Asian Infrastructure Investment Bank News

Bangladesh

The AIIB's first independent financing project has been officially launched in Bangladesh. The project is intended to expand and upgrade electricity service capacity in rural Bangladesh and will benefit more than 12.5 million of the rural population. In addition, the AIIB and ADB are providing project loans jointly to Bangladesh to increase production efficiency and expand gas transmission infrastructure.

The Philippines

The Manila flood control project starts construction this month and is estimated to finish in 2024. The AIIB approved the project in September 2017, and is co-financing the project with the World Bank and the Philippine’s government. The project will renovate and build new pumping stations. It will also support infrastructure such as garbage disposal and drainage pipeline maintenance, ensuring resident safety. 

Internal praise for the AIIB

According to Kaixian news, the AIIB has exceeded expectations. The number of AIIB members increased from the original 57 to 84. The bank has provided more than 4.2 billion USD of loans to 24 projects and has raised more than 20 billion USD in capital. In 2017, the AIIB received AAA credit ratings from the major international evaluation agencies (Moody, S&P and Fitch Agency). As the AIIB president Jin Liqun said, only two-years have passed since the foundation of the bank and it has taken a solid spot in the international development field.

Skepticism of the AIIB

Last Friday, when asked about the AIIB during a meeting with members of the Japanese Diet, Prime Minister Shinzo Abe maintained a cautious attitude toward the investment bank. He noted that the AIIB has been in operation for less than two-years and stated that he wants to pay close attention to the bank's ability to establish governance, make responsible loans, and sustain both local societies and the environment. 

Reasons to trust the AIIB?

Jin Liqun, President of the AIIB, attributes the AIIB ability to complete negotiations and begin operation, in just two-years, to the sincerity of the Chinese government. Jin also emphasizes the AIIB's approach, which is not to copy the structures and processes of existing international agencies, but rather to learn from their successful experiences to "forge a new path." Lastly, Jin points to the AIIB commitment to being ""inclusive, open and transparent"" as reason to trust in the bank.


The Asian Development Bank Updates

Cooperation with the AIIB

According to ADB Vice President Zhang Wencai, the ADB is expecting more cooperation with the AIIB in future development projects focused in the Asia-Pacific region. The two institutions signed a memorandum of cooperation in 2016. Since then, they have co-financed four projects, including a natural gas project in Bangladesh, road infrastructure projects in Pakistan and Georgia, and a power transmission project in India. To meet the needs for private sector development, climate change resilience, and regional cooperation in the area, the two lending groups are planning to further collaborate. 

ADB at Davos

ADB President Takehiko Nakao and Prime Minister Karen Karapetyan of Armenia met at the 48th World Economic Forum Annual Meeting in Davos, Switzerland to reaffirm ADB assistance in Armenia. The two discussed ADB projects in Armenia and their positive results, and agreed to have Nakao visit Armenia this year.
                            

China in Latin America and the Caribbean

The second ministerial meeting of China and the Latin America-Caribbean (CELAC) Forum was just held in Santiago, China. In recent years, Latin America has become the second largest destination for Chinese overseas investment. This China-Latin America Forum meeting reaffirmed both side's commitment to deepening bilateral ties and cooperation, particularly through China's One Belt, One Road initiative. Read more here.

The Chilean chancellor to the second CELAC-China forum, Heraldo Muñoz, said that China intends to be a reliable partner to Latin America and the Caribbean. Muñoz made it clear that China seeks multilateralism and open-dialogue with its Latin American and Caribbean partners. Muñoz pushed for more digital transpacific interconnectedness to add innovative value to the products of the international commercial partnerships. Muñoz also reported that Chancellors of CELAC countries expressed great interest in joining the One Belt, One Road initiative and contributed to passing the joint CELAC-China Action Plan 2019-2021, setting the agenda for the next few years. Read more here.

China looks to take Washington’s space in commercial coordination in Latin America. This shift is underscored as a product of the Trump administration and its way of "humiliating and undervaluing" Latin America. China seeks to extend its New Silk Road through South America. China has already established treaties with Peru, Chile, and Costa Rica. China has begun projects, such as the "Tropic of Capricorn Corridor," to increase the flow of goods with large markets in Latin America. This railway project seeks to connect the coast of Brazil with ports in Peru or Chile and could cost nearly 21 billion USD. Chinese investors also are currently building a bullet train connecting Querétaro and Mexico City in Mexico, and they are looking at the potential of extending the train to Rio de Janeiro, Brazil. The extension would cost an estimated 11 billion USD. Read more here.
      
                                         
The One Belt One Road

A Polar Silk Road?

