ADB was not doing much lending before as Japan was too busy trying to put its own house in order
Suparna Goswami Bhattacharya
July 31, 2015: Since the day China announced its intention to set up Asian Infrastructure Investment Bank (AIIB), US has been skeptical about its intention. Same with Japan. Though initially, supporters were limited to developing countries, Britain surprised many when it announced its intention to become a founding member. Soon, Germany, Italy, France, Australia, South Korea and other developed countries joined the bandwagon.
The Asian Development Bank (ADB), led by Japan, has failed to keep pace with the region’s booming needs, but market players are optimistic that the AIIB will help plug the gap. In fact, Japan has been too busy putting its own house in order, and announced only a couple of months ago fresh funding for projects in Asia.
IFM spoke to Ann Lee, author of “What the US Can Learn from China”, and adjunct professor at New York University, about AIIB and what it actually intends to do.
What is the intention of setting up AIIB? What exactly is it expected to do?
China set up the AIIB to support the ASEAN’s proposal calling for more infrastructure investment in their region. The country will also be benefit as it has trillions of foreign reserves that currently earn almost no return which can be reinvested in infrastructure projects that will help China export its high technology capabilities, like high speed rail and highway construction management.
Some argue that the sole reason AIIB has been constituted is to counter the World Bank and IMF.
AIIB is not as large as the World Bank and IMF. However, over time, it may help the Asian economies have a bigger say as they continue to grow economically with AIIB’s assistance. How different will this bank be from the likes of ADB remains to be seen. Currently, Japan controls the ADB, and only after the announcement of AIIB did the ADB step up efforts to fund more investment in Asia. The significance of AIIB is not so much as it is different, but that it will fuel greater competition so that ADB will no longer be complacent.
How is AIIB different from ADB?
AIIB’s main difference from ADB is that it will be free from US coercion. ADB was not doing much lending because Japan was too busy trying to put its own house in order. After the announcement of AIIB, US was pressuring Japan to start lending more aggressively to preempt AIIB. It is a race to win more allies and influence in the region.
Though the US has not been particularly supportive of AIIB, why are US allies ready to join the group?
US allies will benefit from joining AIIB because they will get inside information as to which projects will be approved. Once they know, they can try to win lucrative contracts that are related to the approved infrastructure projects and thus generate more profit and jobs for their own countries.
Many say that infrastructure requirement in Asia is so huge that it is difficult for existing banks to meet the requirement. Do you agree?
Yes, because aside from China, many of the developing Asian countries have not made significant infrastructure investments. India alone would require hundreds of billions to upgrade its infrastructure.
Apart from China, which are the other countries that have a major stake in AIIB?
Both Russia and India want a larger share for different reasons. China and Russia together will represent over 30% of the voting rights. Since any project will require 75% votes to pass, nothing will get greenlighted without their approval. Russia would like more representation for political reasons.