The Asian Infrastructure Bank, the brainchild of Chinese leader Xi Jiping, is being increasingly projected as an anti-World Bank and International Monetary Fund institution. But that is far from reality. Instead of challenging the old establishments, the AIIB, as it is known, seems to really fit into the global financial system.
Whereas institutions like the World Bank and IMF do have relatively big money bases, the funds are not exclusively for infrastructural development. This is where the AIIB stands to fill the gaps – in areas in which the conventional development banks seem to have paid less attention.
Whereas the World Bank could hardly spend $24.2 billion on infrastructural development in 2014, and the Asian Development Bank’s total spending across all sectors stood at US$21 billion, the US$50 billion reserved by the AIIB for infrastructure development stands fully reserved for infrastructural development. Therefore, instead of being a truly alternative system, the AIIB is a step towards filling Asia’s financial deficit, which according to an ADB estimate is about US$8 trillion over the next decade for energy, transportation, telecommunication and water sanitation.
It may not be as dramatic step as many believe. ADB officials have complained privately that the biggest problem with infrastructure spending in Asia is that too many of the proposed projects are riddled with fraud or badly planned, a condition that could plague the AIIB as well.
Nonetheless, on Dec. 4, at an annual China-South Korea Banking Development Forum in Shanghai, Chen Huan, head of the AIIB’s Multilateral Interim Secretariat, announced that when it was to begin raising capital on international bond markets at the start of the new year, the new bank would concentrate on energy, transportation, rural development, urban development and logistics. He also added that in the first year of operation the AIIB will move cautiously, issuing between US$100 million and US$500 million of non-rated infrastructure bonds. Jin Liqun, the president-designate, has stated that the AIIB plans to lend US$10 billion to US$15 billion a year for the first five or six years, a modest contribution to an $8 trillion deficit.
While these pronouncements certainly indicate the ‘intention’ of investing in Asia’s massive infrastructural needs, an important question that many observers of Asian politico-economic scene have since been raising is about the actual need for a development bank when Asia already has such an establishment in the Asian Development Bank. Why develop a new establishment instead of adding resources to the old one? What are the potential political benefits that China wants to reap out of AIIB?
While China’s official answer to the first question is rooted in Asia’s massive infrastructural funding gaps, the answer to the second question has always been, and is supposed to be, a tricky one in the sense that it involves China’s larger geo-political equation, which is not necessarily confrontational vis-à-vis the World Bank and the IMF, which are US-dominated, and the ADB, which is led by Japan.
Consider this: notwithstanding the China-Japan political rivalry, which certainly has deep historical roots, this rivalry does not create an ‘independent’ existence within the current system. Hence the need for a China-led financial institution to consolidate China’s own position within and outside Asia. This is what China’s economic diplomacy indicates. China’s decision to fund a new multilateral bank rather than give more to the existing ones also reflects its exasperation with the glacial pace of global economic governance reform. The same motivation lies behind the New Development Bank to be established by the BRICS (Brazil, Russia, India, China and South Africa).
Although China’s is now the biggest economy in Asia, Japan’s voting share in the ADB is more than twice China’s and the bank’s president has always been Japanese. Hence, the ‘need’ for China-led establishments to enhance China’s global standing.
The choice of Jin Liqun as the President-Designate of AIIB is quite interesting as well as meaningful. Jin also previously was Alternative Executive Director of China to the World Bank and the Vice-President of the Asian Development Bank. Either China wants to use his knowledge of the US-dominated system and all that is wrong with it to construct an alternative system, or China wants to use him to win support for AIIB from the erstwhile members of the old system as well as win approval for AIIB from the current financial masters of global economic system as a means to enhance China’s integration as well as role in running the system.
The latter speculation becomes somewhat credible when we take into account the recent announcement by Yang Zaiping, executive vice-president of the China Banking Association regarding the establishment of an Asian financial co-operation association, which would pave the way for Asia to have a greater say in global finance.
That China’s policies and the steps it has taken so far are geared towards integration rather than confrontation was also expressed by Zheng Yongnian, director of the East Asia Institute of National University of Singapore. China, Zheng says, has implemented its reform and opening-up policy to blend into the US-defined international order, wherein the US continues to treat it rather tactfully after initial attempts to block it.
The very fact that the US is beginning to accommodate China indicates the growing success of China’s policies. For a lot of people, the Dec.18 approval by the US Congress of long-awaited IMF reforms and the consequent enhancement of China’s share from a meager 3 percent to 8 percent indicates a possible change of heart from Washington, or at least a recognition of reality.
Although it would be too much to explain away this reform as a real change in US policy vis-à-vis China, it appears to be quite a significant step towards allowing China some space in the global financial system. While the US seems to be aiming at neutralizing the impact of various China-led initiatives such as AIIB by making way for China’s integration, for China this does not necessarily mean a complete success.
What China can certainly do is play the game tactfully, which is what the Chinese leadership seems to be fully mindful of. The dual strategy of limited integration within the US and Japan dominated institutions and maintaining a relatively independent existence through the AIIB as well as other steps taken in the same direction does indicate how China is manoeuvering. It is not establishing an alternative system. At the same time, it is not developing deep roots in the old system. Against the US’s dual strategy of accommodation and resistance comes China’s own strategy of limited integration and relative independent existence.