[Diplomacy] AIIB: Asian Infrastructure Investment

Bank- purpose, structure, Indias interests- pro & anti

arguments
mrunal.org /2014/11/diplomacy-aiib-asian-infrastructure-investment-bank-china-india.html
1. Background
2. AIIB: Chinese interest
1. #1: Make truckload of profit
2. #2: help in Maritime Silk policy
3. #3: Counter US-Japan dominated IMF+ADB
3. AIIB: Membership
1. Who has not joined?
2. AIIB Structure
3. Shareholding and Voting Power
4. Pro Arguments: India will benefit because
1. #1: something is better than nothing
2. #2: we do have voting power
3. #3: Africa will benefit
4. #4: Competition = cheaper loans
5. Anti-Arguments: India wont benefit bcoz:
1. #1: America says so
2. #2: bogus countries will benefit
3. #3: China doesnt listen to others
6. Mock Questions

Background
ADB report: till 2020, every year, ASIA needs ~$800 billion for infra-structure investment.
Asian Development bank (ADB) itself cant lend more than $10 billion.
Bretton woods organisations (IMF and World bank) not interested in lending such large fund to
Asia alone.
Therefore, 11th(!) Jinping came up with idea to setup multilateral development bank to lend
money exclusively to Asia. (2013)

AIIB: Chinese interest

What are the real motives of China behind setting up Asian Infrastructure Investment Bank (AIIB)?
#1: Make truckload of profit

China has a hugh forex reserve. Wants to make profit out it.
AIIBs total authorized Capital: $100 billion. Out of that, China willing to give 50% capital=> bank
circulate loan money => bank earns interest=>China gets truckload of dividend for being largest
shareholder.
#2: help in Maritime Silk policy
AIIB will finance rail-road-ports infrastructure along the ancient silk route.
Thus, itll help Chinas maritime Silk policy.
#3: Counter US-Japan dominated IMF+ADB
IMF not reforming its governance structure. The size of Chinese economy, same as USA. Yet
Chinese voting power in IMF = 1/3rd of American voting power.
In ADB, US+Japan =each has ~16% shareholding, while China has ~7%. Again China resents
their domination. (*numbers from Business-standard report).
Therefore, China wants to counter IMF+ADBs hegemony (domination) via BRICS+AIIB.
Countering IMF= will also help to popularize use of Chinese Yuan instead of US dollar.

AIIB: Membership
Asian
Infrastructure
Investment
Bank (AIIB) has
total 22
members=
China + 21
others who
signed MoU.
Lets count:

Asian Infrastructure Investment Bank (AIIB)

1. Bangladesh

12. Myanmar

2. Brunei

13. Nepal

3. Cambodia

14. Oman

4. China

15. Pakistan

5. India

16. Philippines

6. Indonesia (later joined)

17. Qatar

7. Kazakhstan

18. Singapore

8. Kuwait

19. Sri Lanka

9. Laos

20. Thailand

10. Malaysia

21. Uzbekistan

11. Mongolia

22. Vietnam

Who has not joined?

Bhutan, Tajikistan, Kyrgyzstan not part of the bank
Initially Indonesia didnot attend MoU signing ceremony. But later it joined.
South Korea, Australia did not attend MoU signing ceremony. Reports say, USA played behind
the curtains to force them not to join this bank.

AIIB Structure
HQ: Beijing; 3-tier structure
Highest Decision Making body.
Voting power according to share holding
Board of
Governors

Shareholding according to GDP

Board of Governors, will elect these directors.

Board of
Directors

Theyll decide budget and submit reports to Board of Governors

He is the president of Board of directors.

Person with long experience and ethical integrity in banking /economics
/ finance.
Hell be selected on merit.
Responsible for Day to day administration, hire and fire staff.
President

He can appoint vice President to reduce work load.

Notes:
2014, Oct: at present only MoU is signed. Bank is yet to begin operations.
2015: Article of association will be signed. Then structure-function and voting power will become
clear.

