China, 20 other nations initiate new Asian bank

BEIJING—China and 20 other Asian nations signed on Friday to a new Beijing-backed international bank for Asia that Washington opposes as an unnecessary rival to established institutions such as the World Bank.

Representatives of the 21 nations signed a memorandum of understanding at the Great Hall of the People in the heart of Beijing to establish the Asian Infrastructure Investment Bank (AIIB).

This follows the planned establishment of the New Development Bank (NDB), a multilateral lender funded by the so-called BRICS states (Brazil, Russia, India, China, South Africa), which aims to be an alternative to the World Bank and International Monetary Fund (IMF).

AIIB, seen as a challenge to the World Bank and Manila-based Asian Development Bank (ADB), would entice the region’s governments that are looking for additional ways to pay for the construction of expensive roads, bridges, and other vital infrastructure.

The new lender would fund the construction of roads, railways, power plants and telecommunications networks in Asia that global finance officials say are needed to keep the region’s economies humming along.

Those taking part include regional economic power such as India along with smaller but economically vibrant nations such as Singapore, Vietnam, the Philippines and Mongolia. Absent are US allies Japan, South Korea and Australia, whose membership was sought by China.

Chinese President Xi Jinping proposed the bank a year ago at a gathering of Asia-Pacific nations, and China has said it will provide most if not all of the initial $50 billion in capital.

Overseeing the signing ceremony, Chinese Finance Minister Lou Jiwei said the move marked a new stage in preparations for the bank’s formal establishment, the date for which hasn’t been given.

“We hope that through our joint efforts we can build the AIIB into a professional and efficient financing platform for infrastructure,” Lou said. He described the future bank as a “multinational financial institution which is fair, just, open … with a good governance structure.”

In a nod to concerns the bank could undercut existing institutions, Lou said it would complement the existing multinational financial institutions and “is committed to regional infrastructure and sustainable development.”

China is also backing the NDB.

The planned capital of the Chinese-backed development banks is relatively small compared with existing institutions.

The World Bank’s capital is about $220 billion and the Asian Development Bank has $175 billion capital.

US objections dwell mainly on worries the new infrastructure bank could lower international lending standards and work against existing multinational lenders by offering laxer environmental, labor and other safeguards for loans that are intended to prevent abuses and protect vulnerable populations.

Also signing on to the bank are Bangladesh, Brunei, Cambodia, Kazakhstan, Kuwait, Laos, Malaysia, Myanmar, Nepal, Oman, Pakistan, Qatar, Sri Lanka, Thailand and Uzbekistan.

China is already a major financier of roads, railways and other infrastructure projects carried out by large state-run Chinese companies and paid for with loans provided by policy banks such as the China Development Bank or the Export-Import Bank of China.

China expects private financial institutions and other players will provide another $50 billion capital for the AIIB, though the total would still well below that of the ADB.

Officially, World Bank President Jim Yong Kim has welcomed the new institution, saying the developing world’s massive need for about $1 trillion per year in infrastructure financing far outstrips the ability of private finance to fund it.

ADB President Takehiko Nakao also has welcomed the new bank, saying it would substantially boost the amount of funding available while forcing his red tape-laden institution to reform.

“ADB is prepared to consider appropriate collaboration in areas of common priorities,” he said.

Nakao’s statement came with a caveat; that AIIB adhere to international norms of project finance.

“It is vitally important that AIIB adopt international best practices in procurement and environmental and social safeguard standards on its projects and programs,” Nakao said.

He said China’s move was “understandable,” given the region’s “huge infrastructure funding needs.”

In 2009, the ADB said Asia would need to invest about $8 trillion between 2010 and 2020 to address the needs of the continent’s growing population.

About 70 percent of this will be for new projects, while the rest would be for the maintenance of existing facilities. AP, Paolo G. Montecillo