AIIB is primed to take a global role

China Daily (Canada) - - ANALYSIS - By ZHU NING

The Asian In­fra­struc­ture In­vest­ment Bank has been in business for more than a year now, af­ter a 15 month par­tic­i­pa­tory process. Be­sides spec­u­la­tion re­gard­ing par­tic­i­pa­tion in the fund, it also might not be clear to some­what the bank set out to do and to what ex­tent it will be­come a vi­able com­peti­tor in the ex­tant global eco­nomic and fi­nance or­der.

Some­how, the estab­lish­ment of the AIIB is jux­ta­posed with the China- led Belt and Road Ini­tia­tive, with sim­i­lar­i­ties in their em­pha­sis on in­fra­struc­ture in­vest­ment and their in­volve­ment with a large num­ber of coun­tries, par­tic­u­larly in Asia and Europe. In this sense, the AIIB is some­how con­sid­ered to be a part of China’s en­deavor to go global and com­mand in­creas­ing international in­flu­ence.

Be­fore one fo­cuses on the po­ten­tial geopo­lit­i­cal im­pli­ca­tions of the AIIB, it is prob­a­bly worth­while to fo­cus on its eco­nomic and fi­nance mis­sion. Con­sis­tent with the mes­sage de­liv­ered in the G20 Sum­mit in Hangzhou, Zhe jiang prov­ince, last au­tumn, there is in­creas­ing con­sen­sus that the global econ­omy is grad­u­ally grav­i­tat­ing to­ward a low growth era, in which tra­di­tional mon­e­tary pol­icy can no longer de­liver the much­needed growth that it did dur­ing the past cou­ple of decades.

Con­se­quently, global lead­ers agree that coun­tries should adopt more ac­tive fis­cal poli­cies to stim­u­late their re­spec­tive economies. Given the lack of in­fra­struc­ture in most de­vel­op­ing coun­tries and the lag­ging in­fra­struc­ture in some de­vel­oped economies, how to stim­u­late the econ­omy through in­fra­struc­ture in­vest­ment, a recipe for China’s fast eco­nomic growth miracle so far, seems to be a tril­lion dol­lar so­lu­tion for the global econ­omy.

How­ever, given the Euro­pean debt cri­sis and the US fis­cal cliff, both af­ter the 2008 global fi­nan­cial cri­sis, fund­ing for in­fra­struc­ture by sov­er­eign gov­ern­ments be­comes ever less at­tain­able. On the other hand, international or­ga­ni­za­tions, such as the World Bank, International Fi­nance Corp and the International Mon­e­tary Fund, are fac­ing their own bat­tle to re­form their re­spec­tive gov­er­nance and in­vest­ment phi­los­o­phy, and they do not have the nec­es­sary re­sources to sup­port an­other big wave of in­fra­struc­ture in­vest­ment.

The AIIB was prob­a­bly con­ceived un­der this grand scheme of set­ting up a new and al­ter­na­tive fi­nanc­ing ve­hi­cle through which in­vest­ment in in­fra­struc­ture projects, es­pe­cially in Asian and de­vel­op­ing coun­tries, could be­come pos­si­ble. The wide range of par­tic­i­pa­tion from not only Asian coun­tries prob­a­bly at­tests to the va­lid­ity of the idea around the world.

More im­por­tant, the broad rep­re­sen­ta­tion by dif­fer­ent coun­tries on the bank’s board and se­nior man­age­ment team dis­pels some con­cerns over whether the AIIB will be­come yet an­other in­vest­ment arm of China’s international ex­pan­sion. How­ever, it should have be­come clear by now that the AIIB is to­tally dif­fer­ent from China’s own international in­vest­ment and fi­nanc­ing pow­er­houses.

The State Ad­min­is­tra­tion of For­eign Ex­change, which still boasts $3 tril­lion worth of re­search as­sets, as well as the China In­vest­ment Corp, the coun­try’s sov­er­eign wealth fund, the China Devel­op­ment Bank and the Ex­port and Im­port Bank, all play an im­por­tant role in China’s overseas in­vest­ment and fi­nanc­ing for many of the coun­try’s overseas in­vest­ment and ac­qui­si­tion projects. These in­sti­tu­tions are all ex­clu­sively man­aged by Chinese na­tion­als and un­der China’s own man­date, some­times in­ten­tion­ally elu­sive from Western scru­tiny.

With in­creas­ingly tight con­trol over cap­i­tal flow, even these na­tional play­ers are hav­ing a dif­fi­cult time in de­ploy­ing their cap­i­tal overseas, which makes the AIIB and other international or­ga­ni­za­tions led by China valu­able com­ple­ments to China’s do­mes­tic fi­nan­cial in­sti­tu­tions.

The AIIB, on the other hand, has a very clear man­date for us­ing international cap­i­tal to fi­nance in­vest­ment in international in­fra­struc­ture projects. Not only that, but the AIIB is also com­mit­ted to adopt­ing international best prac­tices in its gov­er­nance, man­age­ment and risk man­age­ment prac­tices.

Fur­ther­more, it has al­ready em­ployed and is in the process of em­ploy­ing even more peo­ple from all of the world, which again makes it an or­ga­ni­za­tion that is dif­fer­ent from any other ex­ist­ing do­mes­tic player in China.

Of course, this is not to say that the AIIB does not have the longterm am­bi­tion of be­com­ing an­other World Bank or Asian Devel­op­ment Bank one day, or of play­ing a greater role in the international eco­nomic and fi­nance arena. With China’s sus­tain­able eco­nomic growth and in­creas­ing wealth, it is only nat­u­ral and ex­pected that China would have in­creas­ing in­flu­ence in global mat­ters, through eco­nomic and po­lit­i­cal chan­nels, with the help of international or­ga­ni­za­tions.

That said, given the AIIB’s size, cur­rent stage of devel­op­ment and China’s own eco­nomic trans­for­ma­tion, it will take a while be­fore the AIIB can be­come a very im­pact­ful player in the new global eco­nom­i­cal and fi­nance or­der.

One should not for­get how much time, ef­fort and ne­go­ti­a­tion it has taken the World Bank and Asian Devel­op­ment Bank to reach their cur­rent stages of op­er­a­tion and, even for them, it has be­come in­creas­ingly chal­leng­ing to find fi­nan­cially vi­able and eco­nom­i­cally in­stru­men­tal projects in the ever chang­ing world econ­omy.

The au­thor is deputy direc­tor of the Na­tional In­sti­tute of Fi­nan­cial Re­search at Ts­inghua Univer­sity.

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