The announcement that major European powers will join the AIIB as founding members means the bank is now clearly accepted as a tangible game changer in the multilateral financial architecture. The formidable intentions of AIIB and the new transnational corridors project are both a challenge and an opportunity for India
China-promoted Asian Infrastructure Investment Bank (AIIB) has taken the world by surprise. AIIB, dismissed just a few months ago by western countries as another flamboyant plan by China, is now clearly accepted as a tangible game-changing development in the multilateral financial architecture.
What really reveals the scope and potential of AIIB, however, is Beijing’s brilliant and calibrated March 29 vision document for transnational economic corridors for Asia, where the world is invited to participate in this ambitious web of cross-border physical, financial and business connectivity.
A China-influenced global financing architecture is set to emerge. India, along with 45 other countries including Indonesia and Singapore, is a founder member of the AIIB. AIIB’s voting structure may be based on Purchasing Power Parity (PPP) and GDP. If that happens, India, a founder member of AIIB, will become the second largest shareholder, and if it moves smart, it will have a real chance to influence the formation and functioning of these institutions.
China’s intended role for AIIB is not so different from the existing lending institutions, which have configured the system to suit their needs. In AIIB, China has replicated the formation and functioning of the Bretton Woods institutions.
Thus, like its Bretton Woods counter parts did with trade a century ago, China seeks to do with infrastructure globally but with greater multilateral legitimacy, on commercial terms, for strategic interests, with global capital.
The formidable intentions of the AIIB and the new transnational corridors project are both a caution and an opportunity for India.
If AIIB takes equity stakes in transnational infrastructure projects, becoming part owners, then it has geopolitical implications. Equity ownership is a high-risk, high-reward form of financing but a worthy option nevertheless for developing Greenfield infrastructure in developing countries when bank financing is not available. When Islamabad awarded management control of the Gwadar Port in Pakistan to China Overseas Port Holdings Limited in 2013, it created a stir in India and the West. Imagine the clout China will have within India when it owns or manages India-located projects like the Bangladesh-China-Myanmar-India (BCIM) corridor, and the many internal industrial corridors that Prime Minister Modi has planned with foreign funding.
Full article: The new multilateral financial architecture (Gateway House)