China created a policy paper that outlines its vision of a "Polar Silk Road," mirrored after its Belt and Road Initiative. China's underlying strategic goal is to facilitate sustainable economic and social development of the Arctic, working with a variety of countries that hold territory in the Arctic region. While China is eyeing the development of oil, gas, mineral resources, fishing and tourism, it has also stated that current laws on global governance in the Arctic will be respected and upheld.

Disputes on the Belt and Road?

China's Belt and Road Initiative has led to a surge of economic activity and connections across the world as more countries partner with China on international development. However, one of the consequences of this has been increased commercial, trade, and investment disputes between China and partner countries and firms. Foreign Minister Wang Yi expressed a desire to facilitate dispute resolution following the principles of consultation, contribution, and mutual gains. 

Internal growth because of the Belt and Road

China's lesser developed provinces like Gansu have experienced economic and industrial growth as a result of the Belt and Road Initiative. The province capital, Lanzhou, now links with Singapore through a rail-sea transport route, and it is expected that a rail-highway route to Gwadar Port in Pakistan will be created later this year. Trade between Gansu and Belt and Road member states increased by 32 percent and the city now has 33 industrial projects.


China increases tension between Pakistan and India

Pakistani Prime Minister Shahid Khaqan Abbasi praised the China-Pakistan Economic Corridor as promoting economic growth, financial sustainability and environmental conservation in Pakistan. Chinese investment projects include highways, railways, pipelines and optical cables, and have resulted in more international investment in Pakistan, greater corporate confidence, more efficient power generation, and lower transport costs. The Prime Minister expressed his support for continued economic and security ties with China under the Belt and Road Initiative. Read more here.

India's ambassador to China, Gautam Bambawale, said in a statement that Beijing should take New Delhi's concerns about the China-Pakistan Economic Corridor (CPEC) more seriously. A major consequence of the CPEC is the ever-increasing presence of China in South Asia, which has created economic and security concerns for Indian policymakers. Most importantly, China's proposed projects pass through disputed territory, which Bambawale referred to as a violation of India's territorial integrity. Read more here.                                


British-Chinese Relations

At the invitation of China, British Prime Minister Teresa May will pay an official visit to China from 31 January to 2 February 2018. At a press briefing, British Ambassador Barbara Woodward said that Britain hopes to deepen the economic and trade relations between China and Britain to establish a "golden era." Woodward also expressed hopes for more British involvement in China's One Belt One Road initiative. Read more here.


China and Drugs in the Philippines

A new Chinese-funded regional Dangerous Drug Abuse Treatment and Rehabilitation Center (DDATRC) will be built in the Philippine province of Sarangani. The DDATRC is part of a China-Philippines aid agreement made in October 2016. The center will help address the continuing drug abuse issue in the Philippines. The facility will have 150 beds and be completed in 21 months. Read more here.


The Chinese Perspective

Yan Pengcheng, spokesman of The National Development and Reform Commission of the People's Republic of China, spoke on China’s foreign investment direction, focusing specifically on how China wants to maintain its previous investments. For the past year, outward investment has been important for both pushing forward the One Belt One Road construction and allowing domestic enterprises to optimize the allocation of resources. Read more here.

Controversies have arisen regarding Confucius Institutes that have been established overseas by China. At a Central Leading Group for Comprehensively Deepening Reforms meeting, leaders highlighted the necessity to strengthen the construction of Confucius Institutes, as it is a key for diplomacy between China and foreign nations. Xi Jinping presided over the second half of this meeting and promoted the creation of the One Belt One Road Initiative as a mechanism for settling disputes. Read more here.

President Xi sent out positive signals in Davos 2018. He claimed that China is eager to be a part of an open, inclusive and equal environment with other countries. The establishment of AIIB and the initiation of the One Belt One Road are important elements to participating with the rest of the world in development. He said that China’s role is not as hegemonic leader, but as an equal participant. China hopes all countries to work together in building a peace, friendly, and equal system for development. Read more here.

​
Western fears of Chinese development finance

Western-based group are worried that Chinese development aid efforts poses a threat to their role of promoting social change. Western-backed lenders have historically encourage countries they work with through investments and financing to elicit greater consideration for human rights or environmental regulation . China, on the other hand, takes a more "hands-off" approach and doesn't demand similar changes in return for aid. Naturally, this makes Chinese offers more attractive and lessens the influence of Western groups and their abilities to operate. While more assistance for development from any source is welcomed, and cooperation with the Chinese can be beneficial, many are still worried about this new dynamic. Read more here.

The Asian Infrastructure Investment Bank (AIIB) has initiated an eight-week public consultation for the first draft of its Policy on Public Information, welcoming the public to participate in the multilateral development bank’s policy-making process. In light of this ongoing public consultation, I spoke with Dr. Kate Weaver, who visited Beijing last October for an AIIB legal conference regarding information disclosure and transparency policies. 

