Equity and debt financial instruments should play a major role in plugging the financing gap for projects in the Belt and Road initiative, the vice-governor of the central bank said on Saturday.
“There is a huge funding demand to be met in the coming years, and equity investment should be used as much as possible to support financing of the initiative,” Yin Yong, vice-governor of the People’s Bank of China told the CF40 Yichun Forum held on Saturday.
The demand for financing for infrastructural construction projects in areas involved is expected to increase by $600 billion a year, according to Yin.
He said equity investments are quite suitable for long-term projects because they improve the financing capacity for a project by leveraging additional funding from various sources.
In the meantime, money should be invested in infrastructure projects and public goods that will produce long-term benefits to destination countries because projects can then attract more funds to invest in related local projects, he said.
“Projects with promising long-term returns will help foster an environment that encourages more businesses to emerge and more capital can flow in accordingly,” he said.
In terms of risk management, equity investment is able to diffuse risks because its leverage effect means risks will not accumulate in several large scale projects, according to Yin.
The payback period of projects under the initiative is often long and political instability is widespread in less developed countries involved, according to Yin.
“Over the long term, there should not be too much worries for returns if risks can be properly managed,” he said.