China launches development bank for Asia, calls it first step in ‘epic journey’


BEIJING — Underscoring its growing global heft, China launched an infrastructure bank for Asia on Monday, reciving the backing of 50 countries for an initiative that seeks to boost the region’s economy but also put Beijing at the center of its development.

Representatives from Britain, Germany, South Korea and Australia were among those who took part in a ceremony to sign the articles of association in the Great Hall of the People, with the United States and Japan the most notable absentees.

Many U.S. allies joined the Asian Infrastructure Investment Bank (AIIB) on Monday — despite Washington’s initial objections — in what was seen as a major diplomatic victory for President Xi Jinping.

It was also a landmark event in Xi’s bid to extend China’s reach across Asia and shape an international global financial order that better reflects Beijing’s interests.

Chinese President Xi Jinping, right, speaks to Swiss Economy Minister Johann Schneider-Ammann during the signing ceremony for the Articles of Agreement of the Asian Infrastructure Investment Bank. (Wang Zhao/AP)
“China’s development would not have been possible without Asia and the world,” Xi told delegates, according to the official Xinhua News Agency. “As China grows stronger, we are willing to make our due contribution to world development.”

Finance Minister Lou Jiwei said Monday’s ceremony was a milestone and “a first step in an ‘epic journey,’ ” meant to deepen regional cooperation, boost Asia’s infrastructure and support the global economic recovery.

“More hard work lies ahead in our quest to build the AIIB into an international financial institution embodying the highest standards,” he wrote in an op-ed late last week.

At the ceremony, he called the bank a “win-win for Asia” and said he was confident it would begin operating before the end of the year.

China supplied about 30 percent of the $100 billion initial operating capital and has 26 percent of the voting power, the Finance Ministry announced.

Among the other big investors are India, which has a 7.5 percent vote share, and Russia with 5.9 percent, followed by Germany and South Korea. Major decisions require 75 percent agreement, giving China veto power, but this may change if shares are diluted as more countries join.
Delegates of seven other countries attended the ceremony but will join the bank only when they have undergone a domestic review and approval process, the Finance Ministry said.

China’s move to establish the AIIB was partly a response to frustrations with the United States, with Congress blocking an important agreement to increase the resources of the International Monetary Fund and give emerging market nations a greater share in decision-making.

But it is also part of Xi’s attempts to extend China’s regional reach, boost Chinese exports and prop up his nation’s flagging heavy industries, by enlisting them in a project to build infrastructure across the continent under a New Silk Road initiative.

The Obama administration has repeatedly expressed concerns about the AIIB’s transparency as well as its environmental and social standards.

The United States also was reported to have lobbied allies against joining the bank and been frustrated when Britain broke ranks and became the first European nation to express a desire to take part.

But President Obama insisted in April that the idea that the United States had opposed the bank was “simply not true,” arguing that if the AIIB adopted global best practices, including environmental and social safeguards, and invested in good infrastructure, “then we’re all for it.”

Nevertheless, experts said the administration had been wrong-footed.

“The administration led with ‘No.’ In retrospect, I think it is clear the better starting point would have been ‘Yes, but…,’ ” said Paul Haenle, director of the Carnegie-Tsinghua Center in Beijing. “Having said that, it does seem that over the past two to three months, the U.S. administration has taken some important steps to adjust/clarify its views on the AIIB in a more constructive direction.”

The AIIB, however, is unlikely to rewrite the global financial order, in which the United States and the dollar, as the global reserve currency, dominate.

There are also immense challenges in implementing the bank’s promise to be “lean, clean and green.” In many Asian countries, China has a reputation for lending without the red tape and conditions the World Bank imposes, but also of damaging the environment, promoting corruption and ignoring the concerns of local communities.

In an April letter to the AIIB, a coalition of 250 nongovernmental organizations from 20 Asian nations urged the new bank to “include the voice of civil society in their safeguard policy formulation,” to ensure that its operations do not harm the environment or impoverish local people.
A further challenge will be to make sure that the projects it backs make financial sense.

“The AIIB has not explained exactly how it plans to channel money into developing countries while avoiding the two big problems its predecessors have always faced: how to ensure that the money is not wasted, and how to channel large amounts of debt financing without creating financial distress and non-repayment risk,” wrote Michael Pettis, a finance professor at Peking University’s Guanghua School of Management.

“For now, for all the excited chatter, the AIIB is an institution laden with symbolic value, and little else.”

David Dollar, a senior fellow at the Brookings Institution, said the willingness of so many countries to sign up for the bank should calm fears that China will use the institution for “narrow political or economic ends.” Nor will it necessarily lead to “competing blocs and institutions” within the world economic order.

“The initial success of AIIB is a diplomatic victory for China,” he wrote. “The U.S. diplomatic response has not been adroit, playing into a narrative of U.S. decline in the Asia-Pacific. But that perception could change quickly.”

In particular, he said that if the United States is successful in negotiating a regional trade pact known as the Trans-Pacific Partnership, “that will provide a large boost for its members and reestablish U.S. importance to the Asia-Pacific economy.” The “hardware” of Chinese infrastructure and the “software” of free trade could help create a “more integrated Asia-Pacific economy,” he said.

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