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Time:March 24-26, 2018
Beijing Diaoyutai State Guesthouse
Sponsor:Development Research Center of the State Council
Organiser:China Development Research Foundation
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AIA Group is one of the largest institutional investors across an 18-market footprint in Asia-Pacific with nearly US$150 billion of invested assets. Out of these assets, approximately US$20 billion of total invested assets are infrastructure-related assets issued by companies across the Asia-Pacific region. AIA believes this proportion can continue to grow as it supports the Belt and Road Initiative and as more high-quality assets become available over time.

The Belt and Road Initiative is a large-scale development plan that is underpinned by significant investments in infrastructure across the more than 65 countries situated along the Belt and Road. The majority of financial support for public infrastructure has traditionally come from public spending by local governments. Financing support for this spending is primarily provided through the issuance of government or government agency bonds and co-investments from private enterprises or Public-Private Partnerships.

While Public-Private Partnerships have proved to be an effective way to develop infrastructure, they represent only 3% of public infrastructure projects globally. Developing a meaningful capital market for infrastructure bonds or other types of direct project-related financial securities and promoting corporate bonds to replace over-reliance on bank lending to fund private infrastructure investments would be effective ways to provide greater and more comprehensive financial support for large-scale infrastructure projects.

Due to the long-term nature and risk-return profile of infrastructure projects, demand for infrastructure bonds or other types of financing assets will mainly come from specialised long-term investors or financial institutions that require long-duration fixed income assets to back similarly long duration liabilities.

By writing long-dated protection and savings policies (often 10 – 20 years+) and pooling insurance premiums denominated in local currency from local retail customers, life insurers like AIA Group are a prime example of such institutions.

Therefore, once a viable market for issuance of infrastructure bonds or other types of securities is established, promoting higher local life insurance penetration is an important way to generate demand for such investments.

Development Banks with local presence have also played a major role in underwriting large financing transactions for infrastructure projects. For such institutions, cooperation with local on the ground investors, such as life insurers and pension funds, will increase viability of on the ground financing for the Belt and Road Initiative.

Involving life insurers offers the sort of private sector participation necessary to close the vast global infrastructure gap.

This paper is organized around three themes, as suggested by the panel organizers, and summarized in the lettered bullets below.

1) Global trends or international experience of the issue.

Lessons Learned:  White Elephants, Bridges to Nowhere, and Ghost Towns.

Positive Developments:  Insurance and Public-Private Partnerships (“PPPs”).

2) Insight into and analysis of the issue under China’s context.

Lessons Learned:  Debt overhang from the 2009 Fiscal Stimulus.

Positive Developments:  PPPs from Build, Operate and Transfer (“BOT”) to Belt and Road.

3) Policy suggestions or feasible solutions based on international experience.

Elevate infrastructure bonds as a distinct asset class.

Deepen local bond markets in Belt and Road countries through promoting increased insurance penetration.

Localize finance, as well as construction, in partnership with quality financial institutions on the ground in Belt and Road countries.