Distinguished guests, partners and friends, good morning!
It is a great privilege to address the live audience here in Shanghai rather than talking to you through my computer. I wish the rest of the world could have the same luxury of getting together physically as we do here, mask free and social distancing shrunk.
The world today is faced with three formidable challenges. Covid-19 pandemic, global economic downturn, and debt sustainability. Climate change is certainly a very serious issue, but I do not put it alongside the above three. It is of a different nature. Climate change is not something which comes and goes. It is here to say. Unless, of course, things are done to mitigate it, without further delay.
The global economy looks dismal. China is the only country glowing with bright spots. The current economic downturn has little to do with the normal business cycle. This has been caused by the Covid-19 pandemic, a natural disaster, and a very special disaster for that matter. It is very much different from others, such as earthquake, tsunami, flooding or drought, which are localized and mostly short-lived. The Covid-19 pandemic holds a tenacious grip on the communities across the world, disrupting people’s normal business and life. Therefore, applying shots of big dose of stimulus will not shake many economies out of their torpor. The economic upswing is not likely to occur prior to the availability of safe and effective vaccine. Liquidity pumped into the economy will not make a big splash in creating more jobs and repairing the disruptions in the global production chain when social distancing is required and service sector is virtually a business desert.
To keep economies afloat, central banks have kept pumping liquidity into the system. Under the current circumstances, spending by the governments to tackle the pandemic is absolutely necessary. For many low-income indebted countries, however, the debt burden will get heavier. Liquidity and net capital inflows are part of the solution short term and part of the problem long term. That is why governments should keep their macroeconomic situations under close scrutiny. It is important to make the money do the right job and hopefully early recovery will improve debt sustainability years ahead down the road.
Over the recent decades, we the humans are making astounding strides in science and technology, developing AI which can greatly raise productivity and change our life in a fundamental way. Isn’t it ironic and frustrating that we have so far remained powerless facing this virulent virus? Billions of dollars have been put into the research for developing vaccines and the outcome has been less than encouraging.
What lessons can we draw from the Covid-19 pandemic? There are at least two lessons. Firstly, the pandemic has laid bare the weakest link on the chain of the economy, that is, deficiency in health care. Secondly, we need to probe the intricate pattern of relationship between climate and health hazards.
Covid-19 is a natural disaster. Natural disasters by definition is something which occurs naturally. However, it seems that what used to be natural is no longer so innocent. Very likely, a disaster is prima facie natural, but in essence is anthropogenic. Now is the time for us to look deeper beneath the footprint of the human activities and understand the cryptic association among diverse phenomena. A lot of uncanny occurrences can be traced ultimately to the human factor. The consequences of the human behavior may be invisible to our naked eye. But a series of natural disasters should alert us to the risks which are caused by none other than the humans themselves. I am no scientist, no medical doctor. But my job brought me to environmental degraded area or slums in some very poor countries, or even countries not that poor if measured by their per capital GDP. Finding yourself in those deplorable areas of human dwellings, you will have no difficulty understanding why bubonic plague, cholera, dengue, malaria, rabies and so on and so forth are endemic to those areas and why people are suffering.
Environmental degradation, disorder of ecosystem, extreme weather can combine to become the breeding ground for bacteria and viruses.
We should now wake up to the urgency of reconsideration of development approach – shifting away from the traditional paradigm of growth-centric, resources-consuming, environmental-impairing. We need to shift to a new development paradigm. It should be climate-smart and ecosystem-smart.
This leads me to the important topic of climate change. In this regard, we in AIIB would like to pay a special tribute to the Chinese government for their commitment and firm determination to implementing Paris Agreement on Climate Change.
In his recent speech at the UN Assembly, President Xi announced China’s step towards a net zero-carbon economy.
China is halting the rise in its CO2 emissions before 2030 and going carbon neutral before 2060. In other words, in less than 40 years the country would go from being the world’s largest emitter of CO2 to achieving balance between carbon emissions and reductions.
