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Silk Road Fund – China’s financial arm in Asia.

Silk Road Fund – China’s financial arm in Asia. published on

While politicians, experts and businessmen commenting on the China’s new investment initiatives in Asia focus mainly on the developments connected to the establishment and operations of the Asian Infrastructure Investment Bank, Chinese authorities silently and slowly but steadily build China’s position in Asia using other, fully dependent institutions,such as old policy banks Exim Bank, China Development Bank and and new Silk Road Fund that is actually offspring of the two former.

AIIB is hailed by many observers as an example of China’s new approach in investments across the One Belt One Road countries. Transparency, flexibility, and care for the real needs of the countries named by CCP leaders to be members of New Silk Road community, are claimed as main features of the new Asian bank. Future will show how the AIIB will develop and evolve but it should not be forgotten, that for China AIIB is first of all the showcase, part of the soft power build up. The international profile of AIIB, that is set to support infrastructure development in Asia, is supposed to attract the general attention and to help initiatives with modus operandi and objectives very different for those nclaimed by AIIB members and management. Silk Road Fund is one of the examples of the initiatives, that to some extent overlap with AIIB but is purely Chinese way to get what they need in Asia. Its latest actions shall not be left unnoticed.

In recent weeks Bloomberg and other sources have reported that Silk Road Fund mulls the decision about the joint bid, together with state-owned China National Gold Group Corp., for the Glencore’s biggest gold mine located in Vasilkovskoye, Kazakhstan. Heavily indebted Switzerland based company sells its non core assets in various countries to improve its financial standing. It creates opportunity for Chinese state investors. The actual value of the mine priced by Chinese at 2 bln usd, handling formalities of the ownership transfer and coping with technical problems are not factors, that will not be crucial for the Fund’s decision.

The 40 bln usd strong Fund acts as the China’s state, or more precisely China Communist Party, financial arm implementing Beijing’s political will, not as an independent, profit driven infrastructure investments fund. Previous investments of the SRF in Chinese SOEs IPO in Hongkong, in Pakistan’s hydropower station and in purchase of 9,9 percent stake in Novatek’s Yamal LNG project, combined with the promise of a Chinese 10 bln euro loan to Novatek to pay for Chinese components and materials were all politically motivated actions implementing CCP’s policy.

The purchase of the Vasilkovskoye mine is part of the China’s efforts to strengthen international position of its currency and decrease country’s dependence on US dollars. Reasons behind considered acquisition are nicely laid out in the article by Blanchard and Company . China desperately tries to decrease the share of US dollars denominated financial assets and seeking diversification steadily increases gold reserves. Being the largest gold producer China still encourages SOEs to invest in gold mines and deposits abroad. Growing domestic demand, that cannot be met with domestic production, is undoubtedly an important factor behind the acquisition plan but other reasons are also significant. China, as Russia , bets on the decline of the fiat currencies and increases the gold deposits to create stronger backing for its money. For Chinese leaders strong and internationally recognized currency is not only the matter of ambitions and national pride but the way to undermine the US Dollar and Euro position and at least partially replace them with yuan. Stronger and widely applied yuan will significantly enhance China’s position in the world and give Beijing stronger leverage in international relations. Silk Road Fund is a useful tool, a servant of China’ state and CCP that merely executes Beijing’s will.