Twenty-one Asian nations signed on to a China-driven initiative Friday to create a new international bank for Asia that Washington opposes as an unnecessary and potentially damaging rival to established institutions such as the World Bank.
The Asian Infrastructure Investment Bank reflects both China’s desire to push investment in the region and its frustration with U.S., Japanese and European dominance of the World Bank, International Monetary Fund and Asian Development Bank.
Countries signing Friday’s memorandum of understanding at Beijing’s Great Hall of the People ranged from regional giant India to small, impoverished countries such as Laos and wealthier states including Singapore and Qatar. Absent were close U.S. allies Japan, South Korea and Australia, who China had invited to join.
Joining the bank will give countries input at the outset into what could become a major international lender and a more transparent alternative to development projects financed directly by China. Critics fear the bank would have lax lending standards that could undermine efforts by established lenders to promote good governance, fair labor practices and a clean environment.
The new lender aims to fund the construction of roads, railways, power plants and telecommunications networks that global finance officials say are needed to keep the region’s economies humming along.
“In China we have a folk saying. If you would like to get rich, build roads first, and I believe that is a very vivid description of the very importance of infrastructure to economic development,” Chinese President Xi Jinping told participants after the signing ceremony.
Xi’s presence underscores China’s hopes that the bank will boost its global clout and end what it sees as unfair discrimination against it in economic and political spheres. Xi proposed the bank a year ago at a gathering of Asia-Pacific nations, and China has said it will provide most if not all of the initial $50 billion in capital. Private institutional lenders are expected to provide another $50 billion.
In a nod to concerns the bank could undercut existing institutions, Xi said the new bank “needs to follow multilateral rules and procedures.”
Singapore’s Finance Minister Tharman Shanmugaratnam said countries involved hoped to finalise the bank’s articles of agreement by mid-2015 so that it can start lending “as soon as possible.”
China also is backing another $50 billion-lending institution, the New Development Bank, sponsored by the so-called BRICS countries that also include Russia, India, Brazil and South Africa.
The planned capital of the Chinese-backed development banks is relatively small compared with existing institutions. The World Bank’s capital is about $220 billion. The Asian Development Bank has $175 billion capital.
U.S. objections dwell mainly on worries the new infrastructure bank could work against the existing multination lenders by offering laxer environmental, labor and other safeguards for loans that are intended to prevent abuses and protect vulnerable populations.
Chinese policy banks such as the China Development Bank have long been accused of undermining such standards with no strings attached policies that help fast-track loans in Africa and elsewhere, while using Chinese labor and leaving those countries with little legacy in terms of new skills and knowhow.
U.S. Treasury Secretary Jacob Lew expressed some concerns about the proposed Asian bank publicly at a conference in Washington earlier this month, although U.S. officials have mostly been pushing back against the bank’s establishment quietly, including with off-the-record briefings to media.
Behind Washington’s concerns is also its long-standing mistrust of Beijing’s efforts to use its economic heft to bring countries into its political orbit and draw them away from the U.S.
“I doubt that China is surprised to find that the United States is unenthusiastic about China initiating an institution that is competitive to institutions the United States and its allies dominate,” said Elizabeth Economy, director of Asia studies at the New York-based Council on Foreign Relations.
China is the world’s No. 2 economy with GDP expected to pass $10 trillion this year, and has grown increasingly tired of having little say in the workings of institutions such as the World Bank, in which it has voting weight of 5.2 percent compared with 16 percent for the U.S.
Zhao Kejin, an expert on international organisations at Beijing’s Tsinghua University, said China was open to the U.S., Japan and other major economies contributing capital to the bank, but expected them to hold off for now.
“It’s still not clear if the bank will be a success,” he said.
Success or failure depends entirely on what sort of standards the bank imposes, CFR’s Economy said. It could be an “enormous success” if it follows sustainable development practices and allows for independent auditing, she said.
However, she warned of “disaster” if the bank becomes a mechanism for exporting surplus Chinese capital and labor along with poor environmental and governance practices.
Officially, World Bank President Jim Yong Kim has welcomed the new institution, saying the developing world’s need for about $1 trillion per year in infrastructure financing far outstrips the private sector’s ability to fund it.
ADB President Takehiko Nakao has also welcomed the new bank, saying it would substantially boost the funding available while forcing his red tape-laden institution to reform.
The ADB estimates developing Asian countries will need to invest $8 trillion in infrastructure from 2010 to 2020 just to keep their economies moving forward, only a tiny fraction of which can be provided by the ADB.
Source : Sapa-AP /nsm
