Opening of AIIB part of global financial revamp

The bank is likely to lend anywhere between $10-15 billion a year during the first five-six years of its existence, say analysts.

January 16, 2016 01:48 pm | Updated September 23, 2016 12:49 am IST - BEIJING

The China-led Asian Infrastructure Investment Bank (AIIB) was formally opened for business on Saturday, signaling the steady revamp of the global financial architecture, which will also soon incorporate the New Development Bank of the Brazil-Russia-India-China-South Africa (BRICS) grouping.

Chinese President Xi Jinping, in his inaugural address saw the launch of the AIIB as “a historical moment." "Asia's financing needs for basic infrastructure are absolutely enormous," Mr. Xi observed. He added that the bank would target investments in "high-quality, low-cost" projects.

Analysts say that the AIIB is likely to lend anywhere between $10 billion-$15 billion a year during the first five or six years of its existence.

Earlier in an interview, Chinese Finance Minister Lou Jiwei-the first Chairman of its council-described the AIIB as a milestone in the reform of the global economic governance system.

The AIIB is expected to open a new channel of funding for the Global South, which was so far dependent on the western backed International Monetary Fund (IMF), the World Bank and the Asian Development Bank (ADB), in which Japan plays a pre-eminent role.

Observers say that the new lender will focus on infrastructure development in Asia-a move that is likely to support the Eurasian connectivity initiative under the China-led Belt and Road framework.

The formal opening on Saturday also reinforced a major geopolitical shift -- of a closer structural alignment along the financial track of China with Europe-a traditional ally of the United States.

Suma Chakrabarti, President of the European Bank for Reconstruction and Development (EBRD), who attended the opening ceremony said that the formation of the AIIB would provide "healthy additional international firepower for the international system".

The EBRD was set up in 1991 to aid infrastructure development in Eastern Europe. Since then it has broadened its area of operations to include central Asia, some Mediterranean and North African nations, the Balkans and Southern Europe.

Mr. Chakrabarti also affirmed that Europe fully backed the China-led Eurasian connectivity initiative under the Belt and Road or Silk Road framework.

"The Silk Road will reduce time taken for exports between China and Europe. If we can get the infrastructure moving this will reduce the costs of imports and exports both ways between China and Europe,” observed Mr. Chakrabarti in an interview with state-run Xinhua news agency. Luxembourg Finance Minister Pierre Gramegna said the establishment of the AIIB was "further proof of the rebalancing of the world economy".

The formation of the AIIB had earlier opened cracks in the Atlantic Alliance, with major European countries including Germany, Britain and France defying Washington to join the 57-member Bank.

In a conversation with the Indian media, India’s representative at the conclave, Dinesh Sharma, additional Secretary in the Ministry of Finance, acknowledged that meeting appeared to reflect a structural alignment between Europe and China. He also pointed out that “formal and informal” channels of communication for coordination had been established between the AIIB and the New Development Bank of the BRICS countries. Without specifying the amounts, he said India was likely to be in the beneficiary of lending from the AIIB, especially in the power sector.

On Friday, Chinese Prime Minister Li Keqiang confirmed Beijing’s closer structural bonding with Europe, after China formally joined the EBRD as its 67th member.

Earlier, in an article in the People’s Daily, the official newspaper of the Communist Party of China (CPC), the AIIB’s President-designate, Jin Liqun, stressed the bridging the digital divide between the regional and global economies would be the bank’s top priority in the future. The article said that the bank will focus on digital infrastructure including fixed broadband networks, cross border and undersea fiber optic telecommunication cables, wireless sensor networks, satellite services, new generation mobile telecommunication networks, cloud computing and big data platforms.

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