East Asia and European Union: Facing a New World Together with Prof. Taeho Bark at PSIA SciencesPo

Asian Infrastructure Investment Bank: Western Financial Regime’s New Friend or Foe?

Presented byBiondi SimaFebruary 19, 2015

Structure of Presentation

❖ Introduction

❖ Investment Need in Asian Region

❖ Current Regime: ADB and WB

❖ AIIB: True Motive and Expected Future Practices

❖ Conclusion

Introduction: Asian Infrastructure Investment Bank (1/2)

❖ China’s led International Financial Institution. A multilateral bank to provide finance to infrastructure projects in the Asia Pacific.

❖ Announced in the Bali’s APEC in 2013

❖ Signed by 21 co-founding members in 24 October 2014. These include: China, India, Thailand, Malaysia, Singapore, the Philippines, Pakistan, Bangladesh, Brunei, Cambodia, Kazakhstan, Kuwait, Laos, Myanmar, Mongolia, Nepal, Oman, Qatar, Sri Lanka, Uzbekistan, and Vietnam. Indonesia to join the camaraderie by November 2014. Japan, South Korea, and Australia remain distant.

❖ Headquarters will be placed in Shanghai.

❖ To be completed by late 2015

Introduction: Asian Infrastructure Investment Bank (2/2)

❖ China will provide 50% of its initial capital, i.e. 50 billion USD

❖ What motivates the formation of this bank? Bulky need for financial capital in Asia.

Attending leaders pose for the launching ceremony of AIIB at the Great Hall of the Peoplehttp://in.reuters.com/article/2014/10/24/china-aiib-idINKCN0ID09520141024

Asia’s Hunger for Investment❖ “Need for at least $8 trillion in overall infrastructure and $287 billion in

regional infrastructure needs by2020,” says ADB (2009)

❖ ADB can only provide $160 billion, World Bank $223 billion

❖ National government budgets remain to be the backbone. But need supplement from Multilateral Development Banks. Other sources of financing:

❖ Commercial Bank Credit,

❖ Capital Markets,

❖ Sovereign Wealth Funds, and

❖ Public-Private-Partnership.

Infrastructure Deficit in Emerging Asian Economies

1

Infrastructure in Asia Estimated US$8tn Funding Gap to 2020

Source: ADB, Goldman Sachs Research, McKinsey Global Institute, WEF

Infrastructure deficit in emerging Asian economies…

Driving ~US$8tn investment need to 2020

48

84

78

32

98

46

65

26

48

85

61

29

96

47

60

27

China

India

Indonesia

Malaysia

Philippines

Thailand

ASEAN

OECD

2014 2013

Ranking – Infrastructure Quality

Projected Need by Asset Class, 2010-2020 $t trillion

Weaker Infrastructure

0

2

4

6

8

10

Energy Telecom Transport Water and Sanitation Total

4.1 1.1

2.5 0.4 8.1

http://www.asifma.org/uploadedFiles/Events/2014/Annual_Conference/Closed%20Door%20Regulator%20Meeting%201%20-%20Infrastructure%20Financing%20-%20Michael%20Cooper%20HSBC.pdf

But Government Budget is Insufficient

http://www.asifma.org/uploadedFiles/Events/2014/Annual_Conference/Closed%20Door%20Regulator%20Meeting%201%20-%20Infrastructure%20Financing%20-%20Michael%20Cooper%20HSBC.pdf

Current Regime: Asian Development Bank❖ Founded in August 22, 1966. Headquartered in

Manila.

❖ Expanding membership: 31 to now 67 countries (48 from Asia Pacific, 19 from outside)

❖ Alleviate poverty, sustained and inclusive growth through investment in: infrastructure, health care services, financial and public administration systems, and preparation of the impact of climate change or better management of natural resources

❖ Main devices: loans, grants, policy dialogue, techninal assistance, equity investments

❖ Voting share: Japan holds the largest proportions of shares at 15.67%. The United States holds 15.56%, China holds 6.47%, India holds 6.36%, and Australia holds 5.81%

Current Regime: World Bank

❖ World Bank = The International Bank for Reconstruction and Development (IBRD) + The International Development Association (IDA)

❖ Founded in August 22, 1944 at Bretton Woods Conference. Based in Washington DC.

❖ Global membership: 44 to 188

❖ IBRD: Reduce poverty in middle-income countries and creditworthy poorer countries by promoting sustainable development through loans, guarantees, risk management products, and analytical and advisory services. IDA: IDA aims to reduce poverty by providing loans (called “credits”) and grants for programs that boost economic growth, reduce inequalities, and improve people’s living conditions.

❖ Voting share: United States (15.85%), Japan (6.84%), China (4.42%), Germany (4.00%), the United Kingdom (3.75%), France (3.75%), India (2.91%),[25] Russia (2.77%), Saudi Arabia (2.77%) and Italy (2.64%). Reform: Pool Model to consider economic size other than its contribution.

AIIB’s True Motive and Expected Future Practices

❖ Economics: Regional leader having more say in the policy making of multilateral development bank

❖ Politics: fight for regional dominance, concern over contested geographical bounderies, such as South China Sea

❖ China’s past lending practices: fewer conditions, more money

❖ Expected future practices: push for good governance and concern in aspects such as environment and gender. Ensuring bank rating, i.e. for credibility and sustainablity

❖ AIIB is not alone: BRICS’ Development Bank and Silk Road Fund

Conclusion: it’s not all about the money

❖ AIIB as a sound supplement

❖ Emphasis on good practices

❖ Good governance in procurement, bidding, etc

❖ Environmental concern

❖ Local norms

❖ Hoarding resources / energy?

❖ Colaboration with current regimes

East Asia and European Union: Moving the New World Together

Questions?