By Kalinga Seneviratne*
Chinese President Xi Jingping officially launched on January 16 the much anticipated Asian Infrastructure Investment Bank (AIIB) describing it as a “historic moment” while his Finance Minister Lou Jiwei said in an interview that the launch of AIIB marked a milestone in the reform of the global economic governance system.
The $100 billion China-initiated bank took just two years to set up after it was initially proposed by President Xi during his visits to Southeast Asian countries in October 2013. In October 2014, representatives from 22 countries, mainly from Asia and including India, and strong U.S. regional allies – Philippines and Singapore – a signed a Memorandum of Understanding (MOU) to establish the AIIB and Beijing was selected to host Bank headquarters.
Japan and the U.S. immediately began to raise concerns about the proposed bank questioning its commitment to transparency and good governance. But, their attempts were dealt a severe blow when U.S.’s European allies including the UK, began lining up to sign as “founder members” in March 2015.
By December 31, 2015 when the list closed, 57 members have signed up to be founder members, among them 28 Asian and Arab countries, 13 European countries including Germany and France plus Russia, Australia and New Zealand.
Upset at UK’s initiative in roping in European allies, in March 2015, the Obama administration even went to the extent of issuing a statement calling upon the UK to “use its voice to push for adoption of a high standard” at the AIIB. In May 2015 Japan even went further by announcing that they would funnel $110 billion over five years via the Manila-based Asian Development Bank (ADB) to fund development projects in Asia, but was vague on how it will be spent.
It is well-known fact that China and most developing countries are unhappy with the U.S.-controlled World Bank (WB) and European-U.S. dominated International Monetary Fund (IMF) and Japan-controlled ADB. While China has been unhappy for sometime with the voting rights regime at the WB and IMF, developing countries have regularly raised concerns about the western powers, U.S. in particular, using these banks for political purposes.
President Xi reflected an upbeat mood in his opening address to the AIIB’s first Board of Governors meeting on January 16. “We are confident that when faced with the task of advancing world peace and development, so long as the international community has the will for consensus building and for win-win progress, we will be able to not only draw the big plan, but also turn it into reality,” he said.
He also said that the new bank would explore new business models and financing tools, and help member states develop more infrastructure projects that are of higher quality and at lower costs. The Chinese leader described the initiative as a Chinese attempt to make the international financial system more just and equitable.
“While developing countries make the mainstay of the AIIB membership, the institution also attracts a large number of developed members. Such a unique strength makes it a bridge and a bond to facilitate both South-South cooperation and North-South cooperation,” President Xi noted. ”The initiative to establish the AIIB is a constructive move. It will enable China to undertake more international obligations, promote improvement of the current international economic system and provide more international public goods.”
Chen Fengying, research fellow at the China Institute of Contemporary International Relations, told China’s Xinhua news agency that the opening of the AIIB marks China’s “shift from a participant of the global governance system to a contributor to it,” reflecting a shift in the country’s ability to manage global economic issues.
Vietnam has also welcomed the new bank. Tran Viet Thai, deputy director of the Institute for Foreign Policy and Strategic Studies told Xinhua in an interview that as a founding member, Vietnam was actively involved in setting up operational rules of the bank. He added that since implementing opening up policies in the past decades, “this is the first time Vietnam has been directly engaged in setting up a bank which has significant role in the region and the world”.
In an article in the People’s Daily, the official newspaper of the Communist Party of China, the bank’s President Jin Liqun, stressed bridging the digital divide between the regional and global economies would be the bank’s top priority. The bank will focus on digital infrastructure including fixed broadband networks, cross border and undersea fiber optic telecommunication cables, wireless sensor networks, satellite services, new generation mobile telecommunication networks, cloud computing and big data platforms.
“The Board of Governors will formulate policies based on the demand of members to help break down digital barriers and cultivate a new pattern of economic growth,” Mr. Jin noted. Transportation, clean energy, urban infrastructure, agriculture and logistics are some of the other priorities.
Pierre Gramegna, Luxembourg’s finance minister, speaking at the Bank’s opening ceremony said that the AIIB would be a boost to the Asian economy. “I can assure you, President Xi Jinping, that your initiative has received a lot of positive support from many members of the European Union,” he noted.
“The AIIB would enable China to join the international financial system, which would also include its efforts for the Chinese currency Yuan going more international and supporting the Silk Road Economic Belt. It would also enable China to take more global responsibility,” argues Dr. Yang Jin an associate researcher of Institute of Russian, East European and Central Asian Studies, Chinese Academy of Social Sciences.
Suma Chakrabarti, President of the European Bank for Reconstruction and Development (EBRD) who was in the audience during the January 16 launch, said in an interview with Xinhua that the Silk Road project this bank will to develop will reduce time taken for exports between China and Europe.
“If we can get the infrastructure moving this will reduce the costs of imports and exports both ways between China and Europe,” he observed, describing the formation of the AIIB as a “healthy additional international firepower for the international system.”
*Dr Kalinga Seneviratne is ASEAN Correspondent of IDN, the flagship of International Press Syndicate, for Asia-Pacific. He teaches international communications in Singapore.