Development, aid and economics are set to dramatically shift in Asia, as a powerful new player emerges on the scene.
China’s Asia Infrastructure Investment Bank, or AIIB, was established in January last year, and is already challenging other major players.
Ric Wasserman met with experts at the Royal School of Economics in Stockholm Sweden, and has this report on the regional implications of China’s new super bank.
With US$100 billion in starting capital and an ambitious agenda for improving infrastructure in Asia, the new AIIB, or Asia Infrastructure Investment Bank is making waves.
The Chinese led international investment bank aims to increase economic development in Asia through building infrastructure.
Fifty-three countries from all continents have already joined. But, there’s a notable absence. Japan, the region’s leading provider of development assistance, has declined membership.
Professor Marie Söderberg, Director of the European Institute for Japanese studies at the School of Economics, says Japan is nervous.
“Of course it's a dilemma,” Söderberg commented, ”because they now have a competitor in Asia. You can also see that they are now turning and more emphasizing what is the value of their aid compared to other aid.”
Japan has been funding aid to other Asian nations since the 1950s. They are now the world’s 4th largest provider of aid, after the US, UK and Germany.
Their approach aims to strengthen partnerships with internationalorganizations and other donor institutions.
Japan prioritises employing local people and developing their expertise. China on the other hand, generally employs its own workers in development projects.
”Japan would more use their own companies,” said Söderberg, ”but also employ more people for the other countries when they’re building roads, for example.”
That difference may give Japan a competitive advantage. And they’ll need that now that donor recipients can shop around for the best aid packages.
With rapidly growing populations across Asia, there is an increasingly critical need for infrastructure development, and a lack of available resources to finance it.
Japan’s ambassador to Sweden, Jun Yamazaki recognises the powerful potential of the AIIB but is doubtful about their practices.
“What we should think about is the challenge whether AIIB will, or how they will live up to being an organisation that can truly contribute in an effective way to bridging the demand-supply gap of quality infrastructure investment in Asia,” stated Yamazaki.
Just 10 years ago, China was receiving aid.
Mats Karlsson, Former Vice President for External Affairs at the World Bank remembers wondering why a rich country like China would have wanted to borrow back then. Now he knows.
“The answer became quite clear that China was using development cooperation to learn about the best technologies, the best ways of doing development, and certainly had a plan to make sure that their own national development strategy had taken into account whatever they could learn from projects financed by the World Bank,” said Karlsson.
In spite of it’s purported good intentions to be lean, clean, and green, the AIIB - like the World Bank- is an extension of the economic policies and geopolitical ambitions of its majority shareholder.
And this can have grave humanitarian consequences.
The World Bank for instance, supports a huge agroproject which has disenfranchised hundreds of farmers in Ethiopia’s Gambela region. While the Chinese-backed construction of Hambantota Port in Sri Lanka, has led to violent riots, as residents object to the crippling terms of Chinese assistance.
The world’s economic patterns are changing, says the AIIB’s President, Jin Likun, and there’s no doubt that the bank will strengthen China’s strategic interests.
”Twenty or thirty years from now the existing developing countries economic weight would be bigger than that of developed countries, he asserted.”
”Is this alarming? I don’t think so. But you have to be prepared for the changes and relative strengths between different countries.”
And it’s not just Japan that China is set to overtake. The US has long been a dominant power in the region, but as US President Trump vows to put America first, and threatens to break off historic alliances in Asia, a vacuum may be emerging.
China, and it’s new superbank will be ready to fill that gap, deepening their regional and economic influence.