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Financial Opportunitie s in MENA – One Belt One Road

Financial Opportunitie s in MENA – One Belt One Road. Agricultural Bank of China, DIFC Branch Hui Shao 2016/04/25. Contents. I. Brief introduction of OBOR. II. The economic and trade co o p e rations between China and main MENA countries. III. Financial opportunities to be increased.

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Financial Opportunitie s in MENA – One Belt One Road

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  1. Financial Opportunities in MENA – One Belt One Road Agricultural Bank of China, DIFC Branch Hui Shao 2016/04/25

  2. Contents I. Brief introduction of OBOR II. The economic and trade cooperations between China and main MENA countries III. Financial opportunities to be increased IV. Financial cooperations with MENA banks 2

  3. I. Brief Introduction of OBOR 1.1 Overview • One Belt One Road Silk road economic belt; 21st century maritime silk road; 3 3 3 3

  4. I. Brief Introduction of OBOR 1.2 Five Objectives of OBOR • Policy Coordination • Facilities Connectivity • Unimpeded Trade • Financial Integration • People to People Bond 4 4 4 4

  5. II. The economic and trade cooperations between China and main MENA countries 2.1Bilateral relations between China and main countries in MENA • China upgraded bilateral relations with Egypt, Algeria, Qatar and Jordan over the last two years. • China upgraded its relationship with both Saudi Arabia and Iran to a comprehensive strategic partnership during President Xi’s three nation visit January this year. 5 5 5

  6. II. The economic and trade cooperations between China and Arab states 2.2 Trade with Arab states 6 6 6

  7. II. The economic and trade cooperations between China and Arab states 2.2 Trade with Arab states • China became the second largest trading partner of Arab States last year. • China became the Largest trading partner of 9 countries, including Saudi Araba, Oman, Algeria, etc. 7 7 7

  8. II. The economic and trade cooperations between China and main MENA countries 2.3 China’s FDI to MENA 1. Arabia Monitor; China National Statistics Bureau. 8 8 8

  9. II. The economic and trade cooperations between China and main MENA countries 2.3 China’s FDI to MENA • FDI to MENA & China’s FDI share in MENA main leading countries • UAE was the top recipient of Chinese FDI in MENA • China is currently Algeria’s largest foreign capital source. 2. Arabia Monitor; UNCTAD; China National Statistics Bureau. 9 9 9

  10. II. The economic and trade cooperations between China and main MENA countries 2.4 Expectation of the future development • USD55 billion investment has been pledged to MENA by President Xi, among which USD10 billion would be commercial loans. • Trade value could exceed USD 600B at the end of 2025, forecasted by Chinese Authority • China will be expected to be the GCC's most important economic partner by 2020, according to a new report by the Economist Intelligence Unit (EIU). 10 10 10

  11. III. Financial Opportunities • Trade Finance • RQFII(RMB Qualified Foreign Institutional Investors ) Invest in Chinese Market • UAE：CNY50B， Qatar：CNY30B • RMB Settlement and Dealing • Projects Finance • Islamic Banking Development in China 11 11 11

  12. IV. Financial Cooperations with MENA Banks • 4.1 RMB Clearing • 4.2 Finance Cooperation • 4.3 Financial Market • 4.4 Trade Innovation 12 12 12

  13. IV. Financial Cooperations with MENA Banks 4.1 RMB Clearing • 4.1.1 SWIFT Report About RMB Payment • In 2015, the UAE’s use of the RMB accounted for 74% of payments by value to China and Hong Kong, an increase of 52% compared to 2014. • In Qatar, the RMB was used for 60% of all payments with China and Hong Kong, a huge rise of 247% compared to 2014. 13 13 13

  14. IV. Financial Cooperations with MENA Banks 4.1 RMB Clearing • 4.1.2 Clearing Advantages • Largest Physical network in China--23,670 Branches and Outlets • largest Customer Base in China: Corporate Customers: 3.64 million; Retail Customers：474 million • Largest Card Issuer in China--- 871.38 million Cards Issued • Efficient • Same Time Zone Service 14 14 14

  15. IV. Financial Cooperations with MENA Banks 4.2 Finance Cooperation • Trade Finance Cooperation • Syndication 15 15 15