Shareholding and Voting Power

Indian newspapers are giving different numbers. Therefore, Im relying on Xinhua for authentic
information on this China-led bank:
Authorized capital is 100 billion USD
China willing to give 50% of that = 50 billion.
But China said they dont want to be single majority shareholder and In future, they will
gradually dilute Chinese shareholding when new members join.
Shareholding to be decided on GDP adjusted for Purchasing Power parity (PPP).
Accordingly, China largest and India second largest shareholder.

Pro Arguments: India will benefit because

#1: something is better than nothing
12th Five year plan says we need $1 trillion dollar investment in infrastructure.
While Modi is relaxing FDI, promoting Make in India, striving for ease of doing business; Modi
met Chinese, Japanese and American leaders to invest in India and so on.
But still, $1 trillion is a huge amount, so whatever few billions dollars we get as soft loan from
AIIB, BRICS bank or xyz other institution- is good.
#2: we do have voting power
India will be the 2nd largest subscriber to AIIB.
Besides we have good relations with other asian countries that are in AIIB but are not best
friends of China.
So collectively, well have sufficient voting power in the board, to counter any moves hurting
Indian interest.
#3: Africa will benefit
Since AIIB will loan to Asian countries, itll slightly reduce world banks pressure to finance Asian
projects. Then World bank can divert more funds to Africa.
African development is also in Indias best interest because:
Indian exports will increase
Terror networks will weaken
Sea-piracy will decrease.
#4: Competition = cheaper loans
ADB often accused of a slow-moving bureaucracy- gives loans too late and with too many
strings attached.
China brags that AIIB will have a clean, simplified and efficient bureaucracy.
October 2014: World Bank President Jim Yong Kim began internal restructuring, reducing staff
salary and perks. It means things are not hunky dory with world bank (same going with Yahoo).
The entry of AIIB will further increase the competition, catalyze the reforms in other Multilateral
banks- perhaps theyll reduce interest rates, EMIs and may even begin telemarketing for
Sovereign loans!

Anti-Arguments: India wont benefit bcoz:

#1: America says so

AIIBs objectives are ambiguous
AIIB lacks transparency.
#2: bogus countries will benefit
In past, China loaned to countries without good-governance or respect for human rights or
functional democracy or environmental safety: Pakistan, Myanmar and many African autocracies
to name a few.
Using AIIB, China will try to legitimize such funding in the name of infrastructure development.
Counter argument: in past even ADB loans to Cambodia and Laos have been misused, ethnic
minorities were displaced for infra-projects. so, AIIB= villain, and ADB+World bank = saints, such
sterotyping is wrong.
#3: China doesnt listen to others
2014, July: South Korea proposed- we should setup AIIB Headquarter in Seoul or Songdo- to
reduce the fears of US, Japan and Western powers.
But Jinping rejected the idea and setup HQ in Beijing. This is one of the reasons why South
Korea did not come to MoU signing.
China may use the same strong-arm tactics in future as well e.g. AIIBS giving loan to project in
PoK and India protests.
Timeline: AIIB
2013

11th Jinping says lets open a new bank.

2014, June

S.Korea wants HQ in S.Korea, but Jinping decides Beijing.

2014, Oct

MoU signed among China and 21 nations to setup AIIB.

Mock Questions
CSAT MCQs:
1. twisting the facts to create 2TF, 3TF, even 5TF questions example: AIIB HQ is Seoul; Chairman
is Jim Yong Kim, India is 3rd largest shareholder, Australia has joined, Laos is the only ASEAN
country not to join and so on. Then youll be asked to find out the correct statements.
2. Interchanging facts between AIIB and BRICS bank to create more true/false type questions.
3. Match the following: Bank vs HQ, Bank vs Chairman, Bank vs Members

Mains examination
Answer following 200 word each:
GS2: Important international institutions, structure, mandate.
1. Compare and contrast the structure and purpose of BRICS bank and AIIB. [In 2013 mains,
similar question on IMF vs world bank, was asked.]
2. Has India made a right choice by joining China-led AIIB? Justify your stand. 200 words.
3. Does India need AIIB? (Similar one liner question asked in Mains 2009)
GS3: infrastructure / resource mobilization

1. Discuss the role and the importance of Multilateral Development banks for Infrastructure finance
in India.
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