Global Islamic Fund Newsletter

China Expands Overseas Economic Clout through Islamic Finance

Updated:Jan. 25, 2016 10:29:24 BJT

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According to Reuters on September 23 (Beijing time), Islamic finance increasingly becomes China's channels to expand its overseas economic cloutwith the ever-closer cooperationbetweenChinese-funded banks and Muslim countries as well as use of Islamic funds by Chinese-funded enterprises.

China is looking forward to strengtheningbusiness relations with other Asian countries through the "Belt and Road Initiative" ("the Silk Road Economic Belt and the 21st-Century Maritime Silk Road"), which covers the Middle East and South Asia, the world's leading Islamic financial centers. Assets subject to Islam in the Middle East and South Asia account for as high as one-quarter of the total banking assets.

"Driven by the "Belt and Road Initiative", (Chinese) state-owned enterprises and private enterprises are now more willing to develop Islamic finance,"Ben Ping Chung Cheung, Asia-Pacific Head of Shariah Advisory Group said.

Shariah Advisory Groupis assisting with HNA Group in purchasing ships through a financing amounting to 150 million USD, and HNA Group may become the first enterprise in Mainland China to obtain financing through Islamic finance.Cheung also said, "HNA Groupplans to issue offshore sukuk."

Cheung said, "An issuance of sukuk financing up to 30 billionCNY for a high-speed rail project in Shandong Province is under consideration. Ifsuccessful, this will be one of the sukuk with the largest issuing scale. Discussion for the issuance is still at a preliminary stage due to the existing difficulties, and the issuance will even face fierce competition from domestic banks."

Silk Routes Financials, a Singapore consultant firm said in July, "Subordinate enterprises of Sichuan Development (Holding) Co., Ltd. require the company to provide recommendations for Islamic finance."

"These obvious trends are the results of the increasingly growing huge business relations between China and the Gulf countries," said by Jonathan Fried, partner of Linklaters in Dubai.

Although these plans are ambitious, Chinese-funded enterprises still have a lot to learn how to use Islamic finance. Islamic finance prohibits the payment of interest, and their forms of use may also be more complicated than those of traditional finance.

Islamic investors have a lot of money to purchase dollar-denominated sukuk, yet they often tend to invest in the highest-rated issuers.

"Sukuk will become much attractive if their costs of issuance can be lower, and many Chinese enterprises are apparently in the right industries and the right structure," said by Kalai Pillay, North-Asia head of Fitch Rating.

At the state level, China may participate in Islamic finance mainlythroughthe Asian Infrastructure Investment Bank (AIIB), which has explored Islamic finance with the IslamicDevelopmentBank (IDB).

Chinese state-owned banks have enhancedtheir influence in the Gulf countries.Over the past year, the Agricultural Bank of China (3.23,0.00,0.00%), Bank of China (4.04,-0.03,-0.74%) and Industrial and Commercial Bank of China (4.59,-0.02,-0.43%) have issued traditional bonds at NASDAQ Dubai for transactions.

(Source: Reuters Chinese News)