Asia’s new Infrastructure Investment Bank (AIIB) promises a whole new strategy for the development of international banking and investing. Although some may consider it to be a rival to the World Bank, its launch by China and 29 other founding members on January 16 underscores the growing importance of Chinese and Asian industrial contributors to the world economy. The fundamental goal of the new enterprise is to secure the funding necessary to assist in the development of infrastructures across Asia. By doing so, those communities will reap the benefits of improved hygiene services like clean water and central sewer, reduced disease transmissions and a stronger, healthier workforce.
As its original premise, the new bank will lend to projects that are involved in energy generation, rural infrastructures, water supply, environmental protections and transportation and telecommunications. These core systems are inadequate or entirely absent in many of the Asian countries that have developed sizable industrial complexes but not the surrounding systems to support those workforce populations. In India, for example, water constraints, inequitable distribution of water resources and the prioritisation of industrialization have combined to create immense, potentially disastrous administrative issues and environmentally-related health problems.
It is projected that the Asian continent will consume as much as US $800 B per year for funding infrastructure projects in the next few years. Asian financiers, however, have the capacity to underwrite only a small fraction of that resource. While other international institutions are available as lenders – the World Bank being primary – sometimes their rules are prohibitive for less sophisticated developing entities. Some international observers have commented that the lending rules imposed by the World Bank can be unreasonable for some borrowers. The AIIB promises equal transparency and internationally accepted standards without all of the constraints presently required by the World Bank. The Asian Development Bank says that it will explore the possibility of joint-financing regional projects with its newest neighbour and competitor.
The location of the bank within the Asian community is also an important note about its significance. The Vietnamese are contemplating their use of bank resources as a potential tool in their on-going diplomacy. As a founding member, Vietnam joined with AIIB in furtherance of its policy of diversification and integration. Like China, Vietnam opened its national doors to international opportunity only a few short decades ago. Its war-torn past left it with a tattered infrastructure and obsolete political legacy that interfered with its growth as an international economic force. Its current role as a partner in the development of a regionally-based financial institution is a signal of its intent to become a reliable partner to its Asian neighbors. As a symbol of its engagement in the future, Vietnam’s position with AIIB holds special meaning for the country.
Instead of any assertion that the AIIB will be a clone of the World Bank, the institution declares that it is standing on the shoulders of both the World Bank and the Asia Development Bank, and that it intends to learn from their strengths and weaknesses. As a multilateral organisation, says Song Guiyou, a deputy director of the Center for American Studies in Shanghai, “it should be better [than existing ones].” Song suggests that the corporation will not be operated by an “iron rice bowl” of Chinese nationals, but instead, will be governed by “ethical, professional and passionate people” from varying backgrounds and who live in different nations. He even suggested videoconferencing as a tool for meetings and conversations among leaders.
Many of the rules anticipated to be introduced by AIIB are still unwritten. The plan, however, is to assemble a team of international economic, industrial and financial professionals who will establish regulations that encourage investing, reduce administrative burdens and provide the transparency required by the bank’s international membership. Considering the size and variety of concerns that the bank is attempting to address, its creation offers excellent investment opportunities for members and borrowers who are willing to address those concerns, too.
My deep comprehension of the potential industrial, cultural and political impacts of the AIIB is based on my 17+ years in the Asia industrial complex. If you have investments in China or any other Asian nation and are contemplating how engaging the AIIB might improve your industrial prospects, contact me today.
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