New Chinese-led development bank seen as threat to ADB

03/05/2014 | Elliot Wilson, Anthony Rowley and Steven Gilmore

Interest is growing among countries in a proposed China-led infrastructure investment bank but its gain could be the ADB’s loss

A new $50bn Asian infrastructure investment bank, led by China, could not only undermine the Asian Development Bank but also marginalise American and Japanese influence in the region, delegates to the bank’s annual meetings have warned. 

However governance and political issues, along with a blend of confusion, mystery, and not a little fear of the unknown, surround the future of the Asian Infrastructure Investment Bank (AIIB).

Delegates at the ADB’s annual meeting in Astana were at odds with each other over the AIIB’s future — its potential power and influence, and whether it could ultimately undermine the ADB itself.

Bank of Japan governor and former ADB president Haruhiko Kuroda told Emerging Markets there was plenty of room for both to cohabit on deals across the region, noting the “huge demand for infrastructure building up in Asia”. A new development bank or two “would not undermine existing” development banks but could add resources, he insisted. 

Others were less sure, viewing the new Beijing-backed development bank as a political tool designed to marginalise American and Japanese influence in the region, and to challenge the ADB’s regional hegemony. US ambassador to the ADB Robert Orr said the new institution remained a blank page in the mind of many. “A lot of us are asking questions about what I call the ‘China Bank’. We are trying to figure it out.”

But he noted that there was as yet little or no room for either Japan or the US in the new lender’s thinking. China was “reaching out to the Europeans”, Orr observed, but not, apparently, to Washington or Tokyo. Plans for the new lender are reasonably advanced, with the AIIB expected to be launched with capital of around $50bn, much of it provided by China, but with input from a host of Asian and global sovereigns, funds, and lenders. Chinese premier Li Keqiang last month told the Boao Forum for Asia that the bank could be launched “at an early date”.

UNDERMINING THE ADB?

The ADB would be wise not to underrate the influence a new China-funded multilateral would wield across the region. Top Chinese officials have been discussing the project with peers in Australia, Singapore, and Malaysia — countries all likely to contribute, both in the form of capital and knowhow — for “more than a year”, said Xiang Songzuo, chief economist at Agricultural Bank of China. He warned the new bank “would replace some of the functions of the ADB. The aim is partly to undermine an institution that is dominated by Japan and the United States.”

But the AIIB would also represent a strategic reaction to the Chinese government’s inability to augment its influence in any of the leading global or regional multilaterals, including the ADB. “China feels it is not likely to be able to increase its capital in the ADB significantly and this may be a factor driving the proposed formation of a new [multilateral]”, added ambassador Orr.

Nor should the ADB underestimate the threat posed by a new kid on the block with more pocket money and powerful parents. Vice president Stephen Groff warned the AIIB could in time replace some of the ADB’s functions.

“If we continue to think very narrowly about what we do and about our investments then that risk might be there. What we need to do is think much more about smarter partnerships. The demand for infrastructure finance in Asia and the Pacific is so big that there’s room for any number of different players.”

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