President Xi indicated China has turned the corner on the pandemic and will now return its focus on greening its economy. What President Xi has determined to do is one of the most important policy initiatives over the last 40 years. This firm determination reflects an important feature of Chinese reforms since the 1970s.
China is not the only country to declare that it aims to reach zero carbon within that time frame, but it is the most important country to do so. The announcement is coming at a time when the Paris Agreement is facing serious uncertainty in its implementation. The Agreement is either questioned or greeted with tepid enthusiasm.
China’s noble ambition is commendable, but the challenge is daunting. Some people ask: Is it credible? We are interested in China’s concrete actions for transition. We have confidence China has a track record of delivering on major initiatives.
Undoubtedly, the government will have to work with the private sector to mobilize resources to finance renewable energy. Monetary and fiscal policies should be designed and implemented in a way which should be amenable to R&D and the production of non-fossil energy. Financial institutions should be encouraged to provide financing for non-renewable energy projects.
To succeed in the transition to net-zero carbon, the Chinese society should work in unison. Corporations need to have clear plans and regularly check progress results. Significant investments are needed to strengthen the capacity of financial institutions to assess the carbon impact of investments and shift resources from climate laggard to climate leading firms. Incentives inside financial firms and nonfinancial corporations must reflect the net-zero objectives.
Financial institutions, be they state-owned or private, should focus their financial resources on supporting renewable energy rather coal.
The multilateral development banks (MDBs) should be in the forefront of these developments. Many are leading by example. I announced in an international forum that I will not consider financing projects related to coal-fired power generation. is an important signal in a part of the world where carbon emissions are rising. All of the MDBs are guiding their clients to reallocate resources toward climate change adaptation and mitigation. They can ramp up their efforts to leverage their capital and clout to reduce risk, promote technology and accelerate policy change in this direction.
AIIB was founded on the values of Lean, Clean and Green. These underpin our commitment to operating with a strong management approach that reduces waste and inefficiency, has zero tolerance for corruption and unethical behaviors and promotes a green economy and climate resilient investments.
AIIB’s mandate is financing infrastructure and other productive sectors. The Bank is agile, adaptive and responsive. One of the objectives of the Bank is promoting capital market development in Asia. Financial infrastructure is no less important than the physical one.
The Chinese government’s steady efforts to reform and open up the domestic capital markets and financial system are broadly recognized by the international community. And we want to do something to support China’s efforts.
AIIB is both a beneficiary of this opening up and a force contributing to it. AIIB issued its first Panda Bond in June. We were the highest rated issuer to issue Panda since the new National Association of Financial Market Institutional Investors guidelines were put in place. The pricing of this sustainable development bond was an unprecedented tight spread to China Government Bonds at only 7 basis points.
One small contribution AIIB made to the Chinese bond market is we were able to attract international investors into the China interbank bond market. The final investor distribution for our first panda bond was 65% offshore and 35% onshore. We are keen to continue to attract international investors and enable them to be involved in further panda issuances in the future.
It is also worth noting that our debut panda carried the COVID-19 pandemic prevention label in order to reflect the fact that the proceeds would primarily be used to disburse our first loan under our COVID-19 crisis recovery facility. This loan provided healthcare infrastructure to 2 municipalities here in China.
AIIB has issued 2 USD denominated SEC registered sustainable development bonds this year, both being executed in the context of our COVID-19 Crisis Recovery Facility (CRF). As we grow our presence in the capital markets, we have completed issuances in USD, CNY, TRY, RUB, HKD and others. We have engaged leading global underwriters, such as Goldman Sachs, JP Morgan, Barclays, TD Bank, Nomura, and of course, the Bank of China and Industrial and Commercial Bank of China.
Here in China we are very keen to continue to work closely with the local authorities to share our experiences in the international capital markets to play a role, where asked, in piloting international practices here domestically. We have had an intense dialogue with market regulators in preparation for the Panda bond launch and they have been keen to hear our experience and feedback as a supranational issuer.
As China’s financial system continues to integrate with rest of the world, there will be tremendous opportunity for China as a financing platform to support the needs of infrastructure finance in Asia and the world.
Thanks very much!
