Hong Kong seeking role as infrastructure finance hub, says expert

Out-Law News | 24 May 2016 | 3:13 pm | 2 min. read

Hong Kong is "perfectly placed" to become a 'hub' for infrastructure finance as part of the Chinese 'One Belt, One Road' (OBOR) economic investment plan, an expert has said.

John Yeap of Pinsent Masons, the law firm behind Out-Law.com, who is a project finance expert based in Hong Kong, was commenting on the establishment of a new Infrastructure Financing Facilitation Office (IFFO), which is due to open on the island in July. The IFFO will be operated by Hong Kong's central bank and will help to facilitate new project finance arrangements for investors, project sponsors, developers and agencies from countries participating in OBOR, according to press reports (registration required).

Yeap pointed out that the planned launch had followed quickly from the Hong Kong government's opening of a similar office to encourage investment in fintech on the island. He pointed out that there was "no other single jurisdiction" that could offer links with China, as well as access to the international market for infrastructure finance.

"Hong Kong is perfectly placed to play a central role for the facilitation and financing of OBOR projects given we have the trilogy of rule of law, established international financial city status, and pool of experienced professionals across all necessary disciplines," he said.

"However, the extent to which the IFFO is able to provide a platform that goes beyond what Hong Kong has been doing naturally and successfully to date remains to be seen. For instance, the use of Hong Kong arbitration for disputes, or the utilisation of skilled professionals and international financial institutions based in Hong Kong for transactions involving Chinese investments abroad, have all been commonplace for as long as China has been investing abroad in the modern era," he said.

Published in 2013, OBOR is a China-led initiative designed to create economic integration between countries on the former 'silk road' trading route through central and west Asia, Europe and the Middle East, as well as the main trading routes. Separately, China has also driven the creation of the Asian Infrastructure Investment Bank (AIIB), which was formally established by 57 member countries last year to boost investment in infrastructure in Asia.

Speaking at a conference in Hong Kong, Eddie Yue, who is deputy chief executive of the Hong Kong Monetary Authority, said that the IFFO had received preliminary support from the AIIB as well as the Asian Development Bank (ADB) and the International Finance Corporation, according to a report in Infrastructure Investor. Yue added that OBOR would require "even greater financing" than that which will be committed by the AIIB, quoting the US$8 trillion that the ADB has estimated must be spent on Asian infrastructure between 2010 and 2020.

"The success of the IFFO perhaps will be judged on whether by formalising Hong Kong's involvement in this way, more complex and challenging OBOR infrastructure projects can be delivered as a consequence of IFFO's platform," said John Yeap of Pinsent Masons.

"OBOR projects will invariably be challenging to finance, and if the IFFO platform is able to enable projects to be de-risked to some greater or lesser extent through greater understanding of how such risks can be managed or addressed, than that can only be positive for the OBOR programme and Hong Kong's role in it," he said.