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IIST e-Magazine (For the Japanese version of this article)

Series: Understanding Japan through Key Words (Part 9) Asian Infrastructure Investment Bank (AIIB) [Date of Issue: 30/April/2015 No.0242-0971]

Date of Issue: 30/April/2015

Series: Understanding Japan through Key Words (Part 9)
Asian Infrastructure Investment Bank (AIIB)

An international financial institution spearheaded by China, to be established this year. The AIIB will supply capital to developing Asian nations for the construction of rail, power plants, ports, roads and other infrastructure, helping to accelerate growth not only in client economies but across the regional economy as a whole. With China boasting the world's second-largest GDP, China's aim in setting up the AIIB would appear to be utilizing that economic muscle to expand its influence in Asia.

China called for "founding members" who will negotiate the establishment agreement, closing applications at the end of March, 2015. Four of the G7 nations have announced their participation: the UK, France, Germany and Italy. Korea and Australia have added their names, and with India, the Association of Southeast Asian Nations (ASEAN) members and various Middle Eastern countries also on board, the AIIB boasts 57 member countries. The aim of many of these signatories is clearly to get their own companies involved in development and reap the resulting profits.

Japan and US, on the other hand, are keeping their distance on the grounds of lack of clarity around AIIB governance and lending arrangements, and have called for the AIIB to collaborate with existing international financial institutions such as the International Monetary Fund (IMF), the World Bank and the Manila-based Asian Development Bank (ADB). They warn that unfettered unilateral lending by China could throw the world economy into turmoil.

China's initial strategy was in fact to boost its presence within existing frameworks such as the IMF. Following the Lehman shock and the financial havoc this triggered particularly in the developed world, the IMF decided to reform voting rights to give China and other emerging powers more say in global economic governance. However, the US Congress has refused to give its approval for fear of greater Chinese influence, and as the US is the IMF's biggest donor, the initiative remains stalled.

The US and Japan are also the largest contributors to the ADB, where there is potentially some duplication with the AIIB. The ADB president has been Japanese since the bank was founded back in 1966. In short, there is no room for China to wield its influence under the current regime. Within the Japanese government, a senior economic official notes that some view China's latest move as China "running out of options, giving up on the status quo, and instead seizing the initiative and establishing its own international financial institution".

Alongside the AIIB, China has agreed with the four other BRICS nations—Brazil, Russia, India and South Africa—to establish the New Development Bank, to which each will contribute an equal capital share. China will contribute US$41 billion to the contingent reserve arrangement designed to cover financial crises, and will hold 40 percent of voting rights. In other words, China will use its foreign exchange reserves