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The AIIB One Year In: Not As Scary As Washington Thought
Could it be just another development bank?
Today is the one year anniversary of the Asian Infrastructure Investment Bank (AIIB). Throughout 2016, the China-founded and led international investment bank broke the inertia and gained a large amount of momentum, attracting 57 founding members from across Asia, Oceania, Europe, the Middle East, Africa, and the Americas.
The not-for-profit, $100 billion investment bank was started with the intention of filling the funding gap for the development of roads, railways, energy corridors, power plants, rural infrastructure, and ports in countries across the Asia-Pacific region.
Suspicions of the bank’s intentions were rife upon its commencement last January. It was initially feared by Washington that the AIIB could become a competitor to the World Bank and Asian Development Bank (ADB), that it could serve as a mere vehicle for the continued spread of Chinese influence, and that it could trample humanitarian and environmental standards in the pursuit of development in the countries it invested in.
Looking to check what they posited as the bolstering of China's international interests, the USA and Japan abstained from becoming members of the AIIB. However, their attempts to thwart the new bank’s growth throughout its first year proved unsuccessful. Usually staunch US allies jumped on board with the AIIB one after another. The UK, South Korea, Germany, France and are now full-fledge members, while Canada applied for membership in August of 2016.
However, what the AIIB actually did during its first year in operation was far more vanilla than even the most pragmatic geopolitical analysts probably could have predicted. We didn't see a new Great Game of global powers competing with each other via their respective infrastructure investment banks. Instead, we saw cooperation and mutually beneficial partnerships.
Throughout its first year, the AIIB put up over $1.7 billion in loans for infrastructure projects as diverse as a power distribution system in Bangladesh, slum upgrades in Indonesia, road improvement in Tajikistan, a power plant in Myanmar, advanced maritime infrastructure in Oman, a key stretch of highway along the China-Pakistan Economic Corridor in Pakistan, as well as $600 million of the $11.7 billion bill for the Trans-Anatolian pipeline that will stretch from Azerbaijan to Europe.
It doesn’t take an expert in the geopolitics of Eurasia to notice that many of the countries that have so far received funding from the AIIB are located along China’s Belt and Road Initiative (BRI). But as the BRI, as of now, is more or less an infrastructure development mega-project designed to physically link together various political entities and economic blocs into coherent and organized trade corridors, this is still at root a multinational endeavor.
It is this multinational approach that was a key element of the AIIB’s activities during its first year. Most of its projects were done in partnership with other big infrastructure investment banks — including the World Bank, the ADB, and the European Bank for Reconstruction and Development (EBRD). Far from competing with the existing array of infrastructure investment banks, the upstart AIIB effectively jumped right in with them, cooperating on major projects, patching up funding gaps, and creating a string of those much coveted “win-win” scenarios across Asia.
Co-investing with other multilateral institutions has also helped remove any tinge of ill dealings in more controversial locations. For example, were the AIIB operating alone to extend development loans in Pakistan or Azerbaijan, this could be viewed as Chinese favoritism of regimes holding poor track records on human rights and other issues. Cooperation with the Asian Development Bank in Pakistan and the World Bank in Azerbaijan takes the potential stink off of these deals.
From a cursory review, it appears as if all of the investments that the AIIB made this past year were in line with current economic, environmental, and humanitarian best practices. By all accounts, it seems as if the AIIB is taking things slow, learning from the more experienced infrastructure investment banks, partnering when necessary on the finer points of the projects.
The reason that the AIIB was created wasn’t just so China could have a pet infrastructure investment bank of its very own, but because the need for additional funding for infrastructure development across Asia is very real. Between now and 2030, an estimated $90 trillion will be required to meet infrastructure demands across the continent, which is far beyond the reach of both the World Bank and ADB.
We are currently living in an age of rampant infrastructure development, as many corners of the world are building new frameworks of roads, railways, airports, and energy corridors in tandem. As international infrastructure development is usually a very costly long-term investment, few private companies are willing to take the risk. This leaves institutions like the World Bank, the ADB, and now the AIIB to fill in the gaps and elevate the economic potential of wider swaths of the world.
In 2017, the AIIB expects to expand its membership to 90 countries and invest $2.5 billion into 10-15 additional projects.
But will the US will swallow its pride and join the AIIB this year? Jin Liqun, the bank’s president and former chief of the World Bank, previously claimed that it could be a possibility:
I have heard a certain senior official of the President Barack Obama speak good of the AIIB and after Donald Trump won, I was told that many in his team have an opinion that Obama was not right not to join the AIIB, especially after Canada joined, which was a very loud endorsement of the bank. So we can't rule out the new government in US endorsing the AIIB or indicating interest to join as member.