30 April 2015. Unlike existing “rivals”, notably the $223.2 billion World Bank and the $175.4 billion Asian Development Bank, the AIIB promises to focus on only one aspect of Asian development: infrastructure. After initially seeding it with $50 billion, China has already increased its capital base to $100 billion, showing its willingness to expand. This is not surprising, given China’s world-record cumulated currency reserves of nearly $4 trillion.

The need for infrastructure

Asia desperately needs infrastructure. AIIB’s focus on that and its huge capital base will certainly be a boon for its poorest members’ development in areas such as electricity, roads, telecommunications, and banking. This may not only spur economic growth worldwide, but also guarantee better-functioning social infrastructure and government programs on a continent full of contradictions and tensions.

The participation of advanced European countries, along with other democratic players, could favour good governance and a focus on high quality projects, job creation, and strict environmental standards in the AIIB’s future investments. Moreover, their role in the design and approval of funded projects could encourage the opening of potentially profitable foreign investment channels. As the Chinese economist Justin Yifu Lin has claimed, successful financing of the poorest countries’ infrastructure projects may even help European countries to fully exit the post-2008 crisis stagnation, and fully value Europe’s still underutilized labour-and-production capacity.

A threat to World Bank?

Will the AIIB be harmful for the World Bank and for the ADB? I think it will not. The amount of infrastructure investment needed in Asia – new annual investments of $750 billion, according to ADB estimates – is so large that AIIB’s success will still leave plenty of opportunities for WB and the ADB, and may relieve some of the pressure on them.

But we might ask, why should the AIIB’s founding members not just pour their money into the existing institutions, rather than duplicating bureaucracy and management costs? Well, given the massive demand to satisfy, having more competition in the highly concentrated world of public-finance providers could perhaps spur all institutions to improve their performance, in a potentially virtuous cycle of mutual emulation, to the advantage of their neglected and often desperate customers.

A balanced approach

However, wouldn’t AIIB be just another Beijing-centred big player? Potentially, given the required Chinese financial involvement. Hopefully, the presence of wealthy and/or fast-rising other Asian countries, most notably India, will help balance the influence. Membership of more countries, such as Japan, South Korea, and Australia, would certainly allow a broader perspective and balance. Moreover, it could foster cooperation and peace in Asia, overall.

Finally, with a GDP almost comparable to the United States, but with about four times as many people to look after, China’s new effort to foster development in Asian countries is unlikely to be achieved without a level of enthusiasm so far quite poorly understood by the existing international institutions. These institutions often are mired in internal power struggles and are deaf to repeated Chinese requests for more global leadership roles.

Its important founding role at the AIIB, with ample western recognition and participation in the bank, could reward China, as well as benefit its needy neighbours, with potentially huge beneficial consequences for the global economy and for international peace policy.

Photo: Photocase/steffne