Can Beijing Make AIIB Transparent?

The world will judge the China-led Asian Infrastructure Investment Bank by the rules being drafted. Asia needs infrastructure development, and China initiated the bank after global groups like the International Monetary Fund did not reform their structures in recognition of China’s growing contributions. The United States is not a founding member, but the AIIB curtailed criticisms on governance by relying on western experts in banking and global governance, including former US officials. “Beijing’s deftness in managing the launch of AIIB and in getting 57 countries (double the anticipated number) to join as founding members is a testimony as much to the declining influence of the US as to China’s growing clout,” writes Nayan Chanda for Businessworld. The bank already demonstrates modern efficiencies by relying on teleconferencing rather than a costly board of resident directors. Chanda cautions that transparency is mandatory to prevent corruption or favoritism as construction firms already lobby for work. – YaleGlobal

Can Beijing Make AIIB Transparent?

With China facing a slowdown, it will not be easy for the new Asia Infrastructure Investment Bank to address issues of other member countries with objectivity
Nayan Chanda
Thursday, July 2, 2015

"We have to make sure America writes the rules of the global economy," President Barack Obama said last month. “Because if we don’t write the rules for trade around the world, guess what, China will.” But what happens if American rule drafters join the Chinese in drawing up regulations for a Beijing-backed institution?.

It is not a hypothetical question. When the Asian Infrastructure Investment Bank (AIIB) holds its first general meeting in Beijing this month, it will adopt articles of incorporation based on western best practices, prepared with the help of Western experts and former US officials. The bank has already appointed as its general counsel Natalie Lichtenstein, a Harvard-educated lawyer who worked at the World Bank (WB) for over 30 years and helped draft the AIIB charter; AIIB may tap expertise from other alumni from international financial institutions. Round one to China courtesy of an American own goal.

Beijing’s deftness in managing the launch of AIIB and in getting 57 countries (double the anticipated number) to join as founding members is a testimony as much to the declining influence of the US as to China’s growing clout. Having failed to get Congress to agree on proposed reforms to the International Monetary Fund (IMF), which would have allowed new powers like China greater voting share, the Obama administration was left with a threadbare justification for blocking the AIIB initiative: China equals bad governance. The fact that Asia needs a massive investment in infrastructure that the World Bank and Asian Development Bank (ADB) have failed to deliver, plus the sense among developing countries that they are being unfairly shut out of the rich nations’ club, means that pious talk about values and good governance sound like self-serving claptrap.   

AIIB has also decided to dispense with the white elephant — resident board of directors costing the World Bank $70 million a year.  The AIIB directors will instead hold teleconferencing to decide on and supervise the projects that the staff will present to them.

In contrast, China is not only offering to open up the investment spigot (it holds $4 trillion in foreign reserves) for its poorer neighbours but has also won over Western countries who might have been wary of becoming supporting cast members in service of China’s foreign policy goals. Beijing appointed a sophisticated banker, Jin Liqun, who was vice president of ADB, as the interim head of the AIIB. Even though China will have the largest share, he assured the Europeans, it would not use its veto power — like the US does at the IMF, with its mere 20 per cent voting share.  

To allay fear of corruption, the Chinese also sought help from experienced western bankers and legal experts to draw up the bank’s regulations. Like, David Dollar, a veteran Mandarin-speaking former WB official, who also served as the US Treasury Department’s representative in Beijing, was engaged as an unpaid consultant in drafting the rules.

Despite China’s savvy handling of the AIIB launch so far, it has yet to dispel the impression that once underway, the bank will become a vehicle to support Chinese foreign and domestic interests. As its own officials acknowledge, there is an economic rational at play here: facing an economic slowdown at home, China wants to build infrastructure “as a countercyclical measure.” Already Chinese construction firms are canvassing for contracts on the promise of receiving AIIB loans. Only time will tell whether its international directors succeed in keeping AIIB corruption-free and transparent — and whether it succeeds in furthering Beijing’s foreign policy agenda — for now, the bank is ready for launch with a bang.

Nayan Chanda is editor in chief of YaleGlobal Online, based at the MacMillan Center of Yale University and author of Bound Together: How Traders, Preachers, Adventurers, and Warriors Shaped Globalization.

Copyright © 2015 Businessworld