Dr. Weaver expressed that she was pleasantly surprised with her first visit to the capital city. Since she was in Beijing during the 19th National Congress of the Communist Party of China, the factories had been shut off two weeks before to clean the air and the traffic was controlled. As she put it, “the air was bad, but not too bad.” 

She described the AIIB’s hospitality as amazing. She was shocked to learn that the multilateral development bank only has a 100 person staff and was impressed that such a small staff got this major institution off the ground with such a streamline structure. Overall, Dr. Weaver left with a positive experience, glad that the AIIB held such an open discussion at a formative stage of the international organization. 
​
You traveled to Beijing in the beginning of October. What was the purpose of that trip? 

The Asian Infrastructure Investment Bank (AIIB) invited me to participate in their invitation only inaugural legal conference to be the expert on information disclosure and transparency policies. My particular panel discussed information disclosure, whistleblower policies, and similar policies within other multilateral development banks (MDB). We discussed what these policies should look like at the AIIB since the bank is still formulating an information disclosure policy.

Most of the participants at the conference came from legal counsels of other international organizations, some were former executive directors, and many work specifically on the governance issues of MDB. I think there were only two other academics there besides myself, so I was a little bit of an outlier there, but this also gave me the liberty to speak about the broader politics in a way that lawyers would be reluctant to do. 

What were your main policy recommendations to the AIIB?

That they move quickly. They’ve existed for two years and don’t have an information disclosure policy in place, and they don’t have an archive policy that’s fully functional. It is critical for an institution in its infancy to have these mechanisms in order to distribute information about what it is doing. Primarily because people are going to make, more or less, educated guesses unless they are supplied with direct information. I’ve seen a lot of speculation about what the AIIB is doing, why it is doing it, and who's behind it, mainly concerning China’s motives with the bank. I recommend that they get in front of this by being as open as possible about their activities.

This requires an information disclosure policy with a presumption of openness, meaning they will release everything unless its on a list of excluded sensitive topics that would disrupt its relationship with clients. This is a policy that’s been adopted by other MDBs since 2009, when the World Bank adopted it. Now it's become a benchmark of being a modern, legitimate international organization. So to get ahead of misinformation and to acquire legitimacy in its new role, the AIIB needs to have proactive aggressive information disclosure. 

The timing of this legal conference was notable since it coincided with the 19th National Congress of the Communist Party of China. Did this influence the discussions? 

The AIIB president Jin Liqun actually came straight from those meetings. He was eager to demonstrate that the AIIB is a Chinese-led institution, not Chinese-driven institution, even though the AIIB is located in Beijing, the president is Chinese, and China is a majority shareholder with approximately 27 percent of the votes. This was special given the context and the timing of the conference. China has made a concerted effort to ensure that the AIIB is a more autonomous agency. I think in a part to distance itself from the tarnished reputation that Bretton woods institutions got by being U.S.-driven. 

What was the most surprising thing you learned at the conference?

The AIIB’s emulation of other MDBs. The AIIB focus on infrastructure is innovative, and it is certainly innovative in its governance as the majority of the shareholders are from the Asia region. In all other aspects though, it looks like any Western led institution. This verified that this is not an example of contested multilateralism. The AIIB is not meant to replace or challenge existing models of MDBs, it's actually meant to be much more complimentary. 

What are you expecting the AIIB to do in 2018?

They are going to have to get their governance rules solidified. Since they have more members than originally anticipated, they are going to have to deal with 80 members and representation on the executive board. They are also going to have to hit the road in terms of lending. To date, they only have 21 projects that are funded. There will need to be a concerted effort to get more projects out the door with key partnerships with the World Bank and the ADB. Finally, there will be a lot of speculation about whether the AIIB is just the idea of Chinese President Xi Jinping and whether or not the AIIB will last past that regime. 

​Since Xi Jinping’s proposed the creation of a Chinese-led Asian Infrastructure Investment Bank (AIIB) on October 2, 2013, the response of foreign observers to the creation of the AIIB was skeptical at best. Critics came out in full force against the AIIB in spring of 2015, right as China was inviting other countries to join the institution. Thus, the AIIB was under criticism before it even had a chance to prove itself, meaning that many of the criticisms were based on speculation.

​Despite the initial backlash against the AIIB by Western, namely U.S., observers, the new multilateral development bank eventually attracted member states such as Germany, France, Britain and Italy by the summer of 2015. The success of the AIIB in courting European members left the U.S. and Japan in the position of having to explain why they chose not to join the AIIB. In response, the U.S. and Japan decided to doubled down on the skepticism until the AIIB proves its intentions. So nearly two years after the formation of the AIIB, let’s examine whether or not the initial criticisms against the AIIB have stood the test of time. 

