Tough ques­tions for China’s AIIB

The China Post - - COMMENTARY - BY KELLY OLSEN

China scored a diplo­matic coup by en­tic­ing al­most 50 coun­tries in­clud­ing key U.S. al­lies to join its new devel­op­ment bank, but an­a­lysts say au­thor­i­tar­ian Bei­jing now faces a daunt­ing task man­ag­ing a mul­ti­lat­eral in­sti­tu­tion for the first time, with mem­bers rang­ing from the Nether­lands to Nepal.

By Tues­day’s dead­line to seek found­ing membership of the US$50 bil­lion Asian In­fra­struc­ture In­vest­ment Bank (AIIB) a to­tal of 48 coun­tries and Tai­wan had ap­plied, the fi­nance min­istry and gov­ern­ments said.

They in­clude four of the five per­ma­nent mem­bers of the United Na­tions Se­cu­rity Coun­cil, 16 out of 34 mem­bers of the Or­gan­i­sa­tion for Eco­nomic Co-op­er­a­tion and Devel­op­ment (OECD) and all 10 mem­bers of the As­so­ci­a­tion of Southeast Asian Na­tions (ASEAN).

Con­spic­u­ous by their ab­sence are the United States and Ja­pan.

China al­ready has lead­ing roles in the Shang­hai Co­op­er­a­tion Or­gan­i­sa­tion that links it with Rus­sia and Cen­tral Asian coun­tries, and the BRICS group of emerg­ing economies — which also com­prises Brazil, Rus­sia, In­dia and South Africa.

But the AIIB “is on a whole dif­fer­ent level,” said Christo­pher Bald­ing, of Pek­ing Uni­ver­sity’s HSBC Busi­ness School.

“This is a lot more money, this is coun­tries that have a lot more in­flu­ence and ex­pect to be taken a lot more se­ri­ously.”

The sig­na­to­ries in­clude coun­tries closely tied to China such as Kaza­khstan and Myan­mar, but also some of Wash­ing­ton’s big­gest al­lies — Ger­many, the United King­dom, France, Italy and Australia.

With demo­cratic and mar­ket sys­tems they will have strong views on is­sues such as the en­vi­ron­ment, hu­man rights, cor­rup­tion and ef­fi­cient lend­ing.

China has basked in the en­thu­si­as­tic ac­cep­tances of its in­vi­ta­tions de­spite U.S. op­po­si­tion, but the victory could end up a case of “be care­ful of what you wish for,” Bald­ing added.

‘Talk softer and carry a large

purse’

“The more coun­tries like this that you bring on board the tougher it’s go­ing to be for you to con­trol and the more in­put those peo­ple are very rea­son­ably go­ing to ex­pect to have,” he told AFP.

Re­ports said a key part of Bei­jing’s ap­peal was a will­ing­ness to give up veto power over the bank’s de­ci­sions — which it said it was not seek­ing.

ANZ econ­o­mists said the AIIB could of­fer “a new ap­proach for Asia’s in­fra­struc­ture fi­nanc­ing,” with “more trans­par­ent and wellde­vel­oped prac­tice and poli­cies from ad­vanced economies.”

But there are en­dur­ing con­cerns over the open­ness of a bank helmed by China — which is led by an au­thor­i­tar­ian Com­mu­nist Party em­broiled in en­demic cor­rup­tion — and whether Bei­jing will want to use it to push its own geopo­lit­i­cal and eco­nomic in­ter­ests as a ris­ing great power.

Asia will need vast trans­port, power and telecom­mu­ni­ca­tions net­works in com­ing decades, cost­ing far more than ex­ist­ing mul­ti­lat­eral lenders such as the U.S.-led World Bank and the Ja­pan-led Asian Devel­op­ment Bank (ADB) are con­sid­ered able to de­liver.

An ADB study once es­ti­mated in­fra­struc­ture spend­ing de­mand at US$8 tril­lion be­tween 2010 and 2020.

Un­der Pres­i­dent Xi Jin­ping China, the world’s sec­ond-largest econ­omy, is push­ing to build on the an­cient Silk Road trade routes on land and sea, a “One Belt, One Road” ini­tia­tive ex­pected to be part­funded by the AIIB.

“Bei­jing is clearly pur­su­ing eco­nomic state­craft in a big way, cen­ter­ing its for­eign pol­icy on the strat­egy of what I’ve called ‘talk softer and carry a large purse’,” said Damien Ma, a fel­low at The Paul­son In­sti­tute in Wash­ing­ton.

‘Che­quered’ Record

The ap­proach is built around a “grandiose vi­sion of recre­at­ing the old Silk Road trad­ing routes to fur­ther in­te­grate Eura­sia eco­nom­i­cally,” he said in an email.

“All the newly formed en­ti­ties, AIIB, Silk Road Fund, BRICS Bank etc, should be viewed as ve­hi­cles that will sup­port this am­bi­tious en­deav­our in one form or an­other.”

China in­sists it has no ul­te­rior or self­ish mo­tives.

“The AIIB is a mu­tu­ally ben­e­fi­cial ini­tia­tive and is a ben­e­fi­cial com­ple- ment to the ex­ist­ing in­ter­na­tional eco­nomic or­der,” vice fi­nance min­is­ter Shi Yaobin said in a state­ment, promis­ing it will be built “in an open, trans­par­ent and high­ly­ef­fi­cient man­ner.”

The AIIB could erode the role of the World Bank and the U.S. and Ja­pan have so far re­fused to ap­ply, with Tokyo’s Chief Cabi­net Sec­re­tary Yoshi­hide Suga say­ing it re­mains “du­bi­ous” about gov­er­nance.

U.S. Trea­sury Sec­re­tary Ja­cob Lew in Bei­jing said Wash­ing­ton was still con­cerned over stan­dards, adding: “The ini­tial de­ci­sions of what kinds of projects are in­vested in will ob­vi­ously be a very im­por­tant sig­nal as to how it will pro­ceed.”

Given China’s ex­pe­ri­ence so far, such cau­tion may be war­ranted.

“The record of Chi­nese lend­ing to places like Africa and Latin Amer­ica, let’s just say is che­quered at best, whether in­vest­ing in projects that have ei­ther es­sen­tially de­faulted or are very ten­u­ous,” said Bald­ing, cit­ing a multi-bil­lion-U.S.-dollar deal for Venezue­lan oil in par­tic­u­lar.

Ul­ti­mately, some say that Bei­jing rec­og­nizes the need for a strong West­ern con­tri­bu­tion.

Ra­jiv Biswas, Asia-Pa­cific chief econ­o­mist at IHS, told AFP: “China would be happy to see this in­put, be­cause they re­ally want the AIIB to be suc­cess­ful.”

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