Asian Infrastructure Investment Bank
The Asian Infrastructure Investment Bank (AIIB) has been launched by the Chinese President Xi Jinping on 16 January, 2016. The AIIB, which will start its operations in second quarter of 2016, is expected to lend 10-15 billion dollars a year for the initial five or six years.
Members and largest shareholders
The AIIB has a total of 57 members including 37 regional and 20 non-regional prospective founding members. Many US allies including Australia, Britain, German, Italy, the Philippines and South Korea have joined it. The United States and Japan, two of the world’s biggest economies, decided not to join. China and India are among the largest shareholders with a 30.34 per cent, 8.52 per cent share respectively and their voting shares are calculated at 26.06 per cent and 7.5 per cent respectively. The share of non-Asian countries is restricted to a maximum of 30 per cent. JinLiqun from China is the current President of AIIB. Presently AIIB will lend in US dollars rather than China’s currency, the renminbi, and its official language will be English.
What is its significance?
While the Chinese idea of funding critical projects in Asia seems to be good, the question is why it is required when there is already a multilateral lender, the Asian Development Bank (ADB). China’s official answer is that there is a large gap in Asia in funding infrastructure projects that cannot be fulfilled by the existing lenders. The ADB has estimated that there is a funding requirement of $8 trillion between 2010 and 2020. Presently, the capital base of ADB is $160 billion and that of World Bank is $223 billion. Though, the initial capital base of AIIB is $50 billion only, an amount that may be small when compared to the requirement, but it still provide a boost. The AIIB, which is hailed as a rival to the World Bank and the ADB, will concentrate only on infrastructure projects when the World Bank and the ADB lend for all kinds of projects. Though, the World Bank and the ADB are cautious about AIIB, they see a space for collaboration.
The Chinese initiative has other objectives too. When America has asked its allies not to join the AIIB, China has persuaded them to sign up. America cited that the bank may fail to ensure environmental and labour standards that are essential requirement for lending. China has assured that AIIB will adopt standards followed by organisations such as the World Bank. But the real concern is that China will use its capital to fund the projects and play a greater role in economic development of the region along with its growing economic and political clout.
The reason for China’s move to fund a new development bank rather than funding the existing lenders is that China wants to change the unwritten rules of global development finance. While reforms at the World Bank and the IMF are progressing slowly, the ADB is continued to be dominated by Japan. Japan’s share in ADB is more than double that of China. China is impatient with the existing global economic governance. A successful AIIB would be a diplomatic triumph for China.
How India will be benefited from being a founding member of AIIB?
India is founding member of both IMF and the AIIB. India’s share of Special Drawing Rights (SDR) is 2.28% only whereas India is second largest shareholder of AIIB with 8.52% shares that gives India an opportunity to present its views. AIIB gives an opportunity to India break away from IMF as it is difficult to lend form IMF considering the western hegemony. AIIB will provide an opportunity for Indian corporates to expand their operations. Development of transportation corridors across Asia will be a win-win situation for all countries of the region. AIIB is a positive step to fight at IMF for early reforms considering the changes in the global economic order.
What are the challenges before AIIB?
Considering the role played by the AIIB, there are numerous challenges before it. Critics argue that the new bank may not consider environmental, social and anticorruption while funding the development projects. AIIB has to prove that its critics are wrong. AIIB also differs from other multilateral lenders such as World Bank and the Asian Development Bank as it focuses only on infrastructure projects rather than prioritizing poverty reduction. There is a risk of misallocation of funds to mega-projects that have little impact on inclusive economic growth. Finally, running a multilateral organisation having different national interests will not be easy.
