Speech

Belt and Road Initiative: Two Key Channels to Achieving Financial Connectivity

April 24, 2019

Governor Yi, Minister Liu, Distinguished Guests, Ladies and Gentlemen — good morning! Zao Shang Hao!

I would like to thank the People’s Bank of China and the Chinese Ministry of Finance for organizing this important event.

As we meet during this beautiful springtime weather it brings to mind the words of the Chinese proverb, “ The whole year must be planned for in the spring.”

Over the next three days we will consider the ways the Belt and Road Initiative — the BRI—can help better connect the world physically and financially for years to come. It is fitting that we begin these conversations with financial connectivity. Why? Because history teaches us that physical and financial connectivity go hand-in-hand.

Think of the original Silk Road. The desire for trade drove merchants to travel thousands of kilometers. Over time, infrastructure in the form of bridges, buildings, and even entire new cities were built to accommodate what began as small trading posts and financial exchanges.

So where there is financial connection, we see that rapid improvements in quality of life can quickly follow.

In our modern context, there are several important channels to achieving this greater financial connectivity. I want to highlight two today: increased capital mobility and increased financial inclusion.

1. Increased Capital Mobility

First, enabling capital to flow more freely.

Allowing capital to flow across borders can help support inclusive growth. How? By enhancing investments in infrastructure, manufacturing, and even health care.

Right now, foreign direct investment —FDI — is only 1.9 percent of GDP in developing countries. Before the global financial crisis, it was at 2.5 percent. Making progress on major infrastructure needs will require capital flows to rise again and to be managed safely.

Greater openness to capital flows can also bring down the cost of finance, improve the efficiency of the financial sector, and allow capital to support productive investments and new jobs.

That is certainly the case here in China, where a further opening of the bond market to foreign investors will enable diversification and foster the internationalization of the Renminbi (RMB).

In fact, the IMF recently published a book on this topic, called “The Future of China’s Bond Market”. It outlines how the inclusion of China’s bonds in global indexes can be a gamechanger not only for China’s own financial markets but also for global investors.

The book also underscores the challenges that come with opening up capital markets. Thankfully, we know from experience the elements that are required for success. These include sound financial regulation, transparent rules for investment, and attention to fiscal sustainability.

On this last point, China’s increased focus on the long-term success of BRI projects, and the announcement today by Finance Minister Liu of a BRI debt sustainability framework, are very welcome steps in the right direction.

So too is the work that is now beginning to ensure that investment in BRI projects is green, low-carbon and climate resilient. This will lead to increased environmental sustainability.

2. Increased Financial Inclusion

We also need increased financial inclusion — my second channel for a more effective BRI.

A few numbers: close to half of the adult popu­lation in low and middle-income Asia-Pacific economies do not have a bank account. Less than 10 percent have ever borrowed from a financial institution. [1]

And yet, we know that closing the finance gap is an “economic must-have” for nations to thrive in the 21^st century. IMF analysis shows that if the least financially inclusive countries in Asia narrowed the finance gap to the level of Thailand — an emerging market economy — the poverty rate in those countries could be reduced by nearly 4 percent. [2]

How can we get there? In part, through policies that enable more women and rural citizens to access financial services. The financial gender gap for women in developing countries is about 9 percent and has remained largely unchanged since 2011. [3]

There is no silver bullet, but we know that fintech can play a catalyzing role.

In Cambodia, for example, strong public-private partnerships in supporting mobile finance has led to a tripling in the number of micro-financial institutions since 2011. These institutions have now provided loans to over 2 million new borrowers, representing nearly 20 percent of the adult population. Many of these citizens had never had a bank account. Now they can save for the future and perhaps even start a business of their own.

These are ideas that can work everywhere. But countries have to be willing to partner and learn from each other.

That is one of the major reasons why last October, the IMF and World Bank launched the Bali Fintech Agenda. The agenda lays out key principles — from developing financial markets to safeguarding financial integrity — that can help each nation as it strives for greater financial inclusion.

It is a model for international collaboration, much like this forum.

Conclusion

Let me conclude.

I began with a Chinese proverb. In the spirit of global connections, I will close with a western poet. The English poet John Donne, who wrote about the Silk Road, was right when he said, “No man (or woman!) is an island, entire of itself; every man is a piece of the continent, a part of the main.” [4]

Just like our history, our modern financial landscape reveals the enormous potential of better connections between nations and between financial institutions across borders. These financial connections can lead to new construction, new jobs, new opportunities, and, ultimately, the ability to achieve economic security.

If we find ways to harness the potential, we can build more prosperous, inclusive economies that benefit all.

Thank you very much. Xièxiè.