Investment Funds to Promote In-depth Maritime Cooperation

Starting from 2009, “post-crisis era” has frequently appeared on the mainstream financial media. The economists predict that global economy will go through a “V-shaped” recovery in the post- crisis era. But the fact is that they might be too optimistic, as we can see that the influence of the underestimated financial crisis is still spreading and the “Reviving Spring” of global economy mentioned by the economists has turned into the “Lifeless Winter”.

Hit by the prolonged financial crisis and worsening trade protectionism, the export- oriented ASEAN economies have fallen into depression. Thus, it has become urgent for the ASEAN countries to boost their domestic demands through infrastructure construction. In order to give a helping hand to its neighboring countries, then Chinese Premier Wen Jiabao made an initiative on establishing the China-ASEAN Investment Cooperation Fund (short for CAF) which is sponsored by the Export-Import Bank of China (EIBC). The fund targets investment opportunities in infrastructure, energy and natural resources in the ASEAN countries and reinforcing the economic and strategic cooperation ties between China and ASEAN.

The CAF, a quasi-sovereign fund, is somewhat mysterious for most of the people due to its scarce presence on media. It was not until the upgraded CAFTA was put forward and the CAF was reiterated by Chinese Premier Li Keqiang that the CAF truly came into the public eye.

Being the first equity fund in China, the CAF has a total amount of $10 billion and it has invested $1 billion in the first phase. It will be used in 10 projects in 9 ASEAN countries, covering infrastructure construction, transportation, telecommunication, media, mining, medical service and energy. According to a follow-up research of the CAF, the fund is acknowledged as the largest international investment fund under the direction of the Chinese government.

What is Equity Investment?

Equity investment aims at achieving business targets and realizing strategic significance via initiating investment funds. It functions as a financing leverage and gains profits by becoming the stockholder rather than directly exerting its influence and control. This mode has become very mature and common among some developing countries and those countries with abundant foreign exchange reserves. According to the statistics, the number of sovereign and quasi-sovereign investment funds has exceeded 70 by the end of 2012, with a total asset of over $5.2 trillion. The investment fund could effectively mobilizing financial resources, unite various industries and generate great influence.

The Hong Kong-based operation and management organization of the CAF runs in line with the international practice and market principle. Except for the fund from EIBC, the majority of the capital needs to be raised from the market. And the whole management and operation staff are organized according to market principle.

Investment is an art of judgment. How should the CAF select among hundreds of projects? The person in charge of the CAF claimed that there are three points to be considered: first, stick to sustainable development and keep the rate of return to 10% to 20%; second, find the right partner who agrees to the international accounting criteria and legal system adopted by the CAF; third, value the time and take input cost into consideration.

And the last but not the least important we would like to mention is “withdrawal”, which plays a crucial role in capital recovery and increment, as well as in promoting capital flow. Theoretically, a rigorous “withdrawal plan” is formulated in advance before each investment decision is made, which is a necessary prerequisite of the investment. “When the project gets mature, it’s time to think about withdrawing, so as to maximize investment profits. And it generally takes about 4 to 6 years. ‘Winner takes all’ is the invariable principal of business. One invests in and wants more back,” said the person in charge of the fund.

Rebuilt the Maritime Silk Road

Since ancient times, Southeast Asia has served as a crucial hub of China’s Maritime Silk Road, which was a great long-distance trade channel of capitals, the transportation volume of which far exceeds that of the traditional Silk Road.

In order to carry on the glorious history of China’s century-old overseas trade, the CAF, abiding by the investment direction set at the very beginning, will aim at enhancing maritime cooperation with the ASEAN countries and the construction of Maritime Silk Road in the 21st Century.

Under this trend, another fund that serves China-ASEAN cooperation, namely, the China-ASEAN Maritime Cooperation Fund, is gaining wide attention. This fund was also initiated by then Chinese Premier Wen Jiabao to better serve China-ASEAN maritime relations.

According to Wen Jiabao, China and ASEAN maintain good relations. The establishment of the fund confirms to the times as China and ASEAN have been devoting to the strategic partnership for peace and prosperity. They have been bounded together by their common destiny as bilateral exchanges and cooperation develop in a wider range and at a higher level. The goal of the 3 billion yuan China- ASEAN Maritime Cooperation Fund is to push forward China-ASEAN ties and exert influence in marine scientific research and environmental protection, interconnection, navigation safety, search and rescue, and combating transnational crime. This is done for the sake of rebuilding the “Maritime Silk Road”, for maritime peace and prosperity will bring more welfare to both China and ASEAN.

The investment experts pointed out, the China-ASEAN Investment Cooperation Fund and China-ASEAN Maritime Cooperation Fund are bound to play an important role in bilateral relations. Since the two funds target at different fields, they can radiate to the majority of industries in China and ASEAN, providing supports to the future development of industries.

Make Good Use of the Funds

To invest in ASEAN is the general trend, so the second phase investment of the CAF will continue to focus on the ASEAN countries. While increasing investment on key industries involved in the first phase, it will also try to extend investment in more industries and regions, so as to gain more opportunities in a more flexible way and achieve the maximum profits. The CAF staff told the reporter that they welcome the participation of more far- sighted private enterprises.

The analysts of the fund also claimed that among the existing investment projects of the CAF, at least six to seven can not be duplicated and there are also many projects that can not be accomplished in China. For instance, some of the products rely on the unique natural resources of the ASEAN countries or their special management policies, which, if bounded with China’s capital, technology, management and ideas, will bring colossal economic and social effects. So, if enterprises are satisfied with their domestic markets, they could not grow stronger. Only by using the CAF to invest in ASEAN could they have a brighter future, especially for those private enterprises.

According to the person in charge, the China-ASEAN Maritime Cooperation Fund will actively serve the Chinese and ASEAN enterprises in the process of building up the upgraded CAFTA, and it is set up to drive the healthy development of economy. In view of the present situation, China and ASEAN enjoy great development potentials, and maritime cooperation has become a new pillar for China- ASEAN cooperation, which could not be overlooked by the enterprises. Now, quite a few enterprises have began to study the application procedures of the fund, which means the concept of “in-depth maritime cooperation” put forward by Premier Wen Jiabao has started to take effect. And the prime time for it will come in the following years. If enterprises begin to invest now, they will get their money back faster. Enterprises should realize this and make good use of the fund to earn more.

Currently, both the China-ASEAN Investment Cooperation Fund and China-ASEAN Maritime Cooperation Fund have taken a “crucial position” in China-ASEAN cooperation. So, if enterprises are satisfied with their domestic markets, they could not grow stronger. Only by using the two funds to invest in ASEAN could they have a brighter future.