How China successfully redrew the global financial map with AIIB

From worries that it would not raise enough funds to concerns other nations would not support it, Beijing was plagued by self-doubt when it first considered setting up the Asian Infrastructure Investment Bank (AIIB) in early 2013, two sources with knowledge of internal discussions said.

However, promises by some Middle East governments to stump up cash and the support of key European nations – to Beijing’s surprise and despite US opposition – proved a turning point in China’s plans to alter the global financial architecture.

BRICS Bank, AIIB Pledge Partnership, Loans To Be Issued In Yuan

Over the first half of the year, we’ve built on several narratives that we believe are critical when it comes to understanding how the intersection of geopolitics and economics is set to shape the world going forward.

One of these narratives revolves around the extent to which three China-led ventures are set to supplant traditionally dominant supranational lenders on the way to embedding the yuan in international trade and investment.

The new ventures are the BRICS bank, the Asian Infrastructure Investment Bank, and the Silk Road Fund. We’ve discussed each of these at length and we’ve also shown that in one way or another, they all represent a shift away from the multilateral institutions that have dominated the post-war economic order. 

US unable to stop AIIB’s goal of breaking monopoly

Over 40 countries applied to become founding members of the China-backed Asian Infrastructure Investment Bank (AIIB) before the March 31 deadline, doubling the size of the bank from Beijing’s initial conception.

The applications showed that the planned bank, which has been seen as posing a challenge to the Asian Development Bank (ADB) and a possible threat to the International Monetary Fund and the World Bank, is supported by both developed and emerging economies.

Four things you need to know about ‘China’s World Bank’

In fact, many commentators say the AIIB is less about anything wrong with the ADB or the World Bank and more about China’s efforts to increase its voice in global development and financial governance, and even to reshape the financial world order itself.

With Tuesday marking the deadline for nations wishing to join as “founding members” of the new multinational lender, here are the four things you need know about the AIIB…

China’s development bank plans test rising power’s strategic shift

In an influential speech in 2005, then-US deputy secretary of state Robert Zoellick called on China to become a “responsible stakeholder” in the international community. To optimists, China’s recent efforts in creating high-profile international development banks shows that it is gradually embracing that role.

China signed an agreement in July with the four other BRICS countries – Brazil, Russia, India and South Africa – to create the New Development Bank (NDB) to provide loans and liquidity to member nations. Just three months later, Beijing pioneered the effort to create an Asian Infrastructure Investment Bank (AIIB) to finance development projects in the region. Twenty nations as diverse as Qatar, India, Singapore and Thailand signed on as founding members. China plans to provide the majority of the capital required to finance the new bank’s operations, with the headquarters located in Beijing.

The US and its allies view the China-backed AIIB with deep suspicion. It is an open secret that Washington has successfully pressured Australia and South Korea to refrain from joining the new development bank. What explains such hostility toward the Chinese effort to take a larger role in regional and global governance?

China and 20 other countries sign MOU on regional bank

BEIJING, China, Oct 24 – China and 20 other countries moved forward on Friday towards setting up an Asian infrastructure lender seen as a counterweight to Western-backed international development banks.

The signatories put their names to a memorandum of understanding to establish the Asian Infrastructure Investment Bank (AIIB) at a ceremony in the Great Hall of the People in Beijing.

The institution, whose development has been driven by China and which is widely expected to have initial capital of $50 billion, it intended to address the region’s burgeoning demand for transportation, dams, ports and other facilities, officials say.

The potential role of the Asian Infrastructure Investment Bank

China’s president, Xi Jinping, announced the creation of an Asian Infrastructure Investment Bank (AIIB) just before the October 2013 APEC meeting in Bali. If the new bank is managed professionally to finance commercially viable investments in economic infrastructure, it can begin to correct a very significant failure of global financial markets.

…

There is room for a new development bank, specialised in financing large-scale economic infrastructure on commercial terms, working alongside existing multilateral development banks, including the World Bank and the ADB. These well-established institutions have the expertise to lend a lot more for infrastructure, but have moved in a different direction. Net lending by multilateral development banks on commercial terms has been negative in five of the last ten years, including 2011 and 2012. The World Bank and the ADB are now focusing on concessional lending and knowledge sharing with low-income countries, leaving an important niche to be filled by a new financial institution.