STANDARD CHARTERED SEES INCREASING CHINA FDI,TRADE

The UK-based global bank says China’s private sector— encouraged by the state’s Belt and Road Initiative — is looking for new business opportunities in countries like Sri Lanka

Since China began its ambitious global infrastructure project, called the Belt and Road Initiative to build roads, railways and seaports connecting over 70 countries, Standard Chartered Bank has been preparing itself to meet the increasing private investments and trade that will soon follow.

“Over the next five to ten years, there will be many touchpoints between Sri Lanka and China. We are positioning ourselves for that,” says Jim McCabe, chief executive at Standard Chartered Sri Lanka. “I believe, five years from now, we will look back and wonder why we ever doubted.” The Belt and Road Initiative is estimated to require $2-3 trillion in investments annually, with China funding a part of it through equity and debt. China has so far invested $3.5 billion to develop infrastructure in Sri Lanka like the Hambantota Port and reclaiming land to create the Colombo Port City, which will be a financial services hub for the region.

The funding is handled between the two governments, so banks like Standard Chartered Sri Lanka have so far handled just the scraps off the table providing banking services required for operational activities of some of the Chinese contractors and local subcontractors. Now, the bank is preparing for the next phase of the Belt and Road Initiative: when businesses and people start moving in enabled by the infrastructure.

Head of Transaction Banking at Standard Chartered China Sam Xu headed a delegation to Sri Lanka to meet some of the bank’s biggest state-controlled clients here like China Communications and Construction Company and its subsidiary China Harbour Engineering Company, the Aviation Industry Corporation of China and China Geo Engineering Corporation, and get a deeper understanding of Sri Lanka so they can better inform private businesses of the opportunities and market conditions here. Once the infrastructure is laid, the focus on trade will become much more significant. The Belt and Road Initiative will open investment opportunities for Chinese companies in many more areas other than tourism, says McCabe.

Excerpts from the interview are as follows:

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A delegation led by Head of Transaction Banking at Standard Chartered China Sam Xu visited Sri Lanka to get a deeper understanding of the country to better inform private businesses of the opportunities available here

How has the Belt and Road Initiative impacted the bank in terms of business growth, and what is the purpose of Standard Chartered China’s visit to Sri Lanka?
Xu: Standard Chartered has a large footprint across Asia, Africa and the Middle East, and we’re in 70% of the countries covered by the Belt and Road Initiative. My office deals directly with the headquarters of many of the Chinese companies that are investing and working with the Initiative and other projects in these countries, including in Sri Lanka. Our clients increasingly want to know about Sri Lanka, its local market, business practices and regulatory environment; that’s why we visited Sri Lanka to meet our clients on the ground here and our colleagues at Standard Chartered Sri Lanka, so we can better serve our clients back in Mainland China.

This is my first visit to Colombo, but there was a delegation here last year. We started actively engaging with the Belt and Road Initiative in 2015, and we’ve seen our volumes increasing dramatically over the last three years. During the first year, we attracted $900 million in new business directly linked to the Belt and Road Initiative, which has grown 30% annually since. So there’s momentum and potential for growth.

How much Belt and Road-related business has Standard Chartered Sri Lanka seen?
McCabe: We’ve seen banking business growth overall, but it’s too early to differentiate what’s related to the Belt and Road Initiative. The investments have been handled directly between the two governments because they’re related to large-scale infrastructure projects. There’s been an inflow of $3.5 billion into Sri Lanka from China directly linked to the Belt and Road Initiative over the last three years.

Going forward, there’ll be another phase when private investments flow in once the infrastructure is in place, when the Hambantota port and economic zone are fully operational, and the Colombo Port City opens real estate for development. The focus on trade will become much more significant. The Belt and Road Initiative will open investment opportunities for Chinese companies in many more areas other than tourism, where we agree Sri Lanka has seen an increase over the last few years. Over the next five to ten years, there will be many touchpoints between Sri Lanka and China, and we’re positioning ourselves for that.

Xu: Most of these relationships started out government-to-government, but evolves into people-to-people relation ships. There are operating budgets, cash management, domestic and cross-border trading related to the infrastructure projects that require banking services; this is where we come in. Individuals working here for Chinese companies become our retail clients too. All of the Chinese firms operating in Sri Lanka are our clients in China, and this base will grow to include smaller businesses from China and elsewhere. For instance, the Colombo Port City will have 10,000ha, which will attract investors from all over the world.

Chief Executive at Standard Chartered Sri Lanka Jim McCabe believed the BRI will open investment opportunities in many more areas other than tourism

McCabe: So, for the bank, it’s an opportunity to use our many products and different services as and when these companies require them. The bank can provide capital requirements from Sri Lanka or China. But there are always other banking services they need on the ground to operate, make payments, collect receipts and manage supply chains. These are the areas where the bank can get involved. There will be more tangible banking activity through us. As the land around the port starts to get projects, we will see investments in petrochemicals, technology and other industries, and we are positioning the bank to serve the needs of investors.

Is China’s corporate sector showing an increasing interest in Sri Lanka?
Xu: We’re still in the early stages of fact-finding, but we’ve launched the initiative because the bigger picture is clear to us. You are getting more visits from Chinese companies who are in the frontier. We are being asked to explain Sri Lanka to more people than we have before. It shouldn’t be surprising that our Chinese clients have positive perceptions about Sri Lanka, but they want to understand how things work here. We don’t know how many of them are window shopping, but China is a large economy and with a compelling story like Sri Lanka has, there will be many opportunities that will materialize.

McCabe: From our perspective in Colombo, we see Chinese companies getting more comfortable about Sri Lanka. We work closely with our Chinese colleagues to demystify Sri Lanka for our clients. We also opened a China desk in Colombo, so Chinese individuals can speak to someone familiar in their language and market the conditions here.

It’s all about communication and articulating what is required. You must try as best as you can to provide information as easily understood as possible. So, these China desks are critically important to the sustainability of our strategy. It is an important investment that makes a huge difference. When everyone understands each other better, this makes for a good combination.

WE WILL SEE INVESTMENTS IN PETROCHEMICALS, TECHNOLOGY AND OTHER INDUSTRIES, AND WE ARE POSITIONING THE BANK TO SERVE THE NEEDS OF INVESTORS

How has the feedback from your Chinese clients been?
McCabe: From what I understood from our meetings with them, they are very excited about what they are engaged in. I wouldn’t say it’s a concern, but something they kept telling us is how they needed support to better understand what is going on, on the ground. We held discussions with the Chinese envoy in Colombo, and were told how China’s private sector will soon follow. I believe, five years from now, we will look back and wonder why we ever doubted. The Belt and Road Initiative is a major international investment initiative, and from Sri Lanka’s standpoint, we hope to do the best we can to align with the emerging shared economy.

How important are things like policy consistency and rule of law to Chinese businesses?
McCabe: Absolutely important, and we talk about them all the time. For instance, if you’re going to incentivize 120 different investors for a piece of land in the Colombo Port City, you are going to have to be very clear. The legal systems will need to be clear. We are made to understand that law governing the Port City will be different to the rest of the country; but whatever happens, you have to be clear with investors.

The commitment to develop this country is clear. We can’t wait to experience the underwater tunnel that will connect the highway and the Colombo Port City. It’s impossible to imagine, and yet, there is going to be that southern exit from the Port City. The northern exit is already being built. Once these monster projects materialize, imagine the attraction they will generate, not just for pieces of road, but in other areas like agriculture, education and energy. That’s what Belt and Road Initiative is all about.