Caveat Emptor about the AIIB

Caveat Emptor about the AIIB

Eisuke Suzuki

It is undisputed that Asia’s financial requirements for new bridges, roads, ports, power plants and other infrastructure projects are gigantic. It is also acknowledged that funding sources available today for such infrastructure needs are limited. There is a real need for the Asian Infrastructure Investment Bank (AIIB).

   A new alternative funding source additional to the World Bank and the Asian Development Bank (ADB) creates a fresh competitive process to the hitherto U.S./Japan- controlled institutional practice. That it enlarges the total size of a funding pie is not only beneficial to the development of infrastructure in Asia, but it also promotes pluralism and diversity in the interest of everybody.  

   China wants a place in the global economic and financial architecture, commensurate with its economic power, which has long been denied either in the IMF/World Bank and ADB. The launching of the New Development Bank commonly known as the BRICS Bank itself is a result of the failed implementation of the IMF’s far reaching reforms of quotas and governance approved in December 2010. The AIIB is China’s answer to its own quest for a global power. It will provide an alternative financing in form and substance to those practice and procedures established by the Bretton Woods institutions.

   So should we all applaud the establishment of the AIIB? Japan decided to postpone its decision on the AIIB because of the lack of transparency in the AIIB’s decision-making process. Before jumping on the bandwagon, let’s consider a few points of concern that are not openly mentioned.

  1. The Memorandum of Understanding on Preparing to Establish the AIIB is just that: It is an instrument expressing those signatories’ intention to join the AIIB, subject to the final signing and ratification of the Articles of Agreement Establishing the AIIB. But the full text of a draft agreement has not been made available yet, and there is no publicly available information about which countries have been invited to participate in the drafting of those Articles of Agreement.        
  2. According to the outline of the structure of the AIIB, China will control 50% of the total capital subscription of the stock of the AIIB. That means any major decision of the AIIB requires China’s consent. China alone will enjoy veto power just like the United States in the IMF. Story that China promised to forgo veto power is not convincing. If, as a matter of common international practice, a major decision requires the affirmative vote of two-thirds of the total number of member countries, representing not less than three-fourths of the total voting power of the member countries, China would ipso facto have veto power. 
  3. Major developed countries use international financial institutions (IFIs) as a useful vehicle through which to pursue their foreign policy. Since these IFIs are multilateral institutions, they become a convenient "cover" under which the real source of policy initiatives could be hidden. Any adopted policy decision becomes a multilateral institution's policy. Given that, it is obvious that China’s influence and voting power in the AIIB’s decision-making process will shape AIIB’s policy contents. But it will not be China’s decision; rather, it will be a decision made by the AIIB, an IFI. In the end, IFIs’ policy initiatives and those of individual bi-lateral assistance policies are conjoined.
  4. The past record of the China Exim Bank gives us a glimpse into the future of the AIIB. (See Eisuke Suzuki, Bi-lateral Policy Orientation in the Multilateral Development Policy: A Challenge for the China Exim Bank and its Accountability, Chinese Journal of International Law, Vol. 6, 2007, pp.127-133.

    <> ) Any country’s export and import bank is an arm of the government; it promotes the national policy of that government concerned. History tells us that China’s Exim Bank is far more attuned to, and interested in, the promotion of the government’s directives than any other Exim banks which are more mindful of multilateral policy concerns in development: governance, accountability, transparency, anticorruption, disclosure of information, gender equality, environment, sustainability, and so on.  

  5. China is awash with money. The money is seeking outlets. You can buy anything, even toddlers kidnapped off the street and military ranks. There are of course people who want to benefit from China’s riches. The business of the AIIB like all other IFIs is in “intermediation,” which in laymen’s term means “middlemen” making money through buying and selling by the price differential created at each transaction in that process. The money will be flowing to whoever wants funding for infrastructure projects. Who would be biggest beneficiaries of such funding? Borrowing member countries, of course, and construction companies and other suppliers of goods and services and their middlemen.
  6. Non-borrowing developed member countries are partners in this process as suppliers of heavy machinery, consulting services, and so on, and being cooperative with “the realization of Chinese dream of the great national renewal,” they are hoping, in light of China’s gigantic market size and its real market opportunities, that they will be treated by China more favorably than otherwise in many other potential deals with China. To this end, one cardinal doctrine is set into play in this money game: the three wise monkeys’ proverbial doctrine to “see no evil, talk no evil and hear no evil.” AIIB could become a breeding ground for international corruption, the internationalization of China’s domestic system of corruption. The U.K’s limp response to the suppression of Hong Kong residents’ opposition and demonstration against the Beijing-controlled election system attests to it.

   Some suggests that the best way is to join the AIIB and improve it from within. Of course, other member countries can watch its practice closely. People have forgotten that the AIIB will be the only and first international organization of any significance in history that will be headquartered in Beijing, the capital of the Communist Party’s government. Any discussion for improvement and reform requires certain commonly accepted rules of conduct. In China there is no freedom of speech, expression, thought, assembly and association. Will China extend immunities and privileges normally enjoyed by international organizations to the AIIB and its staff in order for the AIIB to fulfill its purpose and to discharge its functions entrusted to it? Will China safeguard the independence and autonomy of the AIIB and the international character of its staff? 

   The lure of China’s massive market is irresistible. The funding need is undeniable. Asia needs the AIIB. The ball is in China’s court to invite other countries to participate in drafting the Agreement Establishing the AIIB and its rules of operations reflecting the standard of international practice.###