A new multilateral institution
The >launch of the $100-billion Asian Infrastructure Investment Bank, within two years of its conception, signals the arrival of a new multilateral institution on the world stage. It also represents a challenge to the older such institutions. Mooted by Chinese President Xi Jinping in October 2013, the AIIB took shape with 50 members, including Australia, India, Russia and the United Kingdom. The articles of agreement were initialled at a gathering in Beijing of representatives of the 57 founding-members. The remaining seven are likely to sign in by the end of the year. China will be the largest shareholder (at 30.34 per cent), followed by India (8.52 per cent) and Russia (6.66 per cent). Though one among the Asian giants, Japan has chosen to stay out of the Beijing-initiated AIIB. The Philippines, which has territorial issues with Beijing in the South China Sea, has held itself back from signing, for now. And Indonesia has sought to have the bank housed in Jakarta. These spell geopolitical roadblocks to the success of the China-led initiative, which in a way is meant to counter the purported bias among existing multilateral institutions, that are perceived to be driven largely by the diktats of the U.S. and Europe. Indeed, the AIIB is a culmination of China’s incessant articulation of the concerns of the emerging economies, which felt they were not being given an adequate say in institutions such as the International Monetary Fund and the World Bank. Again, the AIIB is the consequence of the inability of these institutions to undergo change to suit changing times.
It is also essential to see the AIIB and >China’s ambitious plans for the ‘Belt and Road’ project as being complementary. The AIIB as envisaged by China is clearly meant to use its financial resources and surplus to invest in projects in the Asian neighbourhood, which is suffering from a massive infrastructure funding gap. The infrastructure projects in the neighbourhood, nevertheless, are a way of allowing Chinese companies (among others) to participate and invest in them at a time when there is a situation of industrial overcapacity. The participation of many countries from Europe and elsewhere in the AIIB attests to their understanding of the potential of the projects for which the investments could be used, especially the Belt and Road schemes. India’s participation in the AIIB, too, indicates that New Delhi is keen on a balancing act to suit its interests – to engage with the West and the dominant international finance order, at the same time exploring options with new financial institutions. This is a prudent strategy. Will the AIIB be different from the likes of the IMF and the World Bank? That will depend largely on how Beijing manages the cooperation game.