  16. IV. Financial Cooperations with MENA Banks 4.3 Finance Market • Money Market: borrowing and lending in multi-currencies, including USD,CNH,EUR and JPY, etc; • FX Market: spot, forward and swap trade in multi-currencies, including CNH,USD,EUR and JPY, etc; • Bond Market: providing investment banking services for MTN and CDsissuance; Assisting banks and other financial institutions to invest in China Bond Market and issue Panda Bond within China mainland 16 16 16

  17. IV. Financial Cooperations with MENA Banks 4.4 Trade Finance Innovation • 4.4.1 Investment Composition • According to a research ( China Investment Research), the percentage of investment under OBOR is: • Infrastructure/energy infrastructure 52% • Trade finance occupied 30% • Financial industry is 13% 17 17 17

  18. IV. Financial Cooperations with MENA Banks 4.4 Trade Finance Innovation • 4.4.2 Guarantees Involved in Construction Project • Bid Guarantee • Advance Payment Guarantee • Performance Guarantee • Payment Guarantee • Quality Warranty Guarantee 18 18 18

  19. 4. Performance Guarantee 2. Advance Payment Guarantee 1. Bid Guarantee 3. Advance Payment 5. Payment Guarantee 6. Quality Warranty Guarantee 4.4.2 Flow Chart of Construction Guarantee in an international construction project 2 1 2 6 4 4 5 5 6 1 Contractor’s Bank Owner’s Bank Contractor Owner 19 19

  20. IV. Financial Cooperations with MENA Banks 4.4 Trade Finance Innovation • 4.4.3 Why is difficult for contractor to get finance? • Contractors usually do not have any assets here as collateral • Particularly impacted by cyclical and seasonal fluctuation of economy • The failure of subcontractor • Labor problems 20 20 20

  21. IV. Financial Cooperations with MENA Banks 4.4 Trade Finance Innovation • 4.4.3 Example • Contractor: Stimes Fabric and Steel Structure FZE. • 10 years in Dubai • Project: IMG Theme Park • The largest indoor theme park in the world • The biggest steel structure unit in the world 21 21 21

  22. 4. Performance Guarantee 2. Advance Payment Guarantee 1. Bid Guarantee 3. Advance Payment 5. Payment Guarantee 6. Quality Warranty Guarantee 4.4.3 Flow Chart of Construction Guarantee 2 1 2 6 4 4 5 5 6 1 Contractor’s bank Owner’s bank contractor owner 22 22

  23. Separate the trade in goods from the project IV. Financial Cooperations with MENA Banks 4.4 Trade Finance Innovation • 4.4.4 How to Change? 23 23 23

  24. 4.4.4.1 Traditional Payment Solution Total contract: USD 55M, among which , USD5M is quality guarantee deposit USD 50M will be paid periodically based on payment guarantee. Contractor Owner USD 10M USD 10M USD 10M USD 10M USD 10M 24 24

  25. 4.4.4.1 Suggested Payment Solution Total contract: USD 55M, among which , USD5M is quality guarantee deposit USD 50M will be paid periodically based on payment guarantee. Contractor Owner USD 5M, USD 5M LC USD 5M, USD 5M LC USD 5M, USD 5M LC USD 5M, USD 5M LC USD 5M, USD 5M LC 25 25

  26. 4.4.4.2 Flow Chart of Transferable LC Product LC $5M LC $5M Owner’s Bank Contractor’s Bank Manufacturer's Bank Documents Documents $5M $5M LC $5M Documents LC $5M $5M $5M Documents Owner Manufacturer 26 26

  27. IV. Financial Cooperations with MENA Banks 4.4 Trade Finance Innovation • 4.4.5 Owner’s main risk of the change • How can he know the price of materials • Is it possible that contractor only sale goods to owner? • Did the owner take more risk? • Does the owner need more credit lines form the bank? 27 27 27

  28. IV. Financial Cooperations with MENA Banks 4.4 Trade Finance Innovation • 4.4.6 Benefits of the Contractor • Solve his finance problem. He can take advantage of owner’s credit to buy the materials. • Reduce the financial expense. He needs not get a loan and pay the interest 28 28 28

  29. IV. Financial Cooperations with MENA Banks 4.4 Trade Finance Innovation • 4.4.7 Benefits of the Owner • Assure the project finishedon time • Control the quality of material during the proceeding • May share the benefits of the constructor's saved financial expenses 29 29 29

  30. Thank you! For inquiries, please contact the following: Corporate Department: Chu Zhang +97145676989 zhangchuae@abchina.com Treasury Department: Sam Liu +97145676968 liuxiaofeiae@abchina.com 30 30 30

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