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Oct 24, 2014 1:59 AM

China, 20 other countries initiate new Asian bank

The Associated Press

BEIJING (AP) Twenty-one Asian nations have signed on to a China-driven initiative to create a new development bank for Asia that's aimed at boosting infrastructure investment of all kinds. Beijing sees that as a way to raise its international standing, but Washington opposes the move as an unnecessary and potentially damaging rival to established institutions such as the World Bank.


Members are overwhelmingly developing nations, with Singapore the only advanced economy. The others range from economic powerhouses India and China to smaller but economically dynamic nations such as Singapore, Vietnam, the Philippines and Mongolia. A few are drawn from among the poorest nations including Laos, Cambodia and Oman.

Others taking part are Uzbekistan, Thailand, Sri Lanka, Qatar, Pakistan, Nepal, Bangladesh, Brunei, Kazakhstan, Kuwait, Malaysia and Myanmar.

Just as important is who's not in the group: Solid American allies Japan, South Korea and Australia, although they, along with the U.S. may enter at a later date if the venture proves to be a success. Although Singapore is a close U.S. ally, its officials say entering now will give them a chance to make a positive impact on the way the bank plans to do business.


The U.S. is concerned that the new bank will introduce laxer standards for lending when it comes to environmental and labor protection, transparency of the project bidding process, and human rights. Washington worries that could undercut existing institutions like the World Bank, the International Monetary Fund and the Asian Development Bank that have sought to impose standards to promote good governance, fair labor practices and a clean environment.

Naturally, Washington is also concerned about any move by China to shift attention away from institutions that it and its allies dominate. The world's first and second biggest economies deeply distrust each other and are locked in a ceaseless competition for pre-eminence in Asia, where the U.S. is the dominant military power but China's massive economy carries enormous heft.


China says it's willing to pony up just about all of the $50 billion to capitalize the bank, while other institutions and private lenders are expected to provide another $50 billion. That $100 billion is still relatively small compared with existing institutions. The World Bank's capital is about $220 billion, while the Asian Development Bank has $175 billion capital.

However, China appears inclined to streamline the lending process, meaning countries may not have to wait as long or jump through as many hoops to get their money. That could stimulate borrowing all-around if it ends up competing with existing institutions for business.


The bank is in large part China's reaction to being constantly relegated to second-class status at existing institutions. China is also backing another alternative institution, the New Development Bank, sponsored by the so-called BRICS countries that also include Russia, India, Brazil and South Africa.

The idea is that if the U.S. and other major powers won't make room for China at the table, then Beijing will make its own. China also hopes the bank will improve its global stature and end what it views as the West's bullying and discrimination in the political and economic spheres.

In addition, the bank is expected to bring solid economic benefits to China, whose companies already benefit massively from policy loans offered abroad by the country's state banks. They can expect to pick up port, railway and telecommunications contracts for projects tied to China's oft-mentioned dream of restoring ancient Silk Road trade links to Europe. The bank could also absorb some of China's $3.89 trillion in foreign currency reserves.


Asia needs infrastructure development. A lot of it. The world bank estimates that $8 trillion in spending is required between 2010 and 2020 just to keep Asian economies humming along. Only a tiny slice of that can now be provided by the Asian Development Bank and other institutional lenders, so the AIIB hopes to help fill some of those enormous gaps.

At the very least, the AIIB ought to give borrowers more options and could put pressure on the World Bank and others to streamline their heavily bureaucratic operations, which often take years to process loan requests. By its multinational nature, it could also pressure China's banks to shape up their operations and help defray some of the resentment that has built up toward Beijing among borrowers who feel burned by the terms of their loans from Chinese state banks.

"In China we have a folk saying. If you would like to get rich, build roads first, and I believe that is a very vivid description of the very importance of infrastructure to economic development," Chinese President Xi Jinping told participants after the signing ceremony.


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