By Zhang Monan, assistant researcher of China Center for International Economic Exchanges
Recently, many countries including the United Kingdom, Germany, France and Italy, have expressed their willingness to join the Asian Infrastructure Investment Bank (AIIB) as founding members. Other countries like Luxembourg, Saudi Arabia also intend to send their applications. And we cannot rule out the possibility of Australia and South Korea rushing in at the last minute.
Nowadays countries worldwide are undergoing rapid and comprehensive changes in the post-financial-crisis era. The global development is not lacking of the driving force. The key problem is that no new concepts of growth and cooperation emerge to guide the development. In this sense, the establishment of AIIB comes at the right time.
From the perspective of the global economic landscape, regional integration is deepening, but the low level of infrastructure development and the lack of connectivity serve as a bottleneck constraining economic development. Many countries are facing a huge financing gap in infrastructure construction and the channels, modes, subjects and mechanism for financing still need to be improved and perfected. These problems should be effectively solved to realize sustainable economic development in Asia as well as the world at large.
However, needs are not satisfied at present. The World Bank, Asian Development Bank and other multilateral development institutions are focusing on reducing poverty at the global level and in regional areas, and offer very limited funds for infrastructure construction programs in Asian countries.
In 2013, the Asian Development Bank only provided $21 billion in loans. Even when we combine funds given by the World Bank, other similar organizations and developed countries through official development assistance (ODA), the financing gap remains large.
In addition, due to the profit-driven nature of capital, global private financial institutions’ infrastructure loans are mostly invested in mature assets in developed countries, while most developing countries and some emerging economies, Asian countries included, still find it difficult to satisfy their financial demands for infrastructure construction programs.
In particular, cross-regional connectivity is different from large construction projects within a country. Regional or sub-regional connectivity programs such as the Asian Highway Network and Asian Railway Network, due to many participating countries, large investment and no return of profits for quite a long time, face difficulties getting going. These programs will be successful only when multilateral development institutions coordinate with each other and enough investments flow into the programs.
In Asia, infrastructure development is still lagging behind the economy, and is lower than the international level in terms of quality and quantity. This has caused serious constraints on economic growth in Asia.
The Asian Development Bank predicts that in the next 10 years Asian infrastructure construction funding needs $8.22 trillion, or in other words, infrastructure funds will be $820 billion annually. Nevertheless, in 2013, excluding China, Japan and South Korea, the total GDP of other Asian countries was about $8 trillion.
According to World Bank statistics the amount of investment in low-and middle-income?countries accounts for about one quarter of their GDP, of which only 20 percent, or $400 billion, goes to infrastructure development. Hence the huge financing gap still exists.
The Asian Development Bank, the only bank offering loans for Asian infrastructure construction programs, only lent $21 billion to Asian states in 2013. Even if the loans of the World Bank, other similar organizations and the ODA of developed countries are taken into account, it is still difficult to make up the financing gap.
Therefore, with these difficulties, it is necessary to build a special fund for infrastructure construction programs. China took the initiative by establishing AIIB. AIIB is an inter-governmental institution for the multilateral development of Asia. It aims to promote infrastructure construction, connectivity, economic integration and common prosperity in the Asian region. AIIB is also a multilateral financial institution and specialized investment and financing platform for infrastructure development in Asian countries.
China proposed the AIIB should adhere to open-end multilateralism and welcomed Asian and other economies to participate under the principle of “Asian countries preferred, others follow.” AIIB’s objective, members organization, equity distribution, organization structure and governance framework all follow the existing operational procedures and standards of international multilateral development banks in order to build an inclusive, open, transparent and new global financial institution.
Therefore, more and more Asian countries and even non-Asian countries have joined AIIB and are eager to be founding members. It reflects their trust in AIIB and its good prospects for development in the future.
The establishment of AIIB can not only provide highly efficient and reliable long-term financial support for Asian economic and social development but also strengthen infrastructure construction as an engine of economic growth. It will also improve the efficient utilization of capital in Asia through leverage so as to promote construction of all-round connectivity in the region.
From the view of the development trend of building diversified investment and a financing system framework, the establishment of AIIB is complementary to the existing financial system rather than a rival. In addition to existing investment funds in China which can play a greater role in infrastructure financing, some long-term funds or various innovative financing tools can be issued. In particular, we should actively promote Public-Private Partnership (PPP) to encourage and attract the private sector to invest in infrastructure programs.
As for some infrastructure programs which need a large amount of investment, we can turn to the medium-and-long-term loans of international financial organizations, government’s fiscal funds, sovereign wealth funds, pension funds and joint financing of financial institutions. In the final analysis, AIIB will play the role of financing booster and catalyst for global sustainable development.
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