1. Financial Opportunities in MENA – One Belt One Road
Even though the world economic is sluggish, china’s FDI along the one belt one road is very active, (it reached USD14.8B,) with a high increase of more than 18% per annum in the past two years. Of course Chinese banks are all active in the financial projects along the one belt one road, so , How to benefit the growth together? That’s why I am here. My topic day :. I’d like to share the following information with you 。
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
.The jointly building one belt one road initiative was first raised by Chinese President Xi Jinping in late The plan involves 65 countries, representing a third of the world’s total economy and more than half the global population.
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
China plans to negotiate free-trade agreements with countries along the OBOR. Until now China has signed 12 free-trade agreements. The financial integration will promote financial cooperation and bilateral currency exchange and settlement. Thus, RMB internationalization will be accelerated. Let’s see how one belt one road influence the region? 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.
Upgrade will expand cooperation field and boost the bilateral trade and FDI accordingly 5 5 5

6. II. The economic and trade cooperations between China and Arab states
2.2 Trade with Arab states
2000, less than 1b, to 2014, 25b % per annum 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
After the 2008 financial crisis, Chinese FDI in MENA started to grow dramatically with an anannual growth rate of over 350%, until It was caused by Arab Spring, which made Chinese FDI to the region hit a five-year low (USD1.6Bin2012). However, it picked up rapidly since 2012.
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.
Total world FDI to MENA dropped by 51% in 2014 from USD93B in However,China’s share in total world FDI to MENA grew from 0.2% to over 6.6% during the same period
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
China began to permit islamic banking. (20m muslim) Qatar international islamic bank and Qatar national bank signed a MOU with china-based southwest securities to develop shari’a-compliant finance products in the country. It is certain that Chinese banks are more active in financing the projects under OBOR, The principles of OBOR initiative are open for cooperation and to all countries, it follows market operation. Therefore, it will create more financial opportunities for the market. For example, Dubai’s Hassyan clean coal plant is a project under OBOR, according to a report of reuters, Chinese banks are active in this project , and we can also find UAE local banks and other international banks involved. Chinese banks and financial institutions have its own advantage, we know china well, and local bank know this region well, thus we can cooperate and share the benefits
It is certain that Chinese banks are more active in financing the projects under OBOR, The principles of OBOR initiative are open for cooperation and to all countries, it follows market operation. Therefore, it will create more financial opportunities for the market. For example, Dubai’s Hassyan clean coal plant is a project under OBOR, according to a report of reuters, Chinese banks are active in this project , and we can also find UAE local banks and other international banks involved. Chinese banks and financial institutions have its own advantage, we know china well, and local bank know this region well, thus we can cooperate and share the benefits 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.
the most active currency in two countries . According to a report of Arabia monitor, 74% of oil transactions between China and UAE were settled by RMB. China and UAE signed a MOU for setting up a RMB clearing centre in UAE last year. Once the clearing centre had been set, higher increase of RMB payment maybe expected. 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 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 CDs issuance; 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. 2. Advance Payment Guarantee
4.4.2 Flow Chart of Construction Guarantee in an international construction project
Owner
Contractor
3. Advance Payment 5 6 6 1 2 4 1 2 4 5
1. Bid Guarantee
Contractor’s Bank
2. Advance Payment Guarantee
Owner’s Bank
4. Performance Guarantee
5. Payment Guarantee
6. Quality Warranty Guarantee 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
Construction industry usually costs occur earlier than the benefits, and have historically been considered high risk borrower. . As such, contractors is very difficult to get finance from the local bank, especially the SME. According to the law of UAE, the contrastor should be locally registered, this rules enhanced the difficulties of the contractor to get finance from the banks 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. 4.4.3 Flow Chart of Construction Guarantee
owner
contractor
3. Advance Payment 6 6 1 2 4 5 1 2 4 5
1. Bid Guarantee
How could we solve the problem?
Generally, about 2/3 of the contract value are materials . What if we changed the payment pattern? it will solve the contractor’s finance problem. How?
How could we solve the problem? Generally, about 2/3 of the contract value are materials . What if we changed the payment pattern? it will solve the contractor’s finance problem. How?
Contractor’s bank
2. Advance Payment Guarantee
Owner’s bank
4. Performance Guarantee
5. Payment Guarantee
6. Quality Warranty Guarantee 22 22

23. IV. Financial Cooperations with MENA Banks
4.4 Trade Finance Innovation
4.4.4 How to Change?
Separate the trade in goods from the project 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
USD 10M
Owner
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.
Owner
Contractor
USD 5M, USD 5M LC
, if the value of the materials occupies 60%, construction value will be 40%. Materials can be settled by LC. To be conservative, 50% payment can be settled under transferable LC, while the remaining still under guarantee. Let’s see what has changed for the contractor?
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
$5M LC
$5M
Contractor’s Bank
Owner’s Bank
Manufacturer's Bank
Documents
Documents
$5M
$5M
LC $5M
Documents
$5M LC
$5M
$5M
Documents
Product
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?
2. Is this possible? No, because the constructor give owner 10% performance guanrantee, if he failed to finish the project, he will suffer a lose of USD5m. Each LC amount is USD5m. If the contractor only sale the goods, do not construct the project, he can cheat only once. He will not receive the next LC. Then he will suffer USD5m lose, the owner will get USD5m plus the value of the goods. The total amount the owner pays periodically is the same. As long as the Lc amount is equal or less than the value of performance guarantee, the owner is safe 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 finished on time
Control the quality of material during the proceeding
May share the benefits of the constructor's saved financial expenses
image, infrastructure/energy infrastructure occupy about 52% of the investment, if a bank can meet the need of the customers in this field, it will have more opportunities than other banks.
Let cooperate and share the benefits together.
: image, infrastructure/energy infrastructure occupy about 52% of the investment, if a bank can meet the need of the customers in this field, it will have more opportunities than other banks. 29 29 29

30. Thank you! 30 30 30 For inquiries, please contact the following:
Let's seize the opportunity of growth and share the benefits together
For inquiries, please contact the following:
Corporate Department:
Chu Zhang
Treasury Department:
Sam Liu 30 30 30