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The role of the AIIB in financing developing Asia

Editor: Zhang Dan 丨CCTV.com

04-01-2015 21:21 BJT

By CCTV.com reporter Devon Reid Mok

March 31st was the deadline to apply to become a founding member of the Asian Infrastructure Investment Bank (AIIB)--China’s latest foray into the realm of global development financing.

So far thirty countries have been approved as founding members, and the bank looks poised to take on the challenge of backing the multitudes of transportation networks, energy production centers, and telecommunications systems necessary to advance the incipient economies of East Asia.

This new China-led initiative is a groundbreaking addition to the present architecture of development-oriented finance now dominating the continent.

With an initial paid-up capital of US$50 billion, the AIIB will provide funding for infrastructure projects all throughout the region.

Still some have doubts as to whether or not this new bank will complement the presiding global economic order.

US representatives have voiced concerns that the AIIB may undermine the authority of existing development organizations in the region such as the International Monetary Fund (IMF) and the Asian Development Bank (ADB).

Addressing these fears, Baocheng Liu, Director of the Center for International Business Ethics at the University of International Business and Economics (UIBE), tells CCTV.com that the panic over rivalry among financial institutions is unfounded and merely hypothetical.

“While the Washington-based International Monetary Fund is a truly global financial institution for monetary cooperation and economic stability,” he says, “and the Manila-based ADB maintains a broad mission of poverty alleviation,the Beijing-based Asian Infrastructure Investment Bank, as implied by its name, is dedicated to infrastructure development.”

Top representatives of both the IMF and ADB agree that the AIIB poses no threat to their organizations, and they predict that the new bank will operate comfortably within the existing institutional framework of development financing in Asia due to its specialization in infrastructure.

“I wish the IMF could be in the business of funding infrastructure projects,” said IMF Managing Director Christine Lagarde at the March 2015 China Development Forum in Beijing. “This is not at all our business. So there cannot be any competition between the AIIB and [the IMF]. But there will certainly be cooperation, and we would be delighted to cooperate with this new institution.”

Asian Development Bank President Takehiko Nakao meanwhile announced that ADB would gladly work with the AIIB to address the financing needs of developing Asia.

While there might theoretically be overlap in the business scope of the Asian Infrastructure Investment Bank and other major financial institutions active in the same lane, Baocheng Liu of UIBE argues that the need for capitalization in the Asia-Pacific is so great that even should all three institutions empty all of their assets into the same market, they would still be unable to meet the enormous demand for development financing in the region.

Zhao Longkai, associate professor of finance at Peking University (PKU), believes competition itself should not be feared, and that it will likely have a positive impact -- especially when it comes to the cost of funding growth initiatives.

“The World Bank and ADB should be confident that they can match up to the Asian Infrastructure Investment Bank,” says Zhao speaking with CCTV.com.

Simply put, the AIIB’s specialization in infrastructure largely precludes it from engaging in meaningful competition with the IMF or ADB. Moreover, even if some friction between these organizations does occur, the financing needs of Asia are so vast and largely unmet that the benefits of increased overall investment in the region will far outweigh the irritations of occasional conflicts of interest.

The injection of a new competitive element into Asia’s development capitalization market may also promote more cost-effective spending of development funds.

As for Washington’s skepticism toward the AIIB’s commitment to proper governance and sustainable development, Baocheng Liu concedes that China still faces a learning curve in figuring out how to manage a multinational financial organization of such latitude.

“Nonetheless,China has pronounced clearly to the international community that its current equity position stands ready for dilution,” he adds.

According to Liu, with more participating members on the way, China will be open for consensus over the governance of the AIIB and its value proposition.

As Zhao Longkai of PKU explains, “the AIIB’s standards and efficacy are to be the responsibilities of all member states.”

Critics should remember that the Asian Infrastructure Investment Bank is supposed to be an inter-governmental institution, and that its shareholders will all have a say in how the organization approaches facilitating multilateral development in Asia.

Non-member states harboring concerns about the direction of this organization would probably be better off trying to influence the policies of the AIIB from within.

 

 

Panview offers a new window of understanding the world as well as China through the views, opinions, and analysis of experts. We also welcome outside submissions, so feel free to send in your own editorials to "globalopinion@vip.cntv.cn" for consideration.

Panview offers a new window of understanding the world as well as China through the views, opinions, and analysis of experts. We also welcome outside submissions, so feel free to send in your own editorials to "globalopinion@vip.cntv.cn" for consideration.

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