Asia needs to explore the idea of an investment
corporation to help finance the continents
development needs, especially for infrastructure, Chinas
vice finance minister Li Yong suggested yesterday.
The idea resonated strongly with investment bankers and
other private sector specialists at the ADB annual meeting.
Asia has huge needs for development capital, and also has
very large savings and more effective mechanisms are
needed for bringing these together, Li told Emerging
Markets. At a seminar earlier, he had proposed a new
Asian investment corporation.
He declined to be drawn on whether China and other Asian
economies might employ part of their massive foreign exchange
reserves to finance the new mechanism, but pointed to Asian
bond markets as a possible source of funding.
Lis idea drew support from private sector
infrastructure specialists, who suggested that neither existing
public institutions nor commercial banks can meet
infrastructure financing needs.
Lis suggestion is definitely in the right
direction, Harinder Kohli, former World Bank official and
now CEO of the Washington-based Centennial Holdings research
group, told Emerging Markets yesterday.
Too much of Asias massive savings leaves the
region and then round-trips back again via foreign
loans or investments. If a mechanism can be devised to keep
some of this capital at home to help finance regional
investment needs that would be welcome, Kohli said.
The fact that a senior Chinese official has broached the
idea of a new Asian fund is seen as encouraging because of
Chinas huge savings. Veteran emerging markets investor
Mark Mobius said the savers would be hungry for investment
opportunities overseas once Chinas capital controls are
Arvind Mathur, chairman of Private Equity Pro Partners of
Gurgaon, India, said that if China were to invest a small
fraction of its $2 trillion of foreign exchange reserves in a
new Asian fund, that would have a huge impact on infrastructure
Chinese officials have voiced fears about having too much of
the countrys reserves invested in dollar securities and
are anxious to diversify into local currency-denominated
infrastructure bonds, sources told Emerging Markets.
Chinese private investors could also welcome non-dollar
China could be reluctant to pursue regional initiatives
while it is preoccupied with its domestic economic agenda,
William Knight, an advisory director of New York-based Campbell
Lutyens, a private equity group involved in emerging market
infrastructure financing, cautioned.
Knight said that South Korea would be perfectly
placed to take the initiative, given that it has the
worlds largest state pension fund (NPS) and a very large
sovereign wealth fund (KIC).