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Asia Summit—AIIB and the Evolving Multilateral Lending Landscape

September 23, 2015
   
   

Asian Infrastructure Bank Holding Door Open for U.S., Japan

The China-led Asian Infrastructure Investment Bank is keeping the door open for the United States and Japan to join the multilateral development lender, which is scheduled to begin operations before the year is out. The bank, announced by Chinese President Xi Jinping in 2013, has been joined by 57 nations, including Germany, the United Kingdom, and Russia. Neither the U.S. nor Japan has said it definitely would not sign on as well, AIIB President-Designate Jin Liqun said during remarks at the Milken Institute Asia Summit in Singapore. After his comments, he joined a panel discussion about the bank’s role.

AIIB plans to work with other multilateral development banks—lenders supported by a group of countries—such as the World Bank and Asian Development Bank, to build energy, transportation, and other infrastructure throughout Asia, Jin said. As it collaborates with those institutions, AIIB also expects to fill a niche by funding projects that fall outside their focus, such as facilities in the late stages of construction. The bank seeks to help fill a projected $8 trillion gap in infrastructure funding over the next few years.

Jin, the former chairman of China International Capital Corp., acknowledged skepticism of the need for another development bank and China’s ability to lead it. He suggested that public pressure is a factor in both Japan and the U.S. “We should give them more time,” he said. “Because to my knowledge the U.S. government and the Japanese government never said explicitly they refuse to join.”

Japan still is evaluating how AIIB will operate and how it will be governed, said Tadashi Maeda, senior managing director and representative director of the Japan Bank for International Cooperation. One concern, he said, is that AIIB must maintain tight controls over lending practices. Elena Okorochenko, managing director and general manager at Standard & Poor’s Ratings Services in Singapore, expressed similar concerns. “We pay great attention to governance and the risk management,” she said. “We look at things like audit and control structure, the depth of membership and the decision-making process.”

Controls will be strict, Jin said. Staff at every level will be encouraged to report indications of bribery or other types of corruption. “We want this bank to be squeaky clean,” he said. “We have the taxpayers’ money as our capital, and we are duty-bound to make sure not a single cent goes into the wrong place. How will we do that? We will have very rigorous policies.”

Jin expects more countries to join AIIB, saying that some interested nations “missed the bus” by not meeting the March 31, 2015, deadline to sign on as a founding member. “Asian buses move on schedule,” Jin said, prompting laughter in the audience. “Don’t worry. If you missed the first bus there will be a second bus, a third bus, but I’m sorry, you will not be a founding member.”