The Growing Influence of China in Asia

The world’s second largest economic climate, China made headlines if this became a part of two brand new banks in the Asia-Pacific region. The 2 new banks are a 5 member initiated BRICS-bank called ‘New Development Bank’ (NDB) and Beijing-led bank known as ‘Asian Infrastructure Investment Bank (AIIB). A look at the purpose of these banks (see table below) could make one wonder if they reveal a common goal – infrastructure development in Asia-Pacific region. But the structure as well as number of members in these 2 banks reflect otherwise.

About The New Development Bank

BRICS account for nearly half of the world’s population and one-fifth of global economic output and clearly represent a large section of the developing economies. While the paid-in supplies will be in each country’s currency, the loans will be made in US dollars. For enabling trade in local currencies, the bank will need to enable currency swaps amongst the central banks of the country members. 

It will encourage finance and development across the region by funding infrastructure and sustainable development through loans, guarantees, credits and equity opportunities. The five-member bank of BRICS is actually open to any sovereign member of United Nations. But many academicians have shunned the thought of BRICS being successful in the long run. Andrew Karolyi, the professor at Cornell University asserted isolation of countries in rich/poor groups could be unhealthy for the countries as well as the investors. His research showed that only a handful of rising markets ranked higher than some developed countries. (Business Insider 2015)

About Asian Infrastructure Investment Bank (AIIB)

With the amount of founding members reaching 57, Asian Infrastructure Investment Financial institution (AIIB), is surely a diplomatic success for The far east. China’s stake in the AIIB is actually US$ 29.78 billion – (roughly 30.34%) making it the biggest shareholder in addition to the veto power. But the rising economy of China has offered to forego its veto energy in day-to-day activities. This is to determine other member countries that it doesn’t want to influence the working of the bank, as opined through the US. Unlike the New Improvement Bank initiated by BRICS, AIIB includes NATO allies of the US, like France, Germany, and the United Kingdom that are also members of G-7. US had previously warned European countries and Japan that the Beijing-led improvement bank would only be serving the needs of the Chinese markets. It also feared that Chinese interests, corruption and influences could drive the institution. The idea was that forming AIIB is another way to establish more Chinese language power across the region along with lower lending standards compared to international institutions of IMF and also the World Bank. The missing countries from the AIIB list would be the United States and Japan.

China have been facing underrepresentation in international organizations like the IMF and World Financial institution. One of its biggest complaints was regarding its voting rights in the international institutions, which remains stalled for years in the US Congress. At present, even though The far east accounts for 12% of the world GDP, it’s voting share still remains a small fraction in the Bretton Woods institutions (in IMF: 3.81% and in International Bank for Reconstruction as well as Development: 4.85%). In 2010, World Bank had announced increased voting rights for China, which remains pending. The bank offers welcomed the West to take part in the actual affairs of Asia but only on Asia’s terms. AIIB has clearly pointed out in its charter that 70 percent of its capital should come from Asia. AIIB is also forming two critical connections – one being the Silk Road Economic Belt which is hooking up China to Europe and the other 21st Century Maritime Man made fiber Road linking China in order to Southeast Asia, Middle Eastern and Europe.

Comparison of NDB as well as AIIB to other international organizations

Currently, US as well as 15 developed nations maintain around 52% of the voting power from IMF. While many argue that the bank is definitely an alternative to the US dominated Globe Bank and IMF, China’s recognized reason for creating the new financial institution is different – to meet Asia’s massive infrastructure-funding space. Comparison of NDB as well as AIIB to already existing international institutions might be unrealistic since they are in different phases and the amount of members differs largely. While AIIB as well as NDB have 57 and Five members, respectively and are practically in their launching phases, IMF offers 188 countries with an already established sovereign framework since 1945. The World Bank Team has five organizations owned by the governments of member nations.

While IMF and World Financial institution are aimed to support project funding all across the globe, NDB and AIIB focus mainly in the Asian region. Both the banks could lead significantly to the development of the actual Asian region in the long run but for that to happen China will have to be very nondiscriminatory and well balanced in its intentions and implementation.

References:

Business Today. 2015. Why one Cornell professor wants you to get over the 'BRICs'. 15 May.

CNBC. 2015. Is AIIB the answer to Asia’s infrastructure needs? Twenty five June.

Financial Keyhole. 2015. Will China-Led Bank (AIIB) test the shift of economic powers? 4 May.

Foreign Affairs. 2015. Out of the Bretton Woods: How the AIIB is Different. 27 July.

Japan Times. 2015. AIIB and worldwide governance. 30 April.

Russia and India Report. 2015. BRICS set to create new financial architecture. Twenty two June.

Russia Today. 2015. China ratifies the creation of BRICS bank. 2 July.

The Diplomat. 2015. The reason why US allies are happy to join China’s AIIB? 30 June.

The Economist. 2014. The reason why China is creating a brand new "World Bank" for Asia. 11 November.

The Wall Street Diary. 2015. How China Plans to Run AIIB: Leaner, With Veto. 8 June.