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October 28, 2014

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Home » Opinion » Foreign Views

Proposed Asian infrastructure bank could boost growth in emerging countries

By Dan Steinbock | October 28, 2014, Tuesday | Print Edition

THE proposed Asian infrastructure bank could galvanize growth in emerging Asia and boost lingering global recovery. Put forward by Chinese leaders in October 2013, the proposal for the Asian Infrastructure Investment Bank (AIIB) was first presented in public by Premier Li Keqiang in the Boao Forum for Asia last April. The multilateral institution would help fund infrastructure projects in Asia.

In June, China proposed doubling the registered capital of the bank from US$50 billion to US$100 billion, with half from Beijing and the rest from the other founding members. At the same time, China invited India to participate in the founding of the bank.

Meanwhile, Washington took an opposing view and began to lobby against the bank. Recently, these backroom efforts have mushroomed into a more open forceful campaign to reject the initiative. In August, Jin Liqun, the proposed Chinese leader of the AIIB and former head of China’s sovereign wealth fund (CICC), told US Ambassador to China, Max Baucus, to soften opposition to the bank.

Asia desperately needs infrastructure investments. American business has long advocated such investments. But politics is a different story.

In the past few months, three arguments have been used against the proposed Asian infrastructure bank. First, it has been criticized as a deliberate attempt to rival the World Bank and the Asian Development Bank.

In reality, neither of the two has the funds to support real infrastructure progress in Asia. Today, the ADB has an estimated US$78 billion in capital.

The World Bank is, in theory, owned by 188 member countries that have US$223 billion of subscribed capital.

In practice, the bank can loan some US$50 billion per year, which barely covers the annual financing gap for Indonesia’s infrastructure requirements alone between 2015 and 2019.

Sharing benefits

Second, the AIIB has been portrayed as Beijing’s geopolitical instrument to attract countries in Southeast, East and South Asia closer to China’s “sphere of influence.” In reality, China is offering to share the benefits of its development with the rest of Asia as Japan once did with Singapore, (China’s) Hong Kong, South Korea and (China’s) Taiwan, which subsequently became the high-growth “Asian tigers.” Today, the AIIB could play a similar role in energizing growth in emerging Asia.

Third, it has been argued that the proposed bank would not meet environmental standards, procurement requirements and other safeguards embraced by the World Bank and the ADB. This argument is misguided.

Western domination

After all, the existing multilateral institutions are dominated by the advanced economies, which continue to cause four to five times more pollution than the emerging Asian nations on a per capita basis. Since its birth, the chief of the World Bank has been an American, while the ADB has been led by the Japanese (and the IMF by Europeans).

The three financial institutions are led, owned and controlled by Western nations, which enjoy high living standards but low growth that no longer justifies those prosperity levels.

Haunted by debt and stagnation, the Western nations are not likely to adequately support emerging Asia — not to speak of emerging Latin America, Africa and the Middle East.

The US lobbying campaign has pushed its vital allies, including Australia and South Korea, into a difficult spot.

In contrast, Singapore has already signed up with the bank initiative. Overall, the AIIB could comprise some 22 countries in East, Southeast and South Asia, including several oil-rich nations in the Middle East, which China sees as Western Asia.

Despite half a century of lofty pledges, neither Washington nor Brussels has been too eager to live up to their promises to allow greater Chinese and emerging-economy participation in the existing multilateral institutions.

In brief, the AIIB is vital to ensure the modernization of emerging Asia. It is in the interest of China and Asia as a whole. It is not an effort against the World Bank or the ADB. It is an initiative for Asia.

 

Dr Dan Steinbock is the research director of international business at the India, China and America Institute (USA) and a visiting fellow at the Shanghai Institutes for International Studies (China) and EU Center (Singapore). For more, see http://www.differencegroup.net.

Foreign Views


 

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