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Chinese President Xi Jinping meets with President of the World Bank Jim Yong Kim at the Great Hall of the People in Beijing on July 9, 2014. Kim welcomes China's proposal of setting up the Asian Infrastructure Investment Bank (AIIB), underscoring that the two agencies should be complimentary partners other than competitors. |
Last October, just before the annual meeting of the Asia-Pacific Economic Co-operation (APEC) Forum in Bali, Indonesia, President Xi Jinping announced China’s proposal to establish an Asian Infrastructure Investment Bank (AIIB). Within a few months, China has held three rounds of talks with interested Asian countries, and is helping to circule a memo on setting up the bank. What is leading China and its Asian partners to join hands to work for creating this new Bank?
First, with the current Asian economy under mounting downward pressure, strong infrastructure spending will help to create demand，increase jobs and bring about a smoother and more effective production, circulation, and consumption environment for the overall economic operation. It will also contribute to an enhanced regional infrastructure connectivity，which will then facilitate regional economic cooperation and integration. Therefore, as the driver of sustainable growth and regional economic integration, infrastructure investment will empower economic expansion in Asia.
Second, Asia is now facing a dilemma of “a gap between great demand and severe capital supply,” especially in developing countries. On the one hand, the current infrastructure of Asian economies falls far short of meeting the needs for sustainable economic development. On the other hand, most Asian countries suffer from a capital bottleneck in infrastructure investment, which seriously restricts their infrastructure development and construction. The Asian Development Bank (ADB) estimates that developing countries need to invest US$8 trillion from 2010 to 2020, just to keep pace with expected infrastructure needs.
Third, what Asia lacks is not really capital, but the capability to channel it. There is a comparably massive accumulation of savings, which see China and ASEAN countries respectively controlling $US3.99 trillion and $US700 billion in reserves, not to mention other Asian countries. The supply of savings, much of which is generated in Asia, is more than adequate to begin to fill some of the demand for infrastructure. The capital bottleneck therefore does not refer to a capital shortage, but the lack of a practical financing platform and business mode, which are both essential to effectively turn the huge capital potential inside and outside Asia into investment in infrastructure.
Fourth, the World Bank and the ADB and other well-established institutions have the expertise to lend a lot more for infrastructure, but have prioritized more on poverty reduction and moved in a different direction. Net lending by multilateral development banks on commercial terms has been negative in five of the last ten years, including 2011 and 2012. The World Bank and the ADB are now focusing on concessional lending and knowledge sharing with low-income countries, leaving an important niche to be filled by a new financial institution.
