Last year when China unveiled a grandiose plan for creating a Asian Infrastructure Investment Bank, the Asian powerhouse seemed to be reading from the script that Japan followed back in the 1960s when that country helped create the Asian Development Bank.
 
Other Asian finance ministries and central bankers were divided, some asking if another multilateral institution were necessary, and others wondering if it was safe to say ‘no’ to their biggest trade partner. Two quick and somewhat surprising developments followed: the BRICS summit cleared the idea of a New Development Bank in mid-July, and the World Bank in early October announced its $1 trillion Global Infrastructure Initiative.
 
Some wonder whether financiers are all it takes to build infrastructure.
 
“China’s intention is to meet a felt need for [an] infrastructure fund in Asia. We have even agreed to provide up to 50% of the equity capital. There is no need for anyone to be suspicious about China’s motivations,” Jiang Yuechun, Director of the Dept. of World Economy and Development at the state-controlled China Institute of International Studies, told ENR.
 
Beijing is selling a dream that involves a multilateral bank with $100 billion in equity capital, half of which it will cough up. The goal is to meet some of the $8 trillion gap in infrastructure funding in Asia, according to ADB’s calculations. China is looking for “founding members” among the different Asian countries, who will contribute share capital.
 
"The bank can cooperate with the World Bank and Asian Development Bank on joint financing," Chinese finance minister Lou Jiwei said. He was apparently responding to criticism that Beijing was developing a rival to the World Bank and ADB. Japan, United States and European Union were welcome to become partners in the AIIB, he added.
 
The World Bank says it is ready for co-financing with the proposed New Development Bank of BRICS and the AIIB.
 
But even Jiang cannot deny that the AIIB, if successful, could be a huge boon for Chinese construction firms. A major part of the $586-billion economic stimulus package announced by the Chinese government in 2010 went to the sector because contractors built the infrastructure the government needed to grow the economy. Near the head of the queue were projects providing a push to the steel and cement industries.  The government is now moving in reverse gear, trying to cool down the economy and check uncontrolled growth.
 
Chinese contractors have little option but to look outside, beyond the comfortable, diplomacy-earned markets in Africa. They are getting ready to deal with the wider Asian market, and the government has stepped in with a financing platform called AIIB.

With China set to become a major shareholder, Chinese companies, mostly state-owned, are expected to have an edge in the bidding for projects bankrolled by the AIIB, critics say.

“How would the new institution add value? How would the Asian Infrastructure Investment Bank be structured so that it doesn’t undercut the standards with a race to the bottom?” the New York Times quoted an unnamed senior Obama administration official as saying. The U.S. Treasury Dept.had concluded that the new bank would fail to meet environmental standards, procurement requirements and other safeguards, the source said.

But there are many who do not mind higher Chinese participation because the AIIB can open some doors for them as well.
 
“Fears of Chinese companies calling the shots in AIIB-funded projects are unfounded. Right now, the urgent need is to step up infrastructure creation. If China can provide leadership on that front, why should other countries not benefit from it?,” Sunil Kanoria, vice chairman of Srei Infrastructure Finance Co., and ASSOCHAM, an India-based industry lobbying organization, told ENR.
 
Surprisingly, the world’s No.2 economy and the biggest infrastructure builder in Asia and Africa, has found it difficult to find co-travelers. Beijing says 21 countries including India have shown interest. But on paper, only Singapore, Pakistan and Sri Lanka have signed up. Bangladesh officials are getting ready to sign up when they visit Beijing on October 24.

Reports say U.S. diplomats are quietly discouraging Asian nations from joining the Chinese bandwagon and promising alternative funding options. Some observers say the World Bank’s new Global Infrastructure Initiative is meant to reassure the developing world that it is capable of meeting funding needs and discouraging them from entering into bilateral arrangements.
 
India, the second biggest Asian country, is in two minds: hankering for funds to meet its $1 trillion infrastructure development program and suspicious about the consequences of allowing Beijing to call the shots. But the Indian industry is divided as infrastructure companies are keen on alternative funding mechanism.

“India and Japan may be concerned the Chinese will play a leading and dominant role in this bank. They think the Chinese dragon will become bigger,” Jiang said.




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