Belt” strategy, aimed at establishing new “growth engines” along the Eurasian corridor, could well absorb some of this surplus.
In an editorial in China Daily , Justin Yifu Lin, former chief economist of the World Bank, wrote: “The strategy is good for the stabilisation and development of the world economy and China, as it has a large overcapacity in construction materials.”