Muhammad Abrahim Shah ‘17
On October 21st 2014, the Asian Infrastructure and Investment Bank was officially signed into existence in Beijing when 21 countries signed a bill for the creation of the bank. The bank currently has registered capital of $100 billion with the majority being provided by China and several other countries promising to provide more. This development succeeds the July 15th, 2014 declaration by BRICS, a group of nations comprised of Brazil, Russia, India, China and South Africa that contributed initial capital of $100 billion to the development of the new Development Bank.
These developments indicate how China is emerging as a financial powerhouse not just as a trading partner but as a country that holds significant financial might. For a while, China has expressed discontent over how current global financial structures such as the International Monetary Fund, the World Bank and the Asian Development Bank have favored US, European and Japanese interests over their own. Now these recent developments by China are being seen as counterweights to this long-standing favoritism. This shift in China’s policy from relatively low interference to establishing two significant financial institutions demonstrates how China is accepting and molding its image as an economic powerhouse particularly in Asia and the developing world.
The two banks have significantly less capital than the Asian Development Bank and the World Bank, both of which have capital exceeding $250 billion, but they still stand as institutions that developing countries can look to for loans in case they are denied by the IMF, the World Bank or the Asian Bank.
This is particularly true for countries such as Myanmar and North Korea, a strong ally of China, who have poor human rights records and can benefit significantly from the newly created banks. By targeting developing countries and claiming to establish less stringent policies for giving loans, China is aiming to develop an economic clout that it hopes will match the influence of the US all over the world. But this calls into question the checking policies of implementing these loans and how the debtor countries will implement them. This along with several other issues can and will be brought up as these banks begin exerting their influence and giving out loans. It is also interesting to point out that staunch US allies in Asia, South Korea, Australia and Indonesia have not signed as the founding members of the Asian Investment Bank, which indicates the economic conflicts that might emerge from the ramifications of these banks.
In conclusion, the AIIB and the New Development Bank have huge potential to improve the world and help economically stricken developing countries find their feet. The true benefits accrued from these projects can only be beneficial if China and its allies ensure that loans are used positively from an economic perspective. A major concern is that these issuance of loans will be used by the banks to exert their own influence, which has been speculated about the US and its allies with the IMF and the World Bank.
Sources:
http://www.affairscloud.com/china-launches-aiib-in-asia-to-counter-world-bank/