AIIB is coming... fast

A China-led infrastructure development bank is coming — and it may be sooner than you think. The still tentatively named Asian Infrastructure Investment Bank was a deeply debated issue during and immediately after the Asian Development Bank’s annual meeting two weeks ago, and intense speculation over the planned financial institution, its members and contributors — and the role it will play in Asia’s development — continues to simmer. Now it seems like the AIIB, proposed last October by Chinese President Xi Jinping during the Asia-Pacific Economic Cooperation Summit in Bali, could be established within the year with an operating capital of $50 billion, several reports indicate. To date, neither the United States nor Japan, ADB’s top two shareholders, have been invited to join the AIIB. Both countries have been perceived as losing out to China in the race to develop Africa’s infrastructure, so the creation of an Asian infrastructure bank led by China could come across as another big win for the Asian behemoth, this time in its own backyard. Rayyan Hassan, executive director of NGO Forum on ADB, a Manila-based network of civil society organizations which advocates more responsible and accountable projects and policies, told Devex how the prospect of the AIIB was openly discussed at ADB’s recent annual meeting in Astana, Kazakhstan, where bank stakeholders seemed to have “mixed feelings.” In public, ADB officials have stressed that they welcome a new infrastructure investment bank, citing the region’s significant infrastructure development needs — estimated to be at least $800 billion annually for the next decade — and financing shortfalls. But there are practical implications for both ADB — and perhaps to a lesser extent, the World Bank — that would apply pressure on the longstanding multilateral institutions. One is the added competition for top talent. Even today, the world’s multilateral development banks battle for qualified staffs. In order for China to get the bank up and running by the end of 2014, it would have to attract diverse, top-tier expertise from both the public and private sectors. The most obvious place to look for this talent would be within the halls of the Manila-based ADB, which has the technical and functional experience AIIB would need to work with developing economies across Asia. With a potential headquarters in an expat-friendly, English-speaking Asian city such as Hong Kong, Singapore or Kuala Lumpur, some ADB and World Bank employees might view AIIB as an exciting opportunity for career advancement. Another is competition over clients, despite the official stance of ADB. Traditional international financial institutions like ADB and the World Bank pride themselves on pushing social and environmental safeguards and responsible business practices that help sustain their solid credit ratings and reputation, allowing member countries to borrow money at very low rates. While the safeguards and standards provide certain protections to borrowers, they also increase the cost of doing business and the time it takes to move projects through the system. Beijing, on the other hand, is notorious for pushing investments without a strong focus on social and environmental protections, and it may present much more streamlined infrastructure options for governments in desperate need of stimulating their development and economic growth. Hassan, who was a speaker at two panel discussions in Astana, suggested that ADB’s announced focus on Central Asia ahead of the 2015 annual meeting in Baku, Azerbaijan, may well be a strategy to gain a foothold in a region with limited Chinese influence. Officially, though, ADB still welcomes the prospect of the AIIB, and ADB President Takehiko Nakao had “friendly” advice for the new institution. It’ll be much easier, he pointed out, to set up AIIB than actually run it later on. “To do a good banking business, there are so many elements needed, including finding appropriate projects, lending money and implementing the projects, monitoring and ensuring the payment of the governments,” the ADB chief explained in his inaugural address to the media in Astana. Nakao said that for the AIIB to become a success, first it will have to develop a whole set of best practices, guiding principles, governance procedures and procurement policies — and that’s where ADB has a “natural advantage” in its almost 50 years of experience doing development work in the region. Despite its lack of experience, China appears set on making AIIB a reality by the end of 2014. Beijing has already signed a memorandum of understanding with Mongolia, and about 15 other similar memorandums are currently being negotiated. In the next few months, we’ll likely see more steps in the same direction, and hopefully know more specific details about where the bank will be based, how many employees it plans to hire, and how it will fit into Asia-Pacific’s fast-changing development landscape. What do you think about a Chinese-led infrastructure development bank for Asia-Pacific? Please let us know by leaving a comment below, joining our LinkedIn discussion or sending an email to news@devex.com. Read more development aid news online, and subscribe to The Development Newswire to receive top international development headlines from the world’s leading donors, news sources and opinion leaders — emailed to you FREE every business day. Read more: Friend or foe? ADB and a future China-led development bank Is the time ripe for China's own aid agency? ADB open to Asia-Pacific infrastructure development bank Does Asia need an infrastructure development bank?