Hong Kong’s success with Belt and Road investment opportunities lies with inclusion, efficiency, and competitiveness, says Victor LL Chu, Chairman and CEO of First Eastern Investment Group.
More than three decades ago, the entrepreneurial First Eastern Investment Group forged a path for Hong Kong companies to invest in the Chinese mainland. Now this private equity and venture capital firm helps mainland businesses explore opportunities for global ventures via the Belt and Road Initiative.
Hard-earned lessons and experiences from the past are today easing the way forward for mainland companies seeking partners and opportunities in international and emerging markets, the group’s Chairman and CEO Victor Chu said.
China’s plan to promote global trade via the Belt and Road Initiative’s land and sea routes includes massive infrastructure projects such as the US $32billion Gwadar Port Free Zone in Pakistan, financed through a Chinese government concessional loan.
Despite the vast amounts currently under negotiation for infrastructure projects in Thailand, Laos, Cambodia, Indonesia, Sri Lanka, Pakistan, Kenya, Ethiopia, Belarus, and Europe, these projects all involve Chinese government funds and local government partnerships.
What’s lacking from significant projects and proposals is private equity. Although many private investors are interested in taking advantage of Belt and Road opportunities, at this early stage of the Initiative’s development many are holding back, seeking more information or models for the commercial viability of such projects which still need to be developed.
“The Belt and Road Initiative is huge, with more than 65 countries signed on. It’s a 100-year programme. Right now the private sector is still quite wary because we are really just on the ground floor. The really exciting projects involving public-private partnerships or build-operate-transfer projects will probably take another 10 years,” Chu said.
“As an investor, if I was to consider investing in a Belt and Road project at this point of time, I would specifically target services and people providing legal, accounting, investment consulting, logistics and aviation businesses, given many frontier economy still lack land transport networks,” he said.
Deals with a social impact
First Eastern Investment Group has a unique approach to the Belt and Road Initiative and infrastructure.
“The Belt and Road is part of our China strategy. We look at infrastructure not just because it’s Belt and Road related but because we are always looking for an opportunity for us to add value over and above getting a reasonable economic return. We look where we can make a social impact. Therefore, infrastructure, environmental energy efficiency and renewable energy are things that naturally come into our radar.”
Specific ventures First Eastern Investment supports include Sustainable Development Capital, one of the leading investors in energy efficient projects in the UK and Europe, six energy efficiency projects that are part of a scheme sponsored by the Singapore Economic Development Board, and a mega solar project in Japan. It also funds renewable and sustainable energy development in Europe, Japan and Singapore.
More recently, the group has sought to invest in innovative fintech companies in Hong Kong and the Chinese mainland. Other projects include Japan’s first low-cost airline Peach that began operating in 2012. The firm remains the budget carrier’s largest shareholder. It’s also involved in the growth area of outbound tourism from the mainland.
“Social impact is important to us. Our overall return needs to include both economic and social returns. We are able to do that because we are predominately a family-run capital and investment firm. My generation looked for the best returns but the new generation is a lot more enlightened and wants inclusion, social justice and sustainability as well as attractive returns.”
Benefits for Hong Kong
Chu sees the Belt and Road Initiative as an opportunity for Hong Kong to promote itself as efficient, cost effective and competitive.
Creating partnerships is vital for building Hong Kong’s reputation and Chu believes that’s one area where Hong Kong is already ahead of the game with most of its regional competitors still focused on ASEAN.
He said Hong Kong has many strategic advantages as an international finance centre. Its legal system is ideally suited to handle cross-border disputes and arbitration. Much of the preliminary feasibility analysis and packaging needed to take advantage of Belt and Road opportunities, such as raising seed capital, will involve local, regional and international professionals familiar with Hong Kong.
Most of this business will naturally flow towards large service providers but Chu sees the challenge ahead as one of inclusiveness, of making sure small- and medium-sized enterprises are encouraged to participate in Belt and Road opportunities.
“We are at the forefront of this Initiative. Being part of China, and as its international capital market, Hong Kong naturally has a special place but we need to be imaginative about how this programme can help smaller local service companies. How can we find a way that is economic and value driven enough for these companies to go to frontier economies where projects may be good?
“We need to be practical and patient and take it step by step and we need to spread the word that Hong Kong is the place to be for the Belt and Road,” Victor Chu said.
