Chongqing - "Financial connectivity is very important for global value chains," said Jang Ping Thia, Lead Economist and Manager of the Economics Department at the Asian Infrastructure Investment Bank. "Improving infrastructure connectivity in Asia and promoting regional cooperation are important tasks for the AIIB."

Financial connectivity can help match capital supply and demand

"Currently, infrastructure development in Asia is uneven," said Thia. "So connectivity is essential to strengthen regional cooperation among economies and boost economic growth."

Thia said that a high level of financial connectivity could help match capital supply and demand, mobilize more external capital, especially attract private sector capital, and bring the capital to those who need it.

AIIB has already cooperated with global financial centers in Asia, including Hong Kong, Singapore, and Dubai. These robust financial centers can facilitate cross-border transactions in financial markets, resulting in more cross-border capital flows. 

Cooperation with these global financial centers can not only attract more private capital but also absorb investment risks, Thia continued.

Thia also found that many state-owned enterprises and financial institutions have significantly increased their financing capacity, and they have enough financial capacity and well management mechanisms to withstand market risks. 

The participation of state-owned banks or financial institutions with sufficient funds has increased some private sector capital's confidence in projects with long preparation times, large investment volume, and long payoffs.

The AIIB also invests in financial agencies, indirectly investing in sub-projects that meet the AIIB's green investment eligibility criteria and investment guidelines, mobilizing private institutional capital to provide channels to finance small and medium enterprises in emerging Asia.

The AIIB aims for cross-border connectivity projects to account for 25-30% of all financing approvals by 2030. The AIIB will target investments in transportation, water resources, energy resources, and digital networks to strengthen connections within Asian economies.

Financing transformation of green infrastructure construction

In order to reduce global greenhouse gas emissions and adapt to climate change, infrastructure construction must follow a green development path. " Financing green infrastructures and achieving a net-zero transition is a top priority for the AIIB," Thia explained.

The AIIB prioritizes investments in green infrastructure. Green infrastructure encompasses a range of investment areas, including renewable energy, low-carbon public transportation, management of water resources, sanitation and pollution control, and ecosystem services.

By directly or indirectly investing in projects promoting energy access and security, the AIIB helped AIIB member countries shift to a better environmentally sustainable energy mix, increased renewable energy generation capacity, and reduced dependence on fossil fuel power generation.

For example, the Zhanatas 100 MW Wind Power Plant, the first onshore wind power project of AIIB in Kazakhstan. The wind farm aimed to provide a sustainable and environmentally friendly renewable energy source for the region and realized the goal of producing three percent of total energy from renewable sources. 

"Carbon pricing is also crucial for the net-zero transition and sustainability," Thia added. 

Carbon pricing fundamentally changes the return on investment. It reduces the rate of return on carbon-intensive investments and increases the rate of return on green and less carbon-intensive investments.

A change in the rate of return is a significant price signal that can reallocate financial resources from more polluting industries, companies, and technologies to cleaner, greener projects, Thia continued. "This will encourage enterprises in various countries to innovate and develop low-carbon technologies and reduce greenhouse gas emissions, thereby achieving a high return on investment."