China scored a geopolitical twofer this month with its Asian Infrastructure Investment Bank.
First, it stunned the White House by successfully persuading Great Britain and other U.S. allies in Europe to join the bank, which will boost China’s power to shape infrastructure across Asia. Then it forced the Obama administration to backtrack on its criticisms of the bank, lest it appear to look hypocritical.
Yet while China’s leaders may have outmaneuvered their U.S. counterparts, the White House’s earlier concerns continue to hover around this Chinese-led venture: Will this new bank make decisions in an open and inclusive manner? And will it fund environmentally friendly projects, or ones similar to those that have given China some of the world’s worst pollution?
“The jury is still out,” said Mark L. Clifford, executive director of the Asia Business Council, a Hong Kong-based group that includes chief executives of some of Asia’s biggest companies. He said it’s encouraging that Germany, France and other countries with a commitment to sustainable development have pledged to join the bank.
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“If it becomes a truly multilateral institution, it will be more likely to hold to good environmental practices and transparency,” he said.
Frustrated by the lending decisions of the World Bank, the Asia Development Bank and other institutions largely controlled by the West, China proposed the Asian Infrastructure Investment Bank, or AIIB, in 2013 as a way to use some if its huge foreign currency reserves to build projects in neighboring countries, beyond the unilateral investment it has done for decades.
Some 21 countries initially joined the AIIB in 2014, and 15 more have since joined. There have been reports that U.S. officials pressured South Korea and Australia not to become founding members, even though both had expressed interest.
China has provided most of the bank’s initial $50 billion in capital, but that figure is expected to rise once the bank is operational.
How the bank will be governed is unclear at this point. Athena Ronquillo-Ballesteros, an expert on international finance institutions and director of the Sustainable Finance Program at the World Resources Institutes in Washington, says it appears the Chinese-led bank is trying to model itself after the World Bank, with founding members having the most voting power.
According to a report Monday in the Wall Street Journal, China has pledged not to exercise veto power over the bank’s lending decisions. That promise apparently eased European concerns, prompting Great Britain, Germany, France, Italy and other countries to defy the United States and join the bank.
Ronquillo-Ballesteros, who hails from the Philippines, said there are two big questions she has about the AIIB:
• Will it learn from the experience of traditional lending institutions and give “borrowing countries” a greater voice in decisions?
• Will the bank consider the risks of climate change and environmental impacts in choosing projects?
“They (Chinese leaders) are under a lot of pressure to make sure this bank operates in an environmentally sustainable way,” said Ronquillo-Ballesteros. “The good news is that China seems very open to this.”
Up until this past week, U.S. officials repeatedly sounded alarms over the AIIB, seeking to dissuade other countries from joining it.
“Will it protect the rights of workers, the environment, deal with corruption issues appropriately?” U.S. Treasury Secretary Jacob Lew said at a congressional hearing in Washington last week. “Anyone joining (the bank) needs to ask those questions at the outset.”
Critics lambasted the U.S. position, noting that Washington has long urged China to play a larger international role. In recent days, the White House struck a softer tone, with U.S. Treasury Undersecretary Nathan Sheets saying Sunday that “the U.S. would welcome new multilateral institutions that strengthen the international financial architecture.”
For their part, Chinese officials say sustainable development will be a priority. “We should always put the environment and our ecological system at a prominent place in our agenda,” Chinese Vice Premier Zhang Gaoli, speaking about the bank, said last week at the China Development Forum in Beijing.
With the AIIB, China has now helped create three new multilateral infrastructure banks. Shanghai is headquarters to the $50 billion New Development Bank made up of “BRICS” nations – Brazil, Russia, India, China and South Africa. Beijing also has put $40 billion into a “Silk Road” fund to finance projects along the ancient land and maritime routes that first facilitated trade between China and the West.
By creating these new regional banks, Beijing is challenging the old world order and also shielding itself from the controversies created by investing directly in other countries. Sri Lanka this month suspended work on a Chinese-funded luxury real estate project in the port capital of Colombo, accusing the previous government of corruption in signing the deal. Myanmar has sidelined a deal Beijing cut with the country’s former military junta to build hydroelectric projects, partly because of their potential environmental impacts.
“China has stubbed its toes on some projects but it has also learned,” said Clifford, author of a new book, “The Greening of Asia,” which examines environmental successes and failures in the region. He noted that other big lending institutions, including the World Bank, have a less-than-spotless environmental record.
“China should be given a chance,” he said in an interview. “I don’t think they (Chinese leaders) should be judged guilty until proven innocent.”