The AIIB will provide impetus for economic growth in Asia and the rest of world, Xi said yesterday at the event in Beijing to mark the emergence of the world’s first major multilateral development bank in a generation.
The Beijing-based AIIB will compete and cooperate with both the Washington-based World Bank and the Japan-led Asian Development Bank. The new lender is pivotal to Xi’s vision for China to achieve the same great-power status as the US, which opposed the creation of the AIIB. China will need to meet its pledge for a high standard of governance at the AIIB amid a slowdown in the country’s economy and a plunge in stocks.
“Setting up a development bank is relatively easy, running a bank is hard,” said David Loevinger, a former China specialist at the US Treasury and now an analyst at fund manager TCW Group Inc in Los Angeles. “China has committed to hold the AIIB to high standards of governance and transparency. They’ve talked the talk. Now they’ve got to walk the walk. If China delivers, its role as a global leader will be enhanced.” The emergence of the AIIB shows that China is playing a full role as a member of the international economy, and is evidence of global rebalancing, Pierre Gramegna, Luxembourg’s minister of finance, said at the Beijing ceremony.
The founding of the new multilateral lender “is a landmark event in the reform of the global economic governance system,” said Premier Li Keqiang in a speech.
China will contribute $50mn to a special preparatory fund to be established soon for infrastructure projects in less developed member states, Xi said at the opening ceremony.
The last new multilateral lending institution was the European Bank for Reconstruction and Development, set up in 1991 to help rebuild former Communist nations in Eastern Europe after the Cold War.
China has similarly lofty goals. The AIIB is one of three entities it’s promoting, along with a joint Brics Development Bank with Brazil, Russia, India and South Africa, and a Silk Road Fund designed to revive Chinese commercial ties in south and central Asia. They would join existing bodies including the ADB, World Bank and Inter-American Development Bank in offering finance to developing nations.
Xi aims to fund projects that will aid development in what are already some of the world’s fastest-growing areas. The vision could produce benefits that match China’s integration with the global economy when it joined the World Trade Organisation in 2001, Australia & New Zealand Banking Group said last year.
The AIIB “will channel more resources, particularly private investment, into infrastructure projects” in Asia, Xi said. “It will bring a better investment environment and more job opportunities and trigger greater medium- to long-term development potential on the part of developing members in Asia.
This in turn will give impetus to economic growth in Asia and the wider world.” The launch of a new multilateral lender comes as policy makers battle market turbulence at home that has helped trigger stock plunges overseas. Chinese shares have slumped into a bear market, wiping out gains from an unprecedented state rescue campaign last year as investors lose confidence in government efforts to manage the country’s markets and economy.
The Shanghai Composite Index sank 3.5% on Friday, falling more than 20% from its December high and dropping below its low during the depths of a $5tn rout in August.
Yesterday’s decline was attributed to persistent investor concerns over the yuan and a report some banks stopped accepting shares of smaller companies as loan collateral.
The selloff is a setback for Chinese authorities, who have been intervening to support both stocks and the yuan. As policy makers in Beijing fight to prevent a vicious cycle of capital outflows and a weakening currency, the resulting financial- market volatility has undermined confidence in their ability to manage the slowest expansion since 1990.
China has the confidence and the capability to ensure sustained and sound economic development, and will focus on promoting innovation-driven development to strengthen new drivers of economic growth and supply-side structural reforms, Xi said.
China’s economy grew nearly 7% last year, employment expanded more than expected, unemployment was less than forecast and income grew, said Li. There also had been positive structural adjustments, with the services industry accounting for half of gross domestic product and consumption contributing almost 60% of GDP growth, he said.
“We will move from the pattern driven by natural resources to one that is driven by human resources,” Li said of his government’s efforts to shift the economy away from investment- driven growth towards greater innovation-driven expansion.
The new China-backed institution was set up after years of frustrated attempts by China and other emerging nations to revamp the existing international financial institutions to better reflect the shape of the global economy.
Progress was made on that front last month when US lawmakers approved changes to International Monetary Fund governance that will give a bigger voice to emerging-market nations including China and India. China, the world’s second- largest economy, currently ranks sixth in voting shares at the IMF, behind the US, Japan, Germany, France and the UK. Under the plan, which has awaited ratification since 2010, it would jump to third, while India would climb to eighth from 11th and Brazil would move up four spots to 10th.
“The AIIB has already played an constructive role in strengthening the global economy by getting Congress to get off its duff and approve more resources for the IMF,” said Loevinger. The bank, formally established in Beijing on December 25, has 57 members, including US allies UK and Australia. Japan is a notable absentee.
It is headed by Jin Liqun, who worked at the World Bank and the Asian Development Bank on China’s behalf, and was a former monetary policy committee member and supervisory chairman of China’s sovereign wealth fund.
At the inaugural meeting of the AIIB’s board of governors yesterday, China’s finance minister Lou Jiwei was elected chairman of the board of governors, while Indonesia’s finance minister, Bambang Brodjonegoro, and Germany’s state secretary in the finance ministry, Thomas Steffen, were chosen as vice chairmen, Lou said.