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Wed. June 19, 2019
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The Operational Logic Underlying the Asian Infrastructure Investment Bank (AIIB)
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By Professor Giancarlo Elia Valori 

The Asian Infrastructure Investment Bank (AIIB) was created in Beijing in October 2014.  Its creation entails an implicit polemic and it is a clear alternative both to the International Monetary Fund (IMF) and the World Bank (WB), as well as the Asian Development Bank (ADB) itself, which was created in 1966 at the time of the true "Cold War". It is worth recalling that the ADB had been established to support the US, European and Japanese policy in the Pacific region. It was created as a bank for "reducing poverty" and, currently, for "sustainable development", which means no infrastructure and new technologies.

The AIIB had been proposed by China in 2003, and currently it is supported by 57 States, 18 of which are non-Asian countries: Austria, Brazil, Denmark, Egypt, Finland, France, Germany, Iceland, Italy, Luxembourg, Malta, the Netherlands, Norway, South Africa, Spain, Sweden, Switzerland and the United Kingdom. Within the new AIIB, China has a 30% shareholding and retains a general right of veto. The underlying logic is clear: in view of China’s progressive autonomy from the North American context and, above all, from the US presence in the Asian financial system, China wants a bank specifically devoted to  major infrastructure which will definitively release its economic (and political) potential towards the historic Silk Road.  This is precisely the initiative known as "One Belt, One Road" which is the new version of the "Silk Road" starting from Beijing, which will release the productive, geopolitical, demographic and military potential of future China. From the maritime viewpoint it includes exactly the old ASEAN countries already allied with the United States: Brunei, Cambodia, Indonesia, Lao PDR, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam.

The Chinese "string of pearls" stretches from the already achieved military control over the regional seas to the internal economies. It creates a new geoeconomic “string” which basically connects itself to Beijing with a view to internationalizing. Hence China as a factor accelerating Asian globalization as against the US-centered globalization. Recently Xi Jinping has repeatedly recalled that - without new infrastructure connecting China, the Central Asian Heartland, our Eurasian peninsula (and Japan, as well as Taiwan) – China’s economic and demographic development is bound to stop before reaching its apex - or its break-even point, to use managers’ jargon.

In fact, with a mix of public and private capital, the newly-established bank promotes the development of large infrastructure and public and private enterprises. Pursuant to the AIIB Statute, the subscribed capital amounts to one hundred billion US dollars, divided into numbered shareholdings of million dollars – hence at a net price of 100,000 US dollars per each share.

The above-mentioned stakes are divided into shares already purchased and into securities "to be called or redeemed": those already paid up and settled total twenty billion US dollars, while the others will be "called or redeemed", on a pro rata basis, by the various States in relation to the operations and transactions already decided .   The Statute also lays down that, within the AIIB, the assets are divided into ordinary assets, funded with the internal resources of the bank, and the others, backed by the AIIB "on call" funds. The bank can grant direct loans; co-finance projects and companies; invest in already existing equity funds managed by third parties; guarantee loans granted to third parties by a financial institution other than the AIIB; manage its own direct investment funds and also provide assistance to companies and States requesting it. Obviously the InterAsia Bank can also raise funds and resources; have access to loans; manage third-party funds in each Member State or elsewhere. No Board member can grant too many resources to its own country or deny, without any justified reason, resources to other member States.

Since September 1, 2015, the AIIB President-elect has been the Chinese Jin Liqun.  Obviously the share of direct and indirect investment in Asia is low compared to the other current macroeconomic variables in the region: in fact, the AIIB will invest about 8 trillion US dollars, partially already distributed, until 2020. Certainly the World Bank is more powerful, in terms of liquidity, with its 223 billion US dollars of reserves as against the current 160 billion US dollars of the new interAsian bank. Nevertheless the bank has just started its activity and everything is still to be defined at geofinancial level.

The new interAsian bank is also a politically advised way to use - in a global context – the huge amount of China's foreign currency reserves which has always characterized China’s export-led industrial policy. In the mind of its Chinese founding members, the AIIB shall gradually raise the GDP of Asian peripheral countries. This will certainly lead to greater aggregate demand which will certainly be available to China, but also to the participants in the bank for the infrastructure we are talking about.  Hence strong interdependence between China and smaller Asian countries, which will also involve the system of the European countries which have adhered to the project of the Bank.”

A sort of Chinese Marshall Plan, using China’s foreign currency extra reserves, which - in the project expressed by Xi Jinping in 2013 – will connect the old terrestrial Silk Road with the maritime one, which is  equally important for China, also at military and security level. However, in this geofinancial context, China can also act on its own. With its domestic banks it has already granted 1.4 billion US dollars to Sri Lanka so as to improve its port infrastructure and 50 billion US dollars for the development of energy networks and related contracts throughout Central Asia, as well as 327 million US dollars for economic aid to Afghanistan, which will be central to China as soon as the Western military presence there ends. Moreover, in Afghanistan, the Chinese money will also be spent on railways, roads, power generation, energy production, as well as water collection and distribution.

According to Chinese experts, ultimately, the AIIB alone will invest the huge amount of 21.1 trillion US dollars in its "Silk Road" project. For China the issue lies in building - obviously for its own interest - the "Eurasia Project" in connection with the network of old and new alliances of the Russian Republic, which is moving towards the Persian Gulf and its old Soviet sphere of influence, as well as sub-Saharan Africa and the Arctic – and we will see that, in the near future, also China will enter the great Syrian game.

What has been left free by the West, floundering in economic crisis and deprived of any geopolitical prospect, will be quickly filled by the initiatives of the current Russian-Chinese connection of the Heartland.  For China, the economies of the AIIB area are complementary. Indeed, so far, in a context of low value-added productions, this does not seem to be an entirely acceptable criterion – anyway we are speaking about economies characterized by a very low technological level.

The link between Russia and China could collapse only if the European Union and the United States could afford to play economically one against the other, but this would require different ruling classes and geopolitical projects other than the "all back home" and non-committal attitude, typical of the current European Union and of the United States led by President Obama.

Professor Giancarlo Elia Valori is an eminent Italian economist and businessman. He holds prestigious academic distinctions and national orders. Mr Valori has lectured on international affairs and economics at the world’s leading universities such as Peking University, the Hebrew University of Jerusalem and the Yeshiva University in New York.

He currently chairs "La Centrale Finanziaria Generale Spa", he is also the honorary president of Huawei Italy, economic adviser to the Chinese giant HNA Group and Khashoggi Holding’s advisor.

In 1992 he was appointed Officier de la Légion d'Honneur de la République Francaise, with this motivation: "A man who can see across borders to understand the world” and in 2002 he received the title of "Honorable" of the Académie des Sciences de l'Institut de France."

 

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