Criticisms

One of the first criticisms that the AIIB faced was based not on the actions of the new institution itself but rather on general criticisms of China’s reputation regarding infrastructure projects infrastructure. Critics noted that Chinese infrastructure projects have a record of displacing local populations, damaging the environment, and corruption. Therefore, they feared that a Chinese led infrastructure bank would simply utilize foreign capital to fund reckless ventures that endanger locals to the benefit of their own interests.  

In discussing the AIIB during a joint press conference in 2015, Japanese Prime Minister Shinzo Abe and U.S. President Barack Obama echoed these worries, and also referenced  the sustainability and transparency of the project despite repeated statements that they were not against the idea of a Chinese-led development bank. This criticism came from  skepticism about the rigor of the not yet finalized guidelines that would regulate the organization’s operations in the future. 

Another criticism came after other Western countries broke with the U.S. and joined the AIIB. U.S. critics accused European governments, especially the U.K., of ‘accommodating’ China. This fear was based on the ease with which the U.K. joined the AIIB. Unlike U.S. allies South Korea and Australia, the U.K. joined the AIIB without negotiating pre-conditions. In the eyes of U.S. critics, this suggested to the rest of the world that the U.K. was willing to recognize Chinese unilateral rule in the bank, and follow it too. 

Perhaps the most well-founded criticism of the AIIB during this initial period was about the system of vote allocation within the organization. Critics found that under the vote structure’s initial setup, China would receive over 25 percent of the vote, granting them a de facto veto power over major decisions within the organization. Chinese sources immediately rebuked this idea stating that they will ‘forgo’ this veto power. However, this position became complicated when the Chinese Ministry of Finance declared that “the statement that China either seeks or gives up veto power is false.” This left observers to wonder whether or not China can keep something they did not seek by stating that they would not give it up. 

Revisited 

Perhaps the simplest method of testing the validity of the initial criticisms is to compare the record of AIIB projects so far to the predictions of its critics. To put it briefly, it seems the AIIB has conducted business responsibly as of year one, operating in safe, transparent, and unbiased manner.  One reason for this, is that the AIIB was able to collaborate  with other multilateral institutions, simultaneously gaining experience and a reputation. 

Furthermore, the AIIB was also able to rebuke its critics by adopting regulations that are on par with its older counterparts. In fact, the AIIB makes it clear that their regulations mirror those of the World Bank. By adopting similar standards as established institutions, the AIIB was able to more easily collaborate with these institutions. The AIIB’s successful collaborations in 2016 led to more partnerships in 2017, with the institution announcing three new co-financed projects with the World Bank and the Asian Development Bank in March.

To address the criticism that the U.K. and other European powers were accommodating China, it’s important to note that China made several compromises with these new members in the AIIB. Specifically, by becoming founding members of the AIIB, the U.K. and other European powers were able “enmesh China in a network of international norms and standards.” Instead of appeasing China, European members have been able to share power with China in the AIIB to their mutual benefit. This was made possible by joining the AIIB in its early stages.  

One question that remains unanswered is that of China’s supposed veto power. In his report for the Congressional Research Service in February 3, 2017, Martin A. Weiss suggests that China retains veto power based on the composition of votes in the executive board of the AIIB.  The Financial Times reported on May 3, 2017 that China is “set to surrender its de facto veto power over the bank’s significant decisions” but the article did not specify a timeframe for this to take place. In an interview with CNBC on June 15 2017, Thierry De Longuemar, the CFO of the AIIB said that “legally speaking” China does not have a veto in the AIIB and that there will be a rebalancing of vote shares between regional (Asian) and non-regional members. 

While it is clear that China does not possess a de jure veto, as of now, it still remains unclear whether China will continue to possess a de facto veto. More importantly, this veto may not be as significant of an issue as it was made out to be by the initial critics, for it seems that there would be little to no reason for China to employ such a veto. And even if their vote shares were to dip slightly below 25 percent, they can collaborate with other members to prevent the passage of major decisions. Moreover, if it was important for the AIIB reflect the existing institutions in drafting its rules and regulations, it is only fair to note that the U.S.retains veto power within the World Bank. 
​
Two years after the initial criticisms against the AIIB, it is clear that the skepticism about the institution was largely unfounded. While the U.S. and Japan have yet to join the AIIB, the willingness of both the U.S.led World Bank and Japan-led ADB to co-finance projects with the AIIB maybe the best testament to the AIIB’s growing reputation for sustainability, responsibility and transparency. It seems true that if you build it, they will come.