June 24, 2014 7:54 pm
China pushes for World Bank rival
By Jamil Anderlini in Beijing
©Reuters
Chinese bullet trains
China is aggressively expanding plans to establish a global financial institution to rival the World Bank and the Asian Development Bank, which Beijing fears are too influenced by the US and its allies.
In meetings with other countries in recent weeks, Beijing has proposed doubling the size of registered capital for the proposed bank to $100bn, according to two people familiar with the matter.
So far, 22 countries across the region, including several wealthy states in the Middle East – which China refers to as “West Asia” – have shown interest in the multilateral lender, which would be known as the Asian Infrastructure Investment Bank. It would initially focus on building a new version of the
“silk road”, the ancient trade route that once connected Europe to China.
Most of the funding for the lender would come from China and would be spent on infrastructure projects across the region, including a direct rail link from Beijing to Baghdad.
China’s push for a regional institution that it would control reflects Beijing’s frustration at western dominance of the multilateral bodies. For years, Chinese leaders have demanded a greater say in institutions such as the
World Bank, IMF and Asian Development Bank, but changes to reflect China’s increasing economic importance and power have been painfully slow.
“China feels it can’t get anything done in the World Bank or the IMF so it wants to set up its own World Bank that it can control itself,” said one person directly involved in discussions to establish the AIIB. “There is a lot of interest from across Asia but China is going to go ahead with this even if nobody else joins it.”
The initiative to develop a World Bank rival comes as a UN report predicts that
outward investments from China will overtake inward ones as soon as this year, as more Chinese companies move overseas and bring an end to more than two decades of net flows into the country.
How will China’s regional development bank work?
Proposal stems in part from China’s frustration with the ADB bureaucracy, writes Gavin Bowring of Asean Confidential
The AIIB would provide a direct challenge to the Manila-based ADB, which China feels is far too influenced by its rival Japan. If it was established with $100bn, as proposed by Beijing, the AIIB would already be about two-thirds the size of the $165bn ADB.
Japan and the US are the largest shareholders in the ADB with 15.7 per cent and 15.6 per cent respectively and the president of the bank has been Japanese since its founding in 1966.
Among the ADB’s 67 member countries, China holds just a 5.5 per cent share even though its economy surpassed Japan’s in dollar terms in 2010 to become the world’s second biggest.
China has discussed its plans for an AIIB with countries in Southeast Asia, the Middle East, Europe and Australia and it has also contacted the US, India and arch-enemy Japan, according to people familiar with the matter.
But these people also said the bank was specifically intended to exclude the US and its allies or at least greatly reduce their influence.
China has convened three large meetings to discuss the proposals over the past year, the most recent of which was held in Shanghai this month. It has signed memoranda of understanding with about 10 countries.
Beijing is hoping to have the bank up and running by the end of the year and has appointed Jin Liqun, former chairman of the board of supervisors for China’s sovereign wealth fund and a former ADB vice-president, to establish the AIIB.
China steals march to invest in Bangladesh
There is bold talk of a new ‘economic corridor’ and, as Xi Jinping, China’s president, noted on meeting Prime Minister Sheikh Hasina, ‘Bangladesh is an important country along the maritime silk road.’
Mr Jin has hired about two dozen people from Chinese financial institutions such as Bank of China and Citic.
Late last month,
Takehiko Nakao, head of the ADB, cautiously welcomed China’s proposal to establish an AIIB but warned that it should not to ignore labour, environmental and other safeguards.
China has often been accused of making unscrupulous investments and ignoring good governance, particularly in Asia, Africa and Latin America.
The ADB estimates Asia will need $800bn a year of infrastructure investment between now and 2020. Yet, it lends only $10bn a year for infrastructure, theoretically providing scope for other entities such as AIIB.
