Eddie Yue: Investment in infrastructure is crucial to Asia's growth
Statement by Mr Eddie Yue, Deputy Chief Executive of the Hong Kong Monetary Authority
and Head of the Delegation of Hong Kong, for the 46th Asian Development Bank Annual
Meeting, Delhi, 4 May 2013.
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I would like to thank the Government of India for hosting the 46th Annual Meeting of the
Asian Development Bank (ADB). I wish to take this opportunity to pay tribute to Mr Haruhiko
Kuroda for his excellent work in leading ADB for more than eight years. We welcome the
appointment of Mr Takehiko Nakao as the new President of ADB, and look forward to
continue working closely with the Bank under his leadership in furthering the development of
the region.
Global economic sentiment has improved since the beginning of this year. The
announcement of further accommodative monetary easing by major advanced economies
has reduced tail risks and stabilised financial markets. But while the accommodative
monetary policy will help authorities buy time to solve the problem, it is by no means a
substitute for medium-term fiscal consolidation and structural reforms that are required for
the economy to regain competitiveness and return to a sustainable path. Looking ahead,
economic adjustments and deleveraging in both the public and private sectors are set to
continue in the advanced economies, and regional economies will increasingly have to look
to themselves for new sources of growth.
In this regard, a number of developing economies in the region will need to further invest and
upgrade their infrastructure to fully realise their growth potential. Infrastructure development
generates employment, improves access to basic services and economic opportunities,
promotes trade and investment, reduces the cost of doing business and encourages private
sector development. It raises income and helps reduce poverty by spreading the benefits of
growth more widely. The rising standard of living will in turn generate domestic demand,
providing a new source of growth even as global demand continues to slow.
ADB estimates that Asia needs as much as US$8.3 trillion in overall infrastructure investment
between 2010 and 2020, with an average of US$750 billion in annual infrastructure
spending. While the infrastructure needs are huge, Asia also has vast foreign reserves and
private domestic savings. Traditionally, these savings have not been channelled to meet
Asia's own financing needs directly. Most of the savings have been invested in advanced
economies before they are recycled back into the region. However, the global financial crisis
has changed the landscape. Investors are increasingly looking to diversify their portfolio to
this part of the world in the light of the faster growth and stronger fundamentals of the region.
So there seems to be no lack of appetite to invest in Asia. The question is how to channel
these funds to finance Asia's infrastructure investment needs. Creating an enabling
environment to facilitate private sector investment in infrastructure projects is crucial and
fundamental. Factors like certainty in government's sector development plan, clarity in
publicprivate partnership (PPP) framework, conducive legal, regulatory and institutional
environment, and capacity to develop and implement projects are key to attracting private
sector investors. ADB has an important role to play in capacity building, and through its
interventions, catalyse reforms and assist governments to develop an environment
conducive for private sector investment.
Given the high degree of perceived risk of long-term infrastructure projects, public sector
support is often needed to catalyse private sector investment. Provision of credit
enhancements and guarantees as well as PPP are common modalities of public sector
support, and more work should be done to find new and effective ways to catalyse private
sector investments. We are glad to see ADB's expanded efforts in mobilising private sector
investment under Strategy 2020. With the support of ADB, the ASEAN Infrastructure Fund
(AIF) established by ASEAN is expected to help mobilise private capital as well as the
region's foreign exchange reserves for financing infrastructure projects in the ASEAN
economies. While the AIF is newly set up and more time is needed to observe the
effectiveness of this model, the AIF represents a meaningful attempt by regional
governments to cooperate and find new ways to mobilise public and private savings of the
region to finance Asia's own infrastructure needs. We encourage further efforts in this regard,
and ADB, with its expertise and resources, is best placed to support such efforts.
Private sector infrastructure financing in the region has traditionally relied on international
bank lending, particularly from European banks. With the European banks facing
deleveraging pressure and retreating from the region, some Asian banks have stepped in
and increased their market share. However, there are questions as to whether Asian banks
can fully fill the gap. Recent regulatory changes may also reduce banks' appetite in long-term
project financing. Given these circumstances, there are benefits to further develop the capital
markets to complement bank financing and provide a channel to tap into other long-term
institutional investors such as pension funds and insurers. Policymakers in the region have
made steady efforts to develop the local currency bond markets. Along with the faster growth
and improved fundamentals of the region, there has been a rapid growth of the regional bond
markets in recent years. Notwithstanding this encouraging development, the capacity of the
regional bond markets is still limited when compared with the huge financing needs of the
region. Much work still needs to be done to develop a deep and liquid regional bond market,
including but not limited to expanding the issuer and investor types, gradual liberalisation of
barriers to entry of non-resident investors, promoting development of hedging tools,
enhancing financial infrastructure linkages, improving corporate disclosure and transparency,
and greater standardisation of legal and governance terms. Policymakers, as market
regulator and market facilitator, should further their work on these fronts.
Adequate investment in infrastructure is crucial to promoting the further growth of the region,
spreading the fruit of economic developments and raising the living standards of people in
Asia. Given the region's huge infrastructure needs, mobilising private sector investments is
important. Governments and ADB have a key role to play in promoting an enabling
environment for private investment. Making this right will enable the region's vast savings to
be efficiently channelled to fund its own investment needs, thus helping the region to realise
its full growth potential.
Thank you.