This document discusses opportunities for Islamic finance in the context of China's Belt and Road Initiative and the internationalization of the Chinese yuan. It outlines China's growing economic cooperation with OIC countries and initiatives like the Asian Infrastructure Investment Bank that are financing infrastructure projects in several Muslim-majority nations. The document argues that Islamic finance principles could help finance projects along the Belt and Road through instruments like cross-border yuan-denominated sukuk bonds. Overall, the author sees economic cooperation under the Belt and Road and yuan internationalization as a historically significant opportunity for closer China-OIC ties, where Islamic finance can serve as a catalyst.

1. China’s Belt & Road Initiative, RMB
internationalization and Islamic
Finance opportunities
Sulaiman Liu Jiujiang
20th Oct. 2016

2. Agenda
• Who we are?
• China-OIC Economic Cooperation
• “B&R”
• Current Economic Situation and Benefits of B&R Initiative for All
• RMB Internalization, Issues and Cost
• Opportunity for Islamic Finance in context of B&R and RMB
Internationalization
• Consolidation of FTA and relations with OIC
• Concluding Remarks

3. Who we are?
The first ethical investment advisory firm based in China
• Advocate Islamic finance
• Shariah compliant consultancy
• Milestone in China
• Gateway between China & OIC
• “B&R” and Internationalization of RMB
Think Tank
• Leading new media platform to
access Islamic Finance knowledge
and marketing intelligence
• largest online database
• 2000+ articles in Chinese language
• 10,000+ followers
• Solid local resources & knowledge
• Serve the “B&R” initiative and Islamic
Finance development in China.
 China EPC companies,
 Financial Institutions,
 Halal manufacturers,
 Biotechnology industries,
 Alternative Energy industries,
 Oversea investment banks,
 Top-academic/training institutions,
 Think Tanks,
 Muslim/Non-Muslim investors
along the “Belt & Road” countries

4. China-OIC Economic Cooperation
Observer Member
Trade exchange
$500 billion in 2011
• Thousand years of history (Cheng Ho)
• 25 million muslim population
• 2nd largest economy
• 2009 RMB internationalization
• 2013 the Belt & Road
• (27 out of 65 are Muslims countries,
plus significant Muslim population in
India, Russia, Kenya, Tanzania )
Malaysia, Indonesia, Turkey, Pakistan,
Iran, Saudi Arabia & Nigeria
Islamic Finance: the Catalyst

5. “B&R”
The Silk Road Economic Belt and the 21st-century Maritime Silk Road:
B&R reconnect China and ASEAN, Central Asian, MENA and European countries.
In just 30 years,
China has developed
from a poor inward-
looking agricultural
country to a global
manufacturing
powerhouse and the
world’s largest
trading nation and
second-largest
economy, and even
the largest economy
by PPP.

6. B&R
Silk Road Fund Asian Infrastructure
Investment Bank
New Development
Bank
China Africa development
Fund
Anticipated cumulative investment over an indefinite
timescale is variously put at US$4 trillion or US$8 trillion.
“B&R”

7. Current Economic Situation and
Benefits of B&R Initiative for All
• Purchasing Power Parity:
largest economy
• 1.376 billion population, the biggest &
fastest growing consumer market
• Export: $2.342 trillion 2014
• New Normal: GDP Growth 7-6%
• Rich experience & competitive advantage
 surplus manufacture capacity and
industry upgrade, due to consistent
surplus in balance of payments (BOP)
Investment aboard:
Steel, cement, build high-speed railways and trains, electronic appliance,
telecommunication, infrastructures, dams, bridges, highways, etc. In
emerging markets along B&R countries, with real market demand.

8. With the projects partially financed
by China/international financial
institutions or through PPP mode
of operation, the cycle can help to
boost local employment, people’s
income, skilled labor force, public
and private sector to grow,
industry and infrastructure
development, promote economic
development and ultimately
alleviate the living standard and
wellbeing of the people.
Current Economic Situation and
Benefits of B&R Initiative for All

9. Technology transfer to other countries
Current Economic Situation and
Benefits of B&R Initiative for All
Chinese philosophy: mutual benefits, win-win for long lasting co-operation.

10. RMB Internalization, Issues and Cost
2009
2013
2014
2014
Nov
2015
Feb
China established dim
sum bond market and
expanded Cross-Border
Trade RMB Settlement
Pilot Project
The RMB was the 8th
most traded currency in
the world and the 7th
most traded in early 2014
RMB has ranked
5th as the most
traded currency
RMB became the 2nd most
used currency for trade and
services, and reach the 9th
position in forex trading

11. RMB Qualified Foreign Institutional Investor (RQFII)
Country Time Quota
(billion)
the UK 15 Oct. 2013 ¥80
Singapore 22 Oct. 2013 ¥50
France 20 Jun. 2014 ¥80
South Korea 18 Jul. 2014 ¥80
Germany 18 Jul. 2014 ¥80
Canada 8 Nov. 2014 ¥50
Malaysia 24 Nov. 2015 ¥50
Australia 27 Jan. 2016 ¥30
Swiss 29 Sep. 2016 ¥7
Luxemburg 27 Nov. 2015 ¥10
Hong Kong Nov. 2014 ¥270
RMB Internalization, Issues and Cost
 SSE – HKEx link,
 SZSE – HKEx link,
 SSE – LSE link
The China's RMB internationalization
and foreign exchange (FX) reforms
are evolving rapidly and full
convertibility is expected over the
next couple of years.

12. RMB Internalization, Issues and Cost
China’s bilateral currency swap agreements with other central banks
Bilateral currency swap agreements
help enable trade settlement in
RMB with improved operational
efficiency, lower transaction costs,
and ensured market confidence.
more than 30 bilateral currency
swap agreements since December
2008. As of May 15, 2015, the total
value of effective currency swap
agreements was RMB 2.9 trillion
(US$ 468 billion).
RMB has officially been included by
the IMF to SDR as a global currency
weighted after USD, Euro, before
Japanese Yen and UK Pound. This
recognition had been given due to
accelerated internalization of RMB.

13. Malaysia offshore RMB clearing hub
SWIFT
RMB trade settlement
October 2013
￥3 billion
(tripled since 2010)
RMB deposit ￥10.7 billion
FX volume
$580 mIllion per day
(more than ten and
fifteen fold since 2010)
SWIFT ranked Malaysia as top ten offshore RMB centers July 2014
Malaysian firm‘s RMB
Bond issuance reached
￥4.4 billion in mid-2014.
The Bilateral trade volume between
China and Malaysia is over $100 billion
and projected to grow to $160 by 2017.
RMB Internalization, Issues and Cost

14. RMB Internalization, Issues and Cost
According to BNM, To facilitate international
trade, Malaysia's settlement system allows for
the settlement and clearing of securities in RM,
USD and RMB since 2009.
All current account (goods and services)
transactions are eligible for trade settlement
in RMB.
This may reduce the foreign exchange risk for
exporter and importers from China and this
can result in better pricing of goods and
services transactions for Malaysian companies.
The same applies to all other major trading
partners with China where there is currency
swap arrangement in place.

15. The road to the RMB Internationalization
RMB Internalization, Issues and Cost
The size of the home economy must be large relative to others.
Economic stability in the form of low inflation, small budget deficits and stable growth.
——China’s record of supportive government policies and macro-economic stability has
undoubtedly contributed to the RMB’s appeal in recent years.
Strong official and institutional support.
USD & Bretton Woods system, China's effort on CSA, PBoC to strengthening financial
regulations, establishing a deposit insurance scheme, improving market-driven exit
mechanisms for financial institutions, while pushing forward reforms.
Deep, open and well-regulated capital markets are necessary. to finance trade, provide a
large enough market in securities for investors. The progress of opening up of China's
onshore capital market for RMB to become a major investment currency has been slow.
A global and widely held reserve currency needs greater access for foreign investors to
local capital markets, deeper global RMB liquidity and wider cross-border flow channels.

16. Opportunity for Islamic Finance in context
of B&R and RMB Internationalization
Hong Kong AAA government Sukuk
Time Size Tenor Structure
September
2014
$1 billion 5 years Ijarah
June
2015
$1 billion 5 years Wakalah
RMB Sukuk insurance
Issuer Time Size Tenor
Khazanah
October
2011
￥500 million 3 years
Axiata
September
2012
￥1 billion 2 years
 Shariah compliant
 Underlying assets
 Long-term stable
 Infrastructure projects
 For Sukuk & investment portfolio
The proposed Cross-Border/Offshore RMB
Sukuk Fund can be set up to finance the
infrastructure projects along the B&R countries
and meanwhile to provide a better investment
channel for offshore RMB clearing hub like
Malaysia and Qatar.
Governmental level:
• Asian Infrastructure Investment Bank (AIIB)
• Islamic Development Bank (IDB)
*Subscribed 42% by Middle Eastern, 43% by Asian and 15% by European Investors or 77% by
Banks & Fund, 23% by Sovereign Fund, Central Banks and International Organizations

17. Issues
• China is not the key jurisdictions of Islamic Finance development, concerns from legal and
tax perspectives
• Although China has begun to open its financial market to the international investors, it still
not fully liberalize. controlled capital account of the balance of payments and financial
system.
• The establishment of cross-border financial infrastructure linkages to facilitate the
movement of capital between China and GCC is still at infancy stage, i.e. the trading,
payment, clearing and settlement systems for financial instruments and money flows.
• Developing a robust network of safe and efficient financial infrastructure will benefit both
conventional and Islamic financial markets by reducing the uncertainties and risks
associated with cross-border financial transactions, thereby providing a favourable
environment conducive to further financial development between China and OIC countries.
However, Islamic Finance expansion and RMB internalization are natural allies,
mutually complementary.

18. Consolidation of FTA and relations with OIC
China and ASEAN FTA
• Long history of trade relationships, initiated 1st Jan 2010
• Average tariff drop from 9.8% to 0.1%, became main trading
partner for several ASEAN members
• With 1.9 billion population, GDP$6 trillion, trade volume $ 4.5
trillion, most populated and 3rd largest FTA in the world,
China-Pakistan FTA
• FTA took effect in July 2007
• Agreement on Trade in Service which enforced since 10th of
October 2009
• China-Pakistan Economic Corridor (CPEC)
China-GCC FTA (still under negotiation)
• the launch of China-GCC Free Trade Agreement negotiations
Agreement in July 2004
• Negotiations on trade in services in 2017
• $160 billion to over $500 billion after the signing of FTA

19. Current Projects under B&R
• Infrastructure projects $1.2 trillion
AIIB, the Silk Road Fund, Chinese commercial banks and financial institutions
• OBOR projects across 60 countries in EU and Asia $900 billion
State-owned China Development Bank
• Pakistan major ports at Gwadar, Karachi & Qasim $46 billion
Bilateral funding commitments

20. High-profile infrastructure projects in
several OIC countries financed by AIIB
Approved Projects
i. Pakistan: Tarbela 5 Hydropower Extension Project
ii. Bangladesh: Distribution System Upgrade and Expansion Project
iii. Pakistan: National Motorway M-4 (Shorkot-Khanewal Section) Project (Co-financed with the
Asian Development Bank)
iv. Tajikistan: Dushanbe-Uzbekistan Border Road Improvement Project (Co-financed with the
European Bank for Reconstruction and Development)
v. Indonesia: National Slum Upgrading Project (Co-financed with the World Bank)
Proposed projects
i. Oman: Duqm Port Commercial Terminal and Operational Zone Development Project
ii. Oman: Railway System Preparation Project
iii. Indonesia: Regional Infrastructure Development Fund Project (Co-financed with the World Bank)
iv. Indonesia: Dam Operation, Rehabilitation, and Safety Improvement Project (Co-financed with
the World Bank)
v. Kazakhstan: Center South Road Corridor Project (Co-financed with the World Bank)

21. Concluding Remarks
• Strong cultural and economic connection
• Natural Alliances &Mutually Complementary
• Economic cooperation under B&R and RMB Internationalization would benefit
both parties and Islamic Finance be the preferred mode of financing, serving as
the catalyst to China-OIC Financial & Economic Cooperation.
• B&R initiative, is a historical redefining opportunity for China and OIC countries
relationship and co-operation, which will require B&R, especially major OIC
countries' partnership and cooperation, to achieve great win-win economic and
political benefit for both China and OIC countries.
Islamic Finance & RMB
the Catalyst

22. THANK YOU