WASHINGTON – A planned Chinese-led investment bank may not have been the major theme at a meeting of Group of 20 finance chiefs, but it drew significant attention amid the growing presence of emerging economies.
On the sidelines of the gathering, which ended Friday, Finance Minister Taro Aso and his U.S. and German counterparts agreed on the importance of encouraging the Asian Infrastructure Investment Bank to adopt the high standards of existing institutions, including the Asian Development Bank.
“We agreed on the importance of the AIIB securing fair governance and debt sustainability as well as being considerate of the environment and society to meet internationally established standards,” Aso told a news conference.
Despite concerns voiced by the U.S. and Japan, the new institution obtained support from many countries, with major European nations such as Britain and Germany joining the initiative in expectation of business opportunities amid robust infrastructure demand in Asia. A group of 24 emerging economies in regions including Asia, Africa and Latin America separately issued a statement in which they said they “look forward” to the establishment of the AIIB, which is aimed at funding projects to build roads and railroads.
“We stress the critical importance of infrastructure investments for increasing growth,” the statement said.
Though the bank could be a potential rival to existing financial institutions, World Bank President Jim Yong Kim welcomed the fact that 57 countries have become AIIB founding members.
“I first of all want to congratulate China for taking such a bold step in the direction of multilateralism,” Kim said at a news conference prior to the G-20 gathering, expressing a desire to “work very closely” with the new institution as the World Bank does with others like the ADB.
But he appeared cautious to some extent, saying his organization will continue the conversation with the Chinese-led bank after finding out “what the AIIB will be doing” and “what their products will look like.”
In an attempt to dispel such concerns, Chinese Vice Finance Minister Zhu Guangyao told a news conference on Friday, “We agree on high standards,” adding that this will be reflected in the “formal legal document” to be produced following negotiations with other members.
China, which is set to become the bank’s biggest shareholder, has said it hopes to agree on investment ratios and organizational structure by the end of June.
Analysts say that dissatisfaction among emerging countries, notably China, with the existing global financing framework is one of the reasons behind the creation of the AIIB. They say that, as seen in the latest G-20 statement, there is frustration that reform of the International Monetary Fund designed to give these countries more power has made no progress.
Despite the repeated disappointment expressed by the G-20 economies over this issue, the U.S. Congress has yet to ratify the IMF quota and governance reform. Expressing strong discontent, Zhu said “too much delay” has damaged the reputation of the IMF, G-20 and the image of the United States.
Takashi Kodama, head of Asian economic research at Daiwa Institute of Research, said the Chinese-led initiative is a reflection of China becoming a global power in both economic and political terms. “China is dissatisfied because it has not been given a position that accords with its rising power,” Kodama said.
“The global power balance has clearly changed from the time the Bretton Woods system (was created)” in 1944 by the major economic powers at that time, as China is now the second-biggest economy after the U.S., Kodama said.
Kodama said Tokyo should join the initiative soon to participate in forming rules, noting China’s dominance in the AIIB will be reduced if Japan, the world’s third-largest economy, invests in the bank.
A senior Japanese Finance Ministry official said the emergence of international banks such as the AIIB is an indication that the Bretton Woods system is not functioning anymore amid the growing presence of emerging economies.
“It is a natural and historical conclusion,” the official said. “We cannot continue to sit with our legs crossed and we have to start listening to their words instead.”
In a time of both misinformation and too much information, quality journalism is more crucial than ever.
By subscribing, you can help us get the story right.