The first project of China's $40 billion Silk Road Fund for investment in the Belt and Road initiative was unveiled on Monday during President Xi Jinping's visit to Pakistan.

The Silk Road Fund Co Ltd, a fund management company, has signed a memorandum of understanding with the China Three Gorges Corp and the Pakistan Private Power and Infrastructure Board to provide capital to construct the Karot Hydropower Project on the Jhelum River, in the country's northeast.

It is the fund's first investment project since being established in December.

The fund will inject capital and be a major shareholder in China Three Gorges South Asia Investment Ltd, a subsidiary of the China Three Gorges Corp, to support clean-energy development projects in Pakistan.

The fund will also provide loans to the project by joining a consortium led by the Export-Import Bank of China.

Karot Hydropower Station is a priority project within the broader China-Pakistan Economic Corridor initiative, proposed by Chinese Premier Li Keqiang in May 2013. The initiative aims to build a $46 billion, 3,000-kilometer route from the Xinjiang Uygur autonomous region, through the Karakoram mountain range and Pakistan's Balochistan, to the Gwadar Port, connecting China, Pakistan and the Arab world.

The project is also in stage four of the river's five-stage development plan, with an installed capacity of 720,000 kilowatts and annual power generation capacity of 3.2 billion kilowatt-hours. It requires investment of about $1.65 billion.

Chinese companies plan to develop a capacity of 3,350 megawatts along the Jhelum River through new developments and mergers and acquisitions, according to a statement from the fund.

Construction on the hydropower project "is to start by the end of this year and go into operation in 2020", the statement read. "The station will be operated by the Chinese side for 30 years and then transferred to the government of Pakistan".

As a market-oriented investment fund targeting medium- to long-term projects, the fund has key projects along the Silk Road Economic Belt and the 21st Century Maritime Silk Road and continues to find potential targets, the company said.

In November, President Xi announced during the Beijing Asia-Pacific Economic Cooperation meetings that China would contribute $40 billion to set up the Silk Road Fund. He stressed that the fund will be used to provide investment and financing support for infrastructure, resources, industrial cooperation, financial cooperation and other projects in countries involved in the Belt and Road initiative.

Chinese central bank governor Zhou Xiaochuan has described the fund as a "private equity" investor with a longer investment return.

Initial capital of the fund was $10 billion, including $6.5 billion from the foreign exchange reserve; $1.5 billion from the sovereign wealth fund, China Investment Corp; $1.5 billion from the Export-Import Bank of China and $500 million from the China Development Bank.

Jin Qi, chairwoman of the fund management company, said its projects will also support the development of Chinese high-tech and equipment manufacturing industries by helping enterprises go overseas.