AIIB

Why European Powers Are Flocking To China’s Asian Infrastructure Investment Bank

photo by Number 10 via Flickr 

China’s new Asian Infrastructure Investment Bank (AIIB) has caused somewhat of a stir in the US. But what exactly is it, and why has it drawn ire of America?

What is the AIIB?

The AIIB is a newly created international financial institution sponsored by China and designed to support infrastructure projects (telecommunications, energy, and transportation) in Asia by providing loans. In many ways, it serves a similar purpose to the International Monetary Fund (IMF) and the World Bank.

It was founded in October 2014, and originally encompassed 21 Asian economies, including; China, India, Thailand, Malaysia, Singapore, the Philippines, Pakistan, Bangladesh, Brunei, Cambodia, Kazakhstan, Kuwait, Laos, Myanmar, Mongolia, Nepal, Oman, Qatar, Sri Lanka, Uzbekistan, and Vietnam.

Now, however, as the bank gains steam, it has even attracted European powers, including the United Kingdom,  France, Switzerland, and Germany.

When the bank officially opened for business in January of 2016 it had over $100 billion in assets.

Why Europe is interested

European powers have flocked to the bank, with Germany, the UK, and France all joining the ranks.

According to European powers, by joining, they hope to:

Shape the bank as it develops

European powers have stated that they hope to influence the bank, and provide their guidance and standards – especially in regard to lending practices and transparency.

Reap economic benefits

In the past, the UK has stated that it wants to be the primary destination for Chinese investment. The AIIB may provide the perfect opportunity to ensure that.

The AIIB affords all European powers the chance to reap the benefits of China’s rapidly expanding infrastructure projects.

What’s all the fuss about?

So far, the US has been overtly critical of the AIIB and those gravitating to its open arms. An anonymous White House official told the Financial Times that the UK’s decision to join the AIIB without consulting the US was another act of constant appeasement from London.

But what exactly is it about China’s AIIB that has some US officials so sour?

For one:

The AIIB is seen as a competitor to the World Bank

One of the main reasons for US opposition over the AIIB is its perceived potential to undermine the World Bank – a similar institution which the US and its European allies carry great clout over.

For Washington, joining the AIIB could mean that it has to play by China’s rules and therefore relinquish much control over Asia and its economic sphere of influence.

Secondly:

The US has expressed concern over the AIIB’s social and political ideology

The US has voiced its skepticism in regard to labor rights and environmental issues in particular, stating that the US “strongly urges [the AIIB] to meet international standards of governance and transparency.”

Since the AIIB could be financing massive energy and transportation projects across Asia, their policy towards workers and the environment could be quite impactful.

Just how powerful will the AIIB be?

What the actual impact of the AIIB will be – despite much initial clamouring from European powers to get in on the action – still remains to be seen.

According to UPenn professor Julia Grey (pdf), many international economic institutions cut from the same cloth have enjoyed fairly short lives – springing up only to die down shortly thereafter.

Grey estimates that of the existing international economic organizations worldwide, 10 percent are ostensibly dead, and 38 percent are “comatose.”

The investment profile profile for the AIIB still remains somewhat undetermined. Initial areas of focus will be in Africa and, of course, on capital for China’s massive infrastructure projects, which the Asian Development Bank says will cost them $8 trillion over the next 15 years.

Despite the failure of many economic institutions before it, the AIIB, with the willingness of the IMF and World Bank to support it, is already off to a good start.

Updated

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