According to the recent report of IMF China took over US as
the largest economy, a stint which US maintained for the past 142 years, in the
world in terms of GDP calculated on PPP (Purchasing Power Parity). Months after
extending a dynamic support for the launch of a Development Bank by BRICS (Brazil,
Russia, India, China and South Africa) China instituted a new Bank, Asian
Infrastructure Investment Bank (AIIB). The proposal which took the World by
surprise was made public by Premier Xi Jinping during his first official visit
to Indonesia in 2013, whose infrastructural needs are pegged at $230 billion.
Asian Development Bank in its report estimated that “Asian countries need to
invest $ 8 Trillion in investment in national infrastructure and $290 billion
in regional infrastructure between 2010 and 2020 to continue to sustain its
growth trajectory”. Coincidentally the central theme of APEC (Asia Pacific
Economic Cooperation) 2013 was also improving connectivity in the Asia-Pacific
region. AIIB offered a great promise for infrastructure development.
Financial experts greatly commended China’s new brain child,
AIIB launched on October 23rd. Twenty one countries including India and China
signed an agreement to become founding members of the China backed AIIB to aid
the infrastructure development and reduce the hegemony of the Western dominated
IMF and World Bank. The bank with authorised capital of $100 billion will be
headquartered in Beijing will start working from next year. India will be
second largest share holder after China. Though the incessant border
incursions cloud Indo-China relationship, India can hardly let go this
opportunity of participating in the financial revival of Asia. This bank
is believed to reduce the infrastructure investment deficit and work
complimentarily with ADB, IMF and World Bank. Being the second largest economy
in Asia, China was keen on India’s participation in AIIB as it would be major boost
to its Bank. This bold initiative by China has raised fears among the West and
the disgruntled US was strictly opposed to this move.
Dismayed by growing clout of China, US resorted to lobbying
its allies to reject the proposal of AIIB. The absence of representatives from
economic powers of Asia- South Korea, Indonesia and Australia during the launch
illustrated US’s bitter antagonism towards opposition towards China’s initiative.
US gently warned its friends and allies that AIIB is part of China’s soft-power
ploy. Japan too met with similar opposition back 1960 Japan when it started ADB
and intended to share its financial resources with then rising countries like
Singapore, Taiwan, South Korea and Hong Kong currently the financial Tigers of
Asia. U. S. Treasury Department was critical that the proposed bank may not
meet the environmental standards, procurement requirements and other safeguards
complied by World Bank and IMF. But in reality the institutions dominated by
the West generates 4-5 times more pollution than the emerging Asian countries
on the per capita basis.
To allay fears of the West, China has reiterated its faith in
the US led Bretton Woods institutions like the World Bank and IMF but expressed
its frustration by lack of reforms, slow growth of implementation of projects
and their reluctance to expand lending. It frowned at the inability of these
institutes to evolve their economic architecture on par with the changing
global economic scenarios. The contribution of emerging countries to the global
economy is rising. Though the West is intent on pushing for new reforms, the
glacial pace has dithered the third World countries of its due share and
opportunities in these multilateral institutions. Moreover the existing
international financial institutions are woefully inadequate to cater the
capital needs of Asian countries.
Meanwhile, strategists opine China’s rationale for launching AIIB
is two pronged. China enviable expertise in infrastructure earned it World
repute. With AIIB it can harness its mastery in developing dilapidated roads of
neighbouring countries like Vietnam, Laos and Myanmar which otherwise in case
of direct intervention might be construed as enforced colonialism. Financing
and heavily investing in infrastructure machinery would be beneficial for China.
Secondly China will get to know what is built and where. By financing these
projects in different Asian countries, China can indirectly control and monitor
other smaller countries.
It was believed to work in complimentarily with the ADB where
China holds 6.5% of shares against 15.6% shares of US and Japan each. While ADB
largely dominated by Japan and US was established on similar lines as the AIIB,
it failed to pander to the needs of the emerging Asian countries. Even the
World Bank which in theory is owned by 188 countries with the subscribed
capital of 223 $ billion lends loans worth $50 billion per year which is
insufficient to meet the growing infrastructure needs. Further, disbursement of
loans and distribution of power within these institutes is largely controlled
by the West. Since their inception the Chief of World Bank has been an American
that of ADB is Japanese and IMF is headed by Europeans. Hence all these
institutions are headed by the West who have high standard of living but low
growth rate. Besieged by debt and stagnation, Western nations are unlikely to
adequately support the emerging Asia, Latin American, African countries which
have low living standards and high growth rate. Not only China but all other
emerging nations are sceptical about the commitment of the existing
multilateral institutions. Hence the proposed AIIB is a great venture to boost
the development and growth of the emerging and developing countries across the
World. The new bank is likely to cooperate with and compete against the old
banks. The success and efficient working of this new bank in long term might
encourage new reforms in the old institutions.
Other AIIB founding members are Vietnam, Uzbekistan,
Thailand, Singapore, Sri Lanka, Qatar, Oman, the Philippines, Pakistan, Nepal, Bangladesh,
Brunei, Cambodia, Kazakhstan, Kuwait, Loa PDR, Malaysia, Myanmar and Mongolia.
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