Chinese Banks on Shaky Ground
Although the One Belt One Road Initiative will be largely funded by the AIIB, other Chinese banks are expected to contribute a significant amount of the financing. The initiative is expected to create new markets for China, but there is major uncertainty about what the payout will actually be. Further, Chinese banks have already been doling out risky loans with non-financial sector debt up by 75% in the past six years. This combination of factors may be signs of an impending financial crisis in the country.
May Invited to China's Most Important Annual Diplomatic Event
China's Silk Road Initiative was the primary motivation for the creation of the Asian Infrastructure Investment Bank. The upcoming international meeting regarding the Silk Road Fund is the most important diplomatic event of the year for the Chinese Government and British Prime Minister May has received an invitation, along with other leaders the Chinese Government sees as crucial to the initiative.
AIIB Membership - Great Opportunities for Iran
Alireza Khatounzadeh Abyaneh, Iran’s head of Economy MInistry’s Department of Banking and Insurance Affairs, said that Iran’s membership in the AIIB has “strengthened the country’s economic clout in the region”, “revived international relations” and “great potential for resources and development.” The AIIB also facilitates foreign investment in Iran, which lets Iran use its resources for its own infrastructure projects as well as similar projects in other member countries. Iran currently holds 15,808 (1.61%) shares. Its main goal in joining the bank on June 29 was to strengthen relations with Asian powers.
AIIB defies skeptics
The AIIB has been accelerating its lending since its creation a year ago. Funds are already available to eight countries and the bank’s reach has extended as far as Oman, a surprise for many who believed projects would only be in the South East Asian region. The AIIB is expected to look more toward the Middle East for projects. Skeptics believed that the AIIB would be used by China as an “economic and political lever to serve its own purposes.” AIIB President still extends his offer for the US to join, despite the Obama administration being against it, and predicts that the Trump administration would join.
Quick hits from this past week....
Asia Times author, Pepe Escobar, argues that the U.S. under trump is advocating a "China Containment" foreign policy. Escobar contrasts this to China's Silk Road and AIIB policies and plans to open new economic corridors in the Asia-Pacific. Escobar considers this, as well as enhanced China-Russia geostrategic partnership a strong policy for China. Escobar is highly critical of Trump's positions on China during the campaign, and argues that China will continue to advance across Central Asia through the Silk Road and AIIB. Full article available HERE.
IFC, a member of the World Bank Group, and the Asian Infrastructure Investment Bank (AIIB), have signed a major agreement to invest in Asian infrastructure. Emerging market projects in Asia's infrastructure sector will see continued investment and support from AIIB and also a World Bank member, the IFC. The agreement adds legitimacy to the AIIB from the World Bank Group, of which the IFC is a member. Full article available HERE.
On a similar note, the Asian Development Bank has also had quite a busy week...
ADB Continues Investing in Clean Energy
President of the Asian Development Bank, Takehiko Nakao, said that in response to the Paris Climate Agreements, the bank will be increasing climate financing in developing member countries, with promises to invest $6 billion by 2020, of which $4 billion will target mitigation and $2 billion adaptation. Among the climate adaptation project, the ADB is supporting the Bihar New Ganga Bridge Project, which plans to build a bank-to-bank bridge over the Ganges River, a design which is more resistant to flooding. However, the ADB is open only to renewable energy investments, such as the Distributed Commercial Solar Power Project in Thailand, and not nuclear or coal power plants, as vice-president Wencai Zhang stated after a meeting in Bangladesh this week.
Hundreds of delegates from Asian governments attended a major conference titled the “Asia-Pacific Business Forum: Regional Integration to Achieve Sustainable Development”. Leaders of Bangladesh, Sri Lanka, Nepal, and others discussed the economic potential of the Asia-Pacific: its natural resources, ocean, and diverse markets. A high-level Asian Development Bank official laid out plans for the ADB to play a larger role in investing in Asia-Pacific infrastructure going forward. Full article available HERE.
The Asian Development Bank sells a $3.75 billion five-year global benchmark bond on the US dollar bond market. The bond issue went to various types of investors and banks in a wide geographic primary market distribution. Full article available HERE.
The Asian Development Bank (ADB) will fund a 100 MegaWatt wind farm in Mannar through Sri Lanka's state-run Ceylon Electricity Board (CEB). Full article available HERE.
The United Nations Executive Secretary of Economic and Social Comission for Asia and the Pacific (ESCAP) emphasized the importance of private-sector initiatives, especially in accordance with the Sustainable Development Goals. In this scenario, there is a special role for the Asian Development Bank (ADB) in developing deeper regional integration and infrastructure building in South Asian countries. In 2016, the ADB contributed with around $17.5 billion, destined to the implementation of regional projects in Bangladesh, Bhutan, India and Nepal. Full article available HERE.
The International Finance Corporation - an organization of the World Bank group - and the AIIB worked together on an agreement to facilitate their lending capacities to emergent countries' infrastructure programs. With a high risk-bearing capacity, both organizations seek to increase financing programs and facilitate the development of public and private sector activities in Asia. Their International Swaps and Derivatives Association (ISDA), an unprecedented agreement, will allow them to jointly hedge the interest rates and the currency risks of eventual operations. Full article available HERE.
The Asian Development Bank has approved a loan destined to Sri Lanka's state-owned energy enterprise, in order for it to build a 100MW potential generation wind farm. Nevertheless, critics point to the existence of groups favoured by lobbies and political negotiations linked to the sector of renewable energy, making it a possible ground for corruption. Full article available HERE.
The Asian Development Bank is showing its commitment to disburse its supply of capital towards the nations of the BBIN Initiative as meas to guarantee their development of infrastructure. This is conditioned by a commitment of these countries - especially Bangladesh, which is expected to receive around US$ 18 billion in the next five years - with good governance practices. Also, it is expected that all of them can follow up with the strengthening of private sector initiatives, and can cooperate to build energy transmission lines in the region to supply low-receivement zones. Full article available HERE. [End Summary]
And in news related to the Export-Import Bank of China....
A joint infrastructure project of an intercontinental road linkin Europe to Asia, with an approximate length of 8,445 km, was approved. China, Russia, Kazakhstan and Belarus agreed in negotiations, resulting in a project with an estimate cost of US$ 6 billion - of which US$ 4 billion will probably be covered by the Chinese Government and the Export-Import Bank of China. Russian officials stated that the infrastructure is likely to start being built in 2017 and to be finished in 2019, and will provide all parts with an accessible and fast path for transporting goods across continents. Full article available HERE. [End Summary]