Will the Asian Infrastructure Investment Bank (AIIB) be able to ensure fairness in its management and fulfil its duties as an international financial institution?
Concerns still persist regarding the new bank.
The China-led AIIB has started full-fledged operations after holding a ceremony marking its foundation and other events in Beijing.
The number of nations investing in the bank has reached 57. They include not only Asian countries but Britain, France, Germany and other European nations. Former Vice Finance Minister Jin Liqun of China has been installed as the AIIB’s first president.
In an address at the ceremony, Chinese President Xi Jinping said, “China continues to welcome the AIIB and other international financial institutions, old or new, to take part in the building of the Silk Road Economic Belt and the 21st Century Maritime Silk Road.” His remark openly expressed China’s intention to use the AIIB to advance the “One Belt, One Road” initiative, which seeks to establish a huge economic bloc that would link China to Europe.
Amid clear signs of its economic slowdown, China, the largest investor in the new bank, could increasingly prepare to use AIIB-financed infrastructure improvement projects as a tool to recover its economic growth.
There are also mounting concerns that AIIB loans could be used to serve China’s self-serving maritime advancement, including such as lending for projects to create and improve harbors that could be used for military purposes.
The AIIB has not clarified its operational guidelines, such as detailed financing criteria and specific methods for procuring funds. We find it questionable whether the bank can establish market confidence and raise funds in a stable manner.
The AIIB must ensure significant transparency regarding its organisational structure and operations, as befits its status as an international financial institution.
Japan and the United States decided not to invest in the AIIB. Their decision can be deemed reasonable, given that the bank cannot be expected to operate in a fair and neutral manner.
However, it should be noted that if loans are frequently rendered uncollectible due to slipshod screening of loan requests, it would jolt the whole global market, a development that would also deal a blow to the Japanese and U.S. economies.
Japan and the United States must keep watch over the AIIB’s moves from now on. If any problem is detected in the AIIB’s operations, the two nations need to urge the bank to rectify the situation through European and other investing countries.
The AIIB is considering the idea of facilitating lending operations jointly with the Asian Development Bank as one of its loan proposals. The scheme can be seen as an attempt to smoothly procure funds on the strength of the ADB’s reputation.
Through the ADB, Japan and the United States should urge the AIIB to acquire the expertise necessary for appropriate organizational operation and loan request screenings, and also comply with international rules.
Infrastructure needs in Asia have been estimated at a massive US$800 billion (S$ billion) or so annually.
This amount of funds cannot be sufficiently procured solely through existing financial institutions.
The administration of Prime Minister Shinzo Abe has said it will likely extend a total of US$110 billion in aid for infrastructure improvement in Asia over the next five years.
The ADB is also set to carry out reforms to make things more convenient for aid recipients, including an expansion of its ceiling on loans and a reduction in the amount of time required to screen loan requests.
Efforts should be made to ensure that Japan and the ADB can make their presence felt more strongly through infrastructure support, thereby holding China’s selfish moves in check.
The Yomiuri Shimbun is a member of The Straits Times media partner Asia News Network, a grouping of 22 newspapers seeking to promote coverage of Asian affairs.