The sources for capital and investment, and market access A role for private capital in meetings infra and energy needs? Mitchell A. Silk Symposium on Building the Financial System of the 21st Century: An Agenda for China and the United States May 19, 2017

Backdrop for inquiry Immense and urgent need for capital investment in US energy and infrastructure Private capital sources to meet this need State of China’s private capital markets Are China’s private capital (equity and debt) a realistic or effective source of capital to fund ODI in, as one sector of many, energy and infra in the US? If yes, how? If no, why? Barriers to growth and market linkage Regulatory constraints? Ability to execute? Depth of markets

Demand: Present capital needs Projection of capital investment needs for the US energy, infrastructure and water sectors Aggregate 2013-2030: $8.2 trillion Average annual investment: $455 billion Source: U.S. Chamber of Commerce, Page 14

Supply: US private placement market $47.1 billion in private debt capital markets financings in 2016 Full Year 2016 Placement Agent Amt ($mm) Mkt Share (%) Full Year 2015 ($m) Full Year 2014 1 BoA Merrill Lynch 10,354 19.6 11,593 21.3 10,860 21.1 2 JP Morgan 7,136 13.5 6,272 11.5 5,955 11.6 3 Barclays 4,368 8.3 4,329 8.0 RBS 3,803 7.4 4 Citi 3,812 7.2 Goldman Sachs & Co 3,798 7.0 3,499 6.8 5 3,323 6.3 Wells Fargo & Co 3,540 6.5 3,474 6 Mitsubishi UFJ 2,614 4.9 2,812 5.2 Morgan Stanley 2,392 4.7 7 RBC Capital Markets 2,535 4.8 2,627 2,138 4.2 8 2,258 4.3 2,474 4.6 US Bancorp 2,067 4.0 9 1,860 3.5 1,907 HSBC Holdings PLC 2,026 3.9 10 1,822 3.4 Scotia Capital 1,890 1,781 11 National Australian Bank 1,808 National Australian Bank 1,805 3.3 1,682 12 1,726 1,481 2.7 National Australia Bank 1,668 3.2 13 HSBC Holdings PLS 1,330 2.5 1,257 2.3 Societe Generale 1,529 3.0 14 Lloyds Bank 1,108 2.1 1,253 CBA 1,436 2.8 15 Commonwealth Bank of Aus 1,053 2.0 1,169 2.2 1,317 2.6 Total: 47,107 48,207 45,627 Source: Thomson Reuters and RBCCM

Supply: Commercial bank debt $33.8 billion in commercial bank financings in 2016 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Source: Thompson Reuters

Supply: US private equity

Supply: US private equity

Supply: US private equity $141 billion in dry powder available mid-2016

Supply: PRC commercial banks in the US PRC banks have achieved phenomenal growth in the US from 2010-2015 BUT represent on a small slice of the New York market in terms of size and coverage Not keeping pace with acquisitive nature of home country clients Foreign bank position in New York 2015 99 New York State licensed branches/agencies 28 Federal licensed branches/agencies $2 trillion in total assets PRC commercial bank position in New York Exponential asset growth from 2010 ($17.3 billion) to 2015 ($130 billion) 751% growth BUT represent only a small fraction of total foreign bank assets in New York

Supply: PRC private equity

Supply: PRC private equity $90 billion in dry powder available mid-2016

Supply: Depth of PRC investor market Flush with capital: High demand for new and diverse product offerings A few select figures PRC’s foreign exchange reserves was at a record high of USD3.03 trillion in 2017 the National Social Security Fund (NSSF), the PRC’s national pension fund, maintained total entrusted assets of $275.7 billion in 2015 capital investments in infrastructure and livelihood improvement by PRC insurance companies were at $239.8bn by the end of 2016 with several of the world’s largest banks by market capitalization, a vast network of branches across the PRC and internationally, and clients forming the core of the pool of investors onshore, PRC commercial banks also present considerable opportunities for PRC inbound and outbound asset management and investment In 2016, the total assets under management for Greater China based private equity funds reached more than $258 billion, representing approximately an 100% increase from 2012 In 2015, the aggregate capital raised by greater china focused private equity funds was $12.1 billion, representing a 45.74% decrease from 2012

Supply: Murky contours Capital outflows $725 billion in 2016 $1.7 trillion since 2015 (estimated) RMB globalization RMB: The new global currency? Exponential growth in monthly settlement amounts Game changer for asset management?

Barriers to growth and market linkage Regulatory constraints SAFE cross-border capital regulation Foreign asset manager market access Co-GP opportunities CFIUS Ability to execute: Investment advisory/asset management expertise Depth of markets Sourcing Due diligence Financial analysis Investment decision-making Structuring and documentation Exit

- President and CEO, US Chamber of Commerce Getting it right “Chinese participation in US infrastructure would enable the United States to leverage Chinese capital, industrial capacity and infrastructure experiences, while allowing China to help support and capitalize on the coming wave of US infrastructure redevelopment…. … although the opportunities are significant, achieving them will likely be complex. Chinese investment in certain sectors and in certain jurisdictions will prove more challenging than others. Identifying and pursuing potential investments, as well as anticipating challenges, will require planning and patience by Chinese parties and their US counterparts.” - President and CEO, US Chamber of Commerce “From International to Interstates: Assessing the Opportunity for Chinese Participation in US Infrastructure”

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