Buildings in the capital of Kazakhstan, including AIFC. Photo: Courtesy of AIFC

The members of China International Contractors Association (CHINCA) have offered a system to attract investments into green projects originating from Central Asia. The deals will be structured on the basis of the Astana International Financial Centre (AIFC), that has become the office of the Belt and Road Green Investment Principles initiative in Central Asia.

The pandemic has shown that one of the main global priorities over coming years should be the projects corresponding to the responsible investment principles (ESG, Environmental, Social, Governance). The last five years have seen global volume of green assets double reaching $40 trillion. This figure was voiced by the participants of Astana Finance Days financial forum in Kazakhstan organized by Astana International Financial Centre. At the forum, it was also announced that with the support from CHINCA, special base of ESG-compliant projects has been created. The base is accessible to a wide range of investors ready to invest in this category of projects. During Astana Finance Days, CHINCA members invited Kazakhstan companies to actively include their projects into the database in order to attract Chinese financing into green projects. 

Belt and Road Initiative becomes greener

The green finance market is one of the fastest growing segments of financial market today: in 2016 its volume according to Bloomberg was estimated at $22.8 trillion, while now it has reached $40 trillion. "These are the investments corresponding to the Green Investment Principles (GIP), developed in London in 2017 involving among others China Green Finance Committee," said Cheng Lin, Director of the Centre for International Cooperation of the Institute of Finance and Sustainability (IFS), Head of the Secretariat of the Beijing Green Investment Principles (GIP) Office for the Belt and Road.

China is striving to develop the green finance market especially under the Belt and Road project. To do so under the support of China International Contractors Association which includes many large Chinese corporations, a special online database was created allowing to find an investor for green projects from other countries.

"We expect to have even more projects from Central Asia that will be able to get financing as GIP members," Cheng Lin said.

He urged Kazakhstani companies to file requests if their activities correspond to green standards.

Cheng Lin also stressed that Belt and Road Initiative (BRI) is one of the largest sources of green investments and projects involving over 140 countries.

Creating the New Silk Way is one of the key BRI ideas, which would entail new logistic routes and economic corridors between Central Asian countries, Europe and Africa. This in turn will allow increasing the cargo delivery speed between these regions and China and cut the delivery term by six times from 60 days to 10 days. Kazakhstan has become an important spot for the BRI in Central Asia, first of all due to its geographic location: the main trade and transport routes from China to Central Asia and Eastern Europe lie through Kazakhstan. It is the Chinese cargo transit through Kazakhstan that became one of the main economic growth drivers for the country during the pandemic. Industry growth was not hindered even by the crisis-ridden 2020, on the contrary, the volumes of cargo transportation from China have grown by 23 percent reaching 21.6 million tons. Overall cargo transportation and oil transit provide Kazakhstan economy with over $2 billion annually, according to Kazakhstan National Bank.

Notably Kazakhstan is one of the most active participants of the Belt and Road projects in Eurasia. Throughout 2008 to 2018 the country has invested over $30 billion in creating the corresponding infrastructure. These funds also helped to organize five new rail and six automobile routes to transport cargo from China to Europe. The International Center for Border Cooperation Khorgos has become one of the important projects that are realized under the BRI and the state program of infrastructure development "Nurly Zhol". This new dry port has become an entrance point for the Chinese goods being shipped to Central Asia, Russia or Europe. Moreover, it should become a site to attract investments from China. To do so, in the beginning of 2021 an agreement on cooperation was concluded between Khorgos and AIFC, under which Khorgos is viewed as a site to attract Chinese investments under the auspices of AIFC. Being a free economic zone and offering favorable business conditions, Khorgos has proven its value with about 30 investment projects being implemented with a total worth over $258.6 million.

AIFC will ease the way for Chinese capital to promising projects in Eurasia

Chinese capital will be able to be invested in high potential projects in Kazakhstan and other Eurasian countries through the AIFC platform, where all the necessary conditions have already been created. These include opportunity to place securities in yuan on the stock exchange (AIX, Astana International Exchange). The Nur-Sultan branch of China Construction Bank (CCB Astana Branch) came as the first issuer of yuan bonds placing 1 billion yuan of securities denominated in Chinese currency in March 2020. The funds were used to finance local infrastructure and Belt and Road projects in Kazakhstan.

"The listing of CCB Astana Branch bonds came as an important result of the Kazakh-Chinese financial cooperation within the global BRI. This is a significant milestone that will contribute to the further development of the yuan settlement market in the AIFC, Kazakhstan and Central Asia," noted AIFC Governor Kairat Kelimbetov on the occasion.

Today, the AIFC aims to become a regional settlement center for the Chinese yuan in Kazakhstan. It was here where the BRI was first announced in 2013. The AIX Belt and Road Market Segment is a marketplace where yuan-denominated securities, including bonds, stocks and other products, can be listed and traded. The AIFC expects a surge in the number of different issuers offering securities in yuan, which will help to establish AIX as the main center for listing and trading of securities denominated in yuan for Central Asian countries.

At the same time, the AIFC pays special attention to the development of green financial instruments, with a special Green Finance Center established offering help to any company preparing to issue green bonds in preparing the necessary documents. This will cut the costs of preparing for listing by 30-50 percent (legal, financial consulting, underwriting, etc.). The center will also help to obtain a mandatory external review of green bonds confirming that the project for which the green bonds are issued meets the "green" project criteria. Without this external review, issuing green bonds is simply not possible. Business from any country in the world registered with the AIFC can receive support. At the same time, small and medium-sized enterprises from Kazakhstan, Uzbekistan and Kyrgyzstan have additional preferences. As part of the adoption of the Environmental Code of Kazakhstan, the AIFC introduced drafts of accompanying norms in the Entrepreneurial Code of Kazakhstan, specifying measures of economic stimulation for business to the use of green loans and green bonds. This includes subsidizing credit and coupon rates for the implementation of green projects. Currently, as part of the implementation of these financial support measures, work is underway to introduce amendments and additions to the Business Support and Development Program "Business Roadmap-2025", through which the abovementioned mechanism will be implemented.

Thus, Kazakhstan aims not only to facilitate access to promising projects for Chinese capital using the AIFC infrastructure and instruments, but also to develop the green financing segment, as a result stimulating Belt and Road projects to comply with the sustainable development principles.