By Sudipta Purkayastha, Gujarat National Law University.
When one talks of financial prowess in the international arena, could it ever be possible to not think instantly of the Asia of this new era? With the West having dominated this field till the very recent past, the Asian countries are now formally contending for the top spot with the creation of their very own Bretton Woods.
Formulated on the 24th of October, 2014, the Asian Infrastructure Investment Bank (AIIB) was the initiative of the People’s Republic of China. China’s disquiet with the United States of America being the primary actor in the major financial institutions of the World, such as International Monetary Fund, World Bank and Asian Development Bank, along with the slow pace of reforms in these organizations, led to the idea of creating an Asian institution which would be at par, or even better than these West-dominated institutions.
$100 billion have been allocated as initial authorized capital stock to found this Bank, and the nations of India, Thailand, Malaysia, Singapore, the Philippines, Pakistan, Bangladesh, Brunei, Cambodia, Kazakhstan, Kuwait, Laos, Myanmar, Mongolia, Nepal, Oman, Qatar, Sri Lanka, Uzbekistan, and Vietnam were the 21 countries to first sign the Memorandum of Association (MoA). With time, nations such as Australia, Brazil, Finland, France, Germany, Italy, Jordan, Netherlands, New Zealand, Norway, Portugal, Republic of Korea, Russia, Saudi Arabia, Spain, Sweden, Switzerland, and the U.K. have also moved in to support this institution, and all of these nations have taken part in the signing of the Articles of Association (AoA), which took place on 29th June, 2015. In total, 50 nations signed these Articles in Beijing at the Great Hall of the People, while 57 states are the actual founding members.
Notable absentees were Japan and the United States of America, and this indirect refusal to be a part of a project that has been initiated by China, despite its large scale approval, perhaps shows a need to negate China’s increasing financial clout, which is progressing at a pace that is unprecedented.
It’s not just these two economies that have refused to join – The Philippines expressed its suspicions with the Bank, and has not yet signed the AoA despite having signed the MoA, citing its concerns regarding AIIB’s capability to be “truly multilateral in nature” as the reason for their hesitation. On the face of it, Manila’s stance to avoid signing the AoA seems to almost entirely be a consequence of its torrential territorial dispute in the South China Sea. China’s plans to undertake immense construction activities in the archipelago under dispute have led to worries of China soon imposing an Air Defense Identification Zone. Thus, with the bilateral tensions between China and The Philippines being on an all time high, Manila’s refusal to sign the AoA immediately has not come to surprise many.
The voting rights of the AIIB are subjective to the size of each member country’s economy, independent of its contribution to the Bank’s authorised capital, and China has acquired 26.06% of the total voting rights, accompanied by veto powers. With China being the largest shareholder at 30.34% of the total holdings, and India, at 8.52%, and Russia, at 6.66%, following suit, USA, Japan and Philippines’s concerns regarding China are justified. China seeks to export its capital abroad owing to its current account surpluses, however, till recent past, this has been achieved via foreign exchange reserves. Now, through its development of a finance institution that it would have primary voting rights over, and the institution itself looking set to light the financial world ablaze, China’s strength as a global power shall be incredible to behold.
China itself believes so strongly – the Global Times, which is affiliated with the official Communist Party mouthpiece, People’s Daily and thus qualifies as state-run media, has reported that China’s leadership in creating the AIIB indicates an “influence” that “is prominent and far-reaching”, carrying “more profound significance than successfully hosting” the 2008 “Olympic Games”. Further, the Chinese believe that the fact that the allies of the United States have joined the AIIB does not imply that their actions aim to “flatter China”, but does show that they have identified that “the benefits” of joining will “outweigh their relations with Washington”.
However, what would this clear Chinese dominance over the Bank mean for the other Asian nations? It might be argued that China’s excessive control over the AIIB might only solidify the existing unequal trade relations between China and its Asian neighbours, and might result in the smaller Asian economies to become ensnarled in a quagmire with only China remaining upright, further upsetting the balance of power in the Continent.
Currently, most Asian nations are facing trade deficits with respect to China, and in the past half a decade, the Chinese economy accounted for 84% of the total industrial growth in Asia, along with 75% of the growth in industrial exports.
China’s policy of competitive connectivity means that it does not seek to cease globalisation, but to bend it in a manner that ensures that its own industries attain faster growth than those of other nations.
Further, the Chinese, Jin Liqun, looking set to head the AIIB, is a man who has been the Deputy Finance Minister of China, the Chairman of the committee that oversaw China’s sovereign wealth fund called the China Investment Corporation, and also the Chairman of one of China’s biggest investment banks, namely, China International Capital Corporation. This only strengthens fears of China hegemonizing the working of the AIIB.
However, Liqun has also served as a Vice President of the Asian Development Bank and as an Alternate Executive Director of the World Bank, which does bode well for the AIIB.
Further, although the AIIB is a “master stroke of economic diplomacy” of the Chinese, worries about imbalanced economic relations cannot negate the benefits of the Bank.
The AIIB, owing to the lacuna in sufficient infrastructure funding in Asia, seeks to accelerate the growth of infrastructure projects in a continent which has been witnessing a massive financial progress in the past decade. Blending in public and private funding together, it will seek to aid finance infrastructure projects across Asia, and will, over the next 10 years, work in harmony with the Asian Development Bank, the World Bank, as well as a myriad other banks in order to overcome an estimated $8 trillion infrastructure shortfall in Asia.
With the Western countries, especially those in Europe, actively supporting this institution, their identification, firstly of the Asian nations as a collective financial power, and secondly of the importance and potential of investment in infrastructure projects in this part of the world, indicates that this institution was truly required in Asia for it to become financially at par with Europe and the USA. Slated to be fully established by the end of 2015, one can only hope greatly for the AIIB and the future of the largest continent in the world.