The Sustainable Infrastructure Finance of China Development Bank: Composition, Experience and Policy Implications
With the establishment of the Asian Infrastructure Investment Bank (AIIB) and the New Development Bank (NDB), infrastructure finance has received tremendous attention in recent years. However, a substantial gap exists between supply and demand of infrastructure services in the developing world that cannot be satisfied by the public sector alone. The 2007-08 Global Financial Crisis and European sovereign debt crisis has significantly reduced traditional finance for infrastructure sectors, such as public expenditure and private bank lending. There is a clear opportunity for national development banks to help fill the gap.
A working paper by Yongzhong Wang conducts an in-depth analysis on the business models, loan compositions, cases, practices and policies of the China Development Bank (CDB) in infrastructure finance. The CDB is a successful and aggressive national development bank with significant achievements in infrastructure design, construction and finance.
The paper analyzes CDB’s business models in terms of assets, overseas transactions, debt issuance and crowd-in effect. The author also estimates the size and composition of CDB’s loans to infrastructure and sustainable infrastructure sectors. Through further examination of practices and policies, the paper puts forward policy suggestions to learn from the experiences of CDB. According to the author, the success of CDB in infrastructure finance can be attributed to six factors: planning in advance, highly integrating infrastructure investment to urbanization, helping local governments to create investment and financing vehicles, extending land, energy or resource-backed loans, cooperating with local governments to stimulate market development and helping developers to enhance the capabilities in infrastructure management. National banks should innovatively borrow from CDB’s experience in infrastructure finance based on their local conditions of economic and market development.