By MA Junjie
When Mr. LOU Jiwei, China’s Minister of Finance, murmured his surprise of the number of tentative participants of Asian Infrastructure Investment Bank(AIIB) at the Boao Forum earlier this year, it seemed that China was not prepared to embrace the sudden popularity of a development bank it initiated. However, when the Articles of Agreement for the Asian Infrastructure Investment Bank(AIIB) were signed a few weeks ago by 50 countries(the other 7 of the 57 founding member countries did not sign due to the domestic procedures), you know it’s real. What adds to the unimaginable success of the venture is the construction site of the headquarters of the AIIB in Jinrong Street, a financial quarter of Beijing, close to the National Political Consultative Hall.
Unlike the doubts over various issues, such as the transparency of the bank operations, the governance, and the veto power of China, it seems those who were skeptical of the venture earlier are now fully onboard. Delegates from European countries expressed their high expectations for AIIB to be more of an example than other international financial institutions, such as the World Bank, the IMF, and the Asian Development Bank. Some pointed out the similarity between AIIB and the World Bank, or the Asian Development Bank.
The AIIB was initiated in order to boost investment in the construction of infrastructures of the region, originally Asian countries. However, what bothered the US and Japan, hegemony of the existing World Bank and Asian Development Bank, is that participation transcends beyond Asia. The founding members even include US’s NATO allies, Germany and UK. Besides, the AIIB is an open institution that welcomes new countries to participate, which opens opportunity for non-regional countries, like Greece which is a member of the International Bank for Reconstruction and Development (IBRD). Member countries like Iceland and Maldives set good examples for economically light-weighted countries to join the venture.
The Agreement was drafted by experienced lawyers, including Ms. Natalie Lichtenstein, who worked for the World Bank. This ensures it is in accordance to internationally recognised principles and practices. In terms of the operation of the bank, it stipulates that ‘the Bank may provide or facilitate financing to any member, or any agency, instrumentally or political subdivision thereof, or any entity or enterprise operating in the territory of a member, as well as to international or regional agencies or entities concerned with economic development of the region.’ It also leaves hope for international aid as in special circumstances, assistance to a recipient not listed above in the premise that the Board of Governors vote for a super majority. What this means for Greece is, funds and loans could be provided by the AIIB as long as a super majority is made by the Board of Governors. The catch here, however, is that the AIIB is, in principle, guided by sound banking principles in operations. Therefore, independence of the AIIB is highly unlikely to be compromised to take risky actions towards a troubled economy.
The AIIB initiative should be put alongside the Silk Road Fund and the ‘One Belt, One Road’ initiative. Chinese scholars have come around and been advocating that these initiatives should not be considered “strategies” in order not to stir suspicions and military overreaction. However, it is plain to see the ambition of the Chinese government. One domestic factor contributes to the establishment of the combination of initiatives. The fancy term of ‘New Normal’ fails to cover up the fact that economic slowdown is jeopardising China’s effort of restructuring. Overcapacity in multiple industries are a heavy burden, and a political and social conundrum for the administration. Therefore, such initiatives may help cushion the pressure and reallocate the stagnated resources in the mismatched industrial structure of the economy.
The Agreement clears the concern of many as it stipulates that the AIIB is a complement, instead of a replacement or challenger, to “the existing multilateral development banks” and the capital stocks, including the investments, are denominated in US dollars. What’s still at issue is how future operations of the AIIB will alter the landscape of the international financial institution. China is having a leg up for now, but the question of sustainability remains.