China’s launch of the Asian Infrastructure Investment Bank (AIIB) has received an overwhelming international response. As a Chinese student at The University of Texas at Austin and intern at Innovations for Peace and Development, I was curious to find out what the Chinese public is saying about the implications of the AIIB.
[A screenshot of the ZhiHu webpage]
After reading the highest rated responses, I see that many ZhiHu users believe that China seeks to improve its global image through the AIIB. However, the economy is going through a precarious stage where it needs to rebalance itself. The overcapacity of construction materials, the enormous amount of external balance (trade surplus) and the lack of control in existing international financial institutions are some of the critical challenges that China seems to be addressing with AIIB.
*User Opinion #1- Shifting the Overcapacity of Construction Materials
There is a very old saying in Chinese, “ if you want to be prosperous, you’d better build the road first.” Tough under the power of the proverb, China has become a global leader in infrastructure lending and development. However, China is producing a surplus of construction materials, especially in the steel and iron industries. According to some rough estimates, China produced nearly 320 million tons of surplus steel in 2013[1], nearly twice the annual steel output of all of Europe.
One highly rated opinion on Zhihu read, “The overcapacity of construction materials is a further issue that China aspires to tackle through the establishment of the AIIB… by lending money to other countries for infrastructure building, not only does China gain interest but also transfers the surplus construction materials to other countries." The same contributor used the example of the new AIIB 'Beijing - Baghdad Railroad Project' to demonstrate China's push to take a bigger role in global affairs and its need to export China's infrastructure production capacity.
After reading the highest rated responses, I see that many ZhiHu users believe that China seeks to improve its global image through the AIIB. However, the economy is going through a precarious stage where it needs to rebalance itself. The overcapacity of construction materials, the enormous amount of external balance (trade surplus) and the lack of control in existing international financial institutions are some of the critical challenges that China seems to be addressing with AIIB.
*User Opinion #1- Shifting the Overcapacity of Construction Materials
There is a very old saying in Chinese, “ if you want to be prosperous, you’d better build the road first.” Tough under the power of the proverb, China has become a global leader in infrastructure lending and development. However, China is producing a surplus of construction materials, especially in the steel and iron industries. According to some rough estimates, China produced nearly 320 million tons of surplus steel in 2013[1], nearly twice the annual steel output of all of Europe.
One highly rated opinion on Zhihu read, “The overcapacity of construction materials is a further issue that China aspires to tackle through the establishment of the AIIB… by lending money to other countries for infrastructure building, not only does China gain interest but also transfers the surplus construction materials to other countries." The same contributor used the example of the new AIIB 'Beijing - Baghdad Railroad Project' to demonstrate China's push to take a bigger role in global affairs and its need to export China's infrastructure production capacity.
[The photo shows that China intends to be at the heat of the infrastructure developemnt on Eurasia continent, while being a railroad builder all around the world. The yellow line illustrate the land-based “SilkRoad Economic Belt”(SREB) and the other one is the oceangoing “Maritime Silk Road” (MSR).] [PM1]
*User Opinion 2- Internationalize the Chinese Currency
The Chinese currency (RMB) is one of the top five currencies in the world, though it is not yet an international reserve currency. Many Zhihu users believe that China is leveraging the AIIB to internationalize its currency, promoting the RMB as one of the core currencies used to denominate and settle loans.
One popular opinion stated “Chinese companies that are packed with capital are guaranteed to have larger shares through infrastructure development overseas…consequently, the use of the Chinese currency will be the most practicable option for the investors.” To demonstrate the importance of an internationalized RMB, the user referenced USA’s reckless monetary policies leading to the 2008 financial crisis and the harmful effect this had on China’s economy.
However, Yifan Hu, a chief economist with Haitong Securities International, contributed to the online discussion noting it would be too hard to reach a consensus on an AIIB currency basket. “In my view, the U.S. dollar will be used in the early stages of the AIIB, and then the bank will gradually move to a mix of the RMB and US dollar,” Hu wrote.
*User Opinion 2- Internationalize the Chinese Currency
The Chinese currency (RMB) is one of the top five currencies in the world, though it is not yet an international reserve currency. Many Zhihu users believe that China is leveraging the AIIB to internationalize its currency, promoting the RMB as one of the core currencies used to denominate and settle loans.
One popular opinion stated “Chinese companies that are packed with capital are guaranteed to have larger shares through infrastructure development overseas…consequently, the use of the Chinese currency will be the most practicable option for the investors.” To demonstrate the importance of an internationalized RMB, the user referenced USA’s reckless monetary policies leading to the 2008 financial crisis and the harmful effect this had on China’s economy.
However, Yifan Hu, a chief economist with Haitong Securities International, contributed to the online discussion noting it would be too hard to reach a consensus on an AIIB currency basket. “In my view, the U.S. dollar will be used in the early stages of the AIIB, and then the bank will gradually move to a mix of the RMB and US dollar,” Hu wrote.
*Users Opinion 3- Political Benefits of Cooperation
“A diplomatic triumph” is a phrase being used by Chinese media when referring to 57 nations joining the AIIB as founding members. AIIB has attracted $100 billion seed funding from members across the Eurasian continent. “Who doesn’t want to take a piece of the cake?” one Zhihu user said, “China promises not to hold more than 20% of the share stock in the beginning, which means AIIB can easily attract other countries to invest.”
“A diplomatic triumph” is a phrase being used by Chinese media when referring to 57 nations joining the AIIB as founding members. AIIB has attracted $100 billion seed funding from members across the Eurasian continent. “Who doesn’t want to take a piece of the cake?” one Zhihu user said, “China promises not to hold more than 20% of the share stock in the beginning, which means AIIB can easily attract other countries to invest.”
“AIIB would not be just an economic investment but a strategic security development,” another popular statement read. Many Zhihu users liked a post about China’s recent commitment to invest over forty-five billion in infrastructure development in Pakistan, marking the beginning of the “One Belt, One Road” strategy. The user explained that China needs to remain close to Pakistan for the purpose of dealing with “the potential for unrest in Xinjiang and needing Pakistani cooperation to prevent the spillover of Islamic conflict to western China.”
Joyce Zifei Jang is an undergraduate studying Geography and Education at The University of Texas at Austin.
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