Friend or foe? ADB and a future China-led development bank

Asian Development Bank President Takehiko Nakao at the opening press conference of the bank’s 47th annual meeting. Photo by: ADB

When Asian Development Bank President Takehiko Nakao took to the stage at the opening press conference of the bank’s annual meeting in Astana, Kazakhstan last Friday, the first question was about China’s plans to set up a regional infrastructure development bank, and if ADB would view that new organization as a partner or a competitor.

So would this (still potential) Chinese-led international financial institution threaten ADB’s leading role in Asia-Pacific’s development?

Nakao’s reply, of course, was in line with the bank’s official position on the issue — which Devex previously reported: ADB welcomes not only this idea but also a future BRICS bank as partners in the region.

“I understand the reasons behind the [proposed establishments of] these banks so it should be welcome,” Nakao said.

Asia-Pacific’s need for investment in infrastructure is enormous, up to $800 billion a year for the next decade, and ADB just doesn’t have that kind of money, so — in theory — the emergence of two new international financial institutions could surely fill the void.

Beijing has yet to release specific details about its plans for the the Asian Infrastructure Investment Bank proposed in late 2013 by Chinese president Xi Jinping, but the intention is to set up the institution in 2015 with an initial capital base of about $50 billion, larger than ADB’s. And while ADB was preparing for its annual meeting in Astana, China was slowly setting the wheels in motion for the AIIB with the signing of a memorandum of understanding with Mongolia, and 15 more MoUs are currently under negotiation.

So is the proposed AIIB a friend or a foe? For Nakao, it’s like a partner who can push ADB to become more effective and innovative.

“We need to make efforts ourselves to maintain our capacity of lending or even increasing it. So in a sense, the idea of AIIB stimulates us to think more innovatively [and] strengthen our capacity,” he said.

Nakao added, though, that they are “very happy to collaborate” but only once these banks are established and operational. “I'll do that if this bank is established, we can coordinate through co-financing and other areas.”

No easy task

For China to fully establish the proposed AIIB, the next step now is to set the guidelines, procedures and mandate that will institutionalize the bank — something that Nakao said won’t be easy.

“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,” he explained.

A whole set of best practices, guiding principles, governance procedures and even procurement policies would thus have to be crafted, institutionalized and implemented for AIIB to become a success. It would be interesting to see how China would respond to this query, given its track record of having its own way of conducting international development activities that sometimes seem to be quite different from that of traditional donors.

Even a leading public policy think tank in China doubts the country’s capability to actually operate and run the bank, on top of the belief that it is overlapping with ADB’s mandates.

“The main issue of AIIB is in operation rather than establishment,” Beijing-based Anbound said. “The operation mechanism of AIIB might face challenges from either the government or the market.”

Takehiko Nakao noted that this is where ADB can offer almost half a century of experience in regional development efforts.

“ADB has a natural advantage. [We have] played a very important role in the region and we have had a very good track record [of] doing good things including safeguard policies for social and environmental protection and also integrity issues regarding procurement,” he said.

But aside from welcoming the initial proposal, the bank still hasn’t specified, for instance, if it will try to persuade China to partner (fund-wise) to avoid duplicating costs and efforts — especially if Beijing is truly setting up the AIIB to undermine ADB’s leadership role in Asia-Pacific and even the leadership within the bank.

Should US, Japan worry?

Despite the inherent good intention of AIIB, many development experts are wary and even reluctant to embrace the future Chinese-led development bank.

Marc Uzan, executive director and founder of the Paris-based Reinventing Bretton Woods Committee, said in a tweet that no matter how people see the proposal, the idea is “still seen as a way to undermine the Asian Development Bank.”

The proposal should be a “wake-up call” for both ADB and Japan, the bank’s largest shareholder along with the United States, according to Curtis Chin, former US Ambassador to ADB, who told Devex that “China is making clear that it is not business-as-usual as it continues to assert itself economically in the region.”

China’s ways in viewing and even conducting technical assistance have been a subject of hot debate over the past couple of years, especially aid to Africa. On Monday, Chinese Prime Minister Li Keqiang announced a broad $12 billion assistance package to the continent, despite protests of lack of transparency and accountability over these development funds.

This is something that seems to separate people’s views.

Delegates at ADB’s annual meeting held intense discussions on the issue, and some suggested that the AIIB would not only undermine U.S. and Japanese influence in the bank but also result to duplication and inefficiencies in delivering development outcomes, especially in infrastructure projects.

Nakao, however, insisted his earlier point in his opening address in Astana, quoting a Kazakh proverb that underlines cooperation: “The more the friends, the wider the road.”

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See more:

How ADB’s ‘culture of communication’ has changed
What to expect at the ADB annual meeting
What Myanmar needs from ADB
How to keep ADB relevant in a changing Asia
Is the time ripe for China's own aid agency?
Where does ADB spend its money?
ADB's plans to make itself more relevant, responsive and effective
ADB: Co-financing, partnerships to bridge Asia-Pacific’s development gap

About the author

  • Lean 2

    Lean Alfred Santos

    Lean Alfred Santos is a former Devex development reporter focusing on the development community in Asia-Pacific, including major players such as the Asian Development Bank and the Asian Infrastructure Investment Bank. He previously covered Philippine and international business and economic news, sports and politics.