Speech delivered by Jean-Marc Peterschmitt at the 4th China-CEE summit in Suzhou.
Many thanks for inviting me to address you today.
It is a special honour for me, especially as China has recently applied for EBRD membership.
Indeed, a resolution on China’s application is currently being considered by our governors. Subject to a positive conclusion of the process, we hope that we will soon be welcoming China to the EBRD as a shareholder.
The EBRD will not invest in China, but China’s membership in the EBRD will increase opportunities for Chinese companies to invest in more than 30 EBRD countries of operations. This will open up many new possibilities, both for the countries where the EBRD invests and for Chinese investors.
One key area where we see huge potential for cooperation is in the infrastructure sector, where China has taken the lead with its important “One Belt and One Road” initiative. We welcome this plan, since it holds the promise of deepening and strengthening China’s integration into the global economy through creating a network of transport links between Asia and Europe, crossing many of the countries where the EBRD invests. It offers a huge stimulus for a wide set of countries that are natural partners for China, considering both their natural resources, for which China has a strong need, and their ability to further grow as markets for Chinese goods.
The sheer size of this initiative’s investment makes the involvement of many stakeholders indispensable, and international financial institutions are poised to play an important role. At the EBRD, we know from experience that the private sector, in the form of commercial banks, specialised operators and other investment funds, will also play an important part in providing both the needed financing and the expertise to deliver the operational efficiencies.
The “One Belt and One Road” initiative also represents the core of China’s priorities for the infrastructure sector under its upcoming G20 Presidency in 2016: first, the fostering of regional connectivity; second, greater private sector involvement; and lastly, an enhanced role of international financial institutions.
So what can we do? The EBRD has always put a special emphasis on infrastructure development and financing. Indeed, infrastructure and energy represents 48 per cent of our outstanding portfolio at just under €20 billion, 40 per cent of which is in the private sector. Over the past 25 years we have developed an approach which brings together private and public sector support.
In the public sector, we provide comprehensive support to relevant entities. We help “commercialise” their operations while also laying the foundations for institutional and regulatory improvements. We also assist with project preparation using technical cooperation.
In the private sector, we help prepare public-private partnerships through feasibility studies, deal structuring and tender support, through to financial close, as well as providing debt and equity financing for concessionaires. The EBRD and its IFI partners are supporting the new G20 Global Infrastructure Hub to create new PPP related knowledge products so that the public sector in emerging markets can take better advantage of expertise from peers around the world.
So let me restate that the “One Belt and One Road” initiative is very welcome from the EBRD’s perspective. If well-planned and executed, the initiative will go a long way toward boosting growth and trade across the entire region.
Let me make two generic points on this. First, infrastructure investments are expensive and take a long time. This means they need a stable environment. Investors will need to be convinced that investments with contractual obligations that last, in some cases, 20 or more years are backed by a strong and lasting political will to protect such investments. While this is always a challenge, it is very worthwhile.
Indeed, and this is my second point, studies show that sensible and sustainable infrastructure investments benefit whole economies. According to this research, infrastructure spending has a high “multiplier effect” – that is to say, every extra dollar spent on infrastructure is estimated to increase aggregate GDP output by around $ 1.60. Infrastructure investment creates jobs and improves firms’ productivity, leading to positive long-term impacts on growth.
In recent years, China’s activities and presence as an investor abroad have really taken off. China is currently the world’s third largest outward direct investor. Capital investment in greenfield FDI projects from China in 2014 totalled US$ 64 billion, more than three times the figure achieved in 2013.
With this in mind, we are very keen to explore the potential for Chinese investments in central and south-eastern Europe which is the subject of our discussion today. In our latest Transition Report, our flagship economic publication, we show that while investment from China into central and south-eastern Europe has been growing rapidly, it remains significantly below levels that could be expected based on the countries’ economic characteristics such as their size or level of development. This suggests a substantial scope to increase such investment links further.
The report also shows that central and south-eastern Europe is experiencing a significant investment shortfall, estimated at around 3 to 4 per cent of GDP annually, based on comparisons with other countries with similar characteristics. A significant part of this shortfall is in infrastructure investment. We notice that Chinese investors are looking into these markets with growing interest and we would support this development, as it is potentially beneficial for all parties involved.
As a long standing investor in the 17 countries of central and south-eastern Europe, with a €14 billion portfolio outstanding, representing 35 per cent of our total portfolio and an annual flow of new business of €2.7 billion, the EBRD stands ready to support the involvement of China in this region, and with China as a shareholder we are confident our cooperation will quickly blossom and expand.
Let me conclude by stating that the EBRD model has helped us make real progress towards modernising emerging economies, improving standards of corporate governance, promoting greater transparency, freeing up market forces and the more sustainable use of resources. It’s the sort of approach that will be vital as the world seeks to deliver the United Nations’ recently adopted Sustainable Development Goals. The EBRD’s cooperation with China will be a major step forward in our endeavours.
Thank you for your attention.