It’s not even a matter of debate that China’s political influence has gone up tremendously, not just in the Asia-Pacific region but globally as well, with China reaching out in a meaningful manner to pretty much all geopolitical players, including African nations. However, this political influence frequently comes with a price tag, one that can be quite steep, as China’s Belt and Road Initiative (with its $4 to $8 trillion total price tag) which has been analyzed on ChinaFund.com previously makes clear.
Through this article, it’s time to put the AIIB or the Asian Infrastructure Investment Bank under the microscope. It will most likely not come as a surprise that China was the entity which formally put the idea behind the AIIB on the table back in 2013, with the initiative being formally launched in Beijing, through a ceremony that took place in late 2014. After the agreement based on which it operates entered into force (on the 25th of December 2015) as a result of 10 important member nations ratifying it (10 nations which accounted for 50% of the initial capital), the legal framework was finalized and as of the 16th of January 2016, the AIIB was officially ready to conduct business.
Why was China eager to launch the AIIB, one might ask? Let’s just say Xi Jinping and the Chinese authorities in general were less than thrilled with the influence China has as far as the World Bank, International Monetary Fund and Asian Development Bank are concerned and as such, launching a de facto alternative made perfect sense.
And in the spirit of the previously mentioned bill which has to be covered, it is important to observe that the top 5 nations (ordered by total subscriptions) are China, India, Russia, Germany and South Korea. The more a nation contributes, the higher its voting power ends up being and on that note, the fact that China contributed more than the next four nations combined speaks for itself.
How do things work? As with other international organizations, lending activities take place among member nations and right from its first year of operation, $1.73 billion were awarded to a grand total of nine projects: two in Pakistan, two in Oman, one in Tajikistan, one in Indonesia, one in Myanmar and one in Azerbaijan, with the Azerbaijan gas pipeline-related one being the leader in terms of nominal value ($600 million). Lending activities continued as of that point, albeit not at an amazing pace but still, the record $600 million value was reached again through the financing of a project related to gas storage expansion in Turkey. Other noteworthy examples include India’s $455 million project for rural infrastructure, its $400 million one for water supply purposes and a $335 million project for the Bangalore Metro Rail Project. As can be seen, India has been on the receiving end of quite a bit of funding.
Contrary to what one might have expected, China’s AIIB initiative was quite well-received internationally. The quasi-consensus, at this point at least, seems to revolve around the fact that by leading a supranational institution such as the AIIB, China is actually becoming a part of the existing world order rather than challenging it. As such, under the right circumstances, entities such as the United States are actually being encouraged by local experts to support the project. Frankly, the only areas of concern seem to be related to the environmental dimension of the projects funded by the AIIB. In light of the fact that a lot of these projects are being implemented in countries which do not have a stellar track record with respect to the environment, some analysts are expressing skepticism but at this point, in light of how new the AIIB is, there is no environmental track record to speak of. Positive or negative.
As a conclusion, the AIIB seems to be a welcome addition to the international financing landscape, especially since as its name suggests, its main goals revolve around financing much-needed infrastructure projects in the Asia-Pacific region. While some observers would have been tempted to state that the AIIB was launched with the intention of somehow competing with existing institutions such as the IMF or World Bank, it thus far seems that the AIIB is actually complementing them quite nicely.
It remains to be seen what the long-term results of this institution will prove to be, as it is too early to even think about conclusions in light of the fact that we are dealing with an entity which has only been effectively operating since 2016. For the time being, the AIIB represents yet another case study which makes it clear that China is interested in expanding its economic and ultimately geopolitical influence, not through coercion but through mechanism that facilitate or at least try to facilitate win-win situations.