Workers make steel cages at a construction site in Huai'an, Jiangsu province, China May 14, 2017. Reuters

MANILA - Countries who seek to borrow money from China through its 'Belt and Road' initiative will have to pay commercial rates, according to a consultancy firm that advises Fortune 500 companies about business in Asia.

"Much of that lending will in fact be made at commercial rates, not concessional rates," said Ben Simpendorfer, managing director of Silk Road Associates.

In the past, China offered other countries concessional loans with an interest rate of only 2 percent payable in 20 years.

But Simpendorfer said that China is unlikely to keep offering loans at concessional rates as it is also facing challenges at home such as shrinking foreign exchange reserves.

"So there will be a need for private logic to these projects, and that is of course always the challenge with infrastructure," Simpendorfer told ANC'S Market Edge with Cathy Yang.

FOCUS ON SOUTHEAST ASIA

While China seeks closer integration with Central Asian economies in its Silk Road initiative, Simpendorfer said that China is better off looking at Southeast Asia.

"Southeast Asia is perhaps the more interesting part of Belt and Road because, not only is the market large, but there is a history of private investment in infrastructure," Simpendorfer said.

"The Philippines is of course a great case in point, with a great number of PPP (public private partnership) projects already successfully executed. So I think that is where Belt and Road should be focused," he continued.

Simpendorfer also cautioned against politically-motivated lending, which he said may become a burden on governments. He reiterated that the private sector has to play a key role in China's Silk Road initiative as it is the private sector that will be funding most of the projects.

"We need actual projects that are actually producing commercial returns," Simpendorfer said.