China Resorts to Islamic Finance to Expand Economic Influence

Published Date : Sep 22, 2015

To strengthen its economic influence abroad, China is focussing on Islamic finance. Though in China, Muslim population is merely 20 million and the government has not been keen to develop Islamic banking in domestic market. However, for overseas market, Islamic finance is a key to bolster relationships with Muslim-majority countries. Also, by focussing on Islamic finance, Chinese firms can tap offshore Islamic funds. Presently, the country is focussing on its “One Belt, One Road” strategy that will see China rebuilding Silk Road trade links with Europe and Asia. The network aims to include countries in the Middle East and South East Asia where the prominent centres of Islamic finance are located. The sharia-compliant assets in these regions account for around one-fourth of total banking assets.

According to Ben Ping Chung Cheung, the Asia Pacific head of consultancy Shariah Advisory Group, the state-owned and private enterprises in China are more interested to explore Islamic finance owing to the ‘One Belt, One Road’ strategy. Shariah Advisory Group is advising HNA Group, a conglomerate, regarding a deal worth US$150 million to buy ships. If the deal goes through, it would be the first Islamic financing by a Chinese firm. Cheung added that the firm is also planning an offshore issue of sukuk (Islamic bonds). Similarly, a railway project in Shandong province is planning to issue sukuk worth 30 billion yuan for building a high-speed rail link. However, it is expectd that any Islamic financing would face stiff resistance from the domestic banks in China. 

For the Chinese firms, to tap the Islamic investors, it is important to learn the Shariah laws such as ban on paying interest. It is expected that the Chinese government participation in Islamic banking would be mainly through the Asian Infrastructure Investment Bank (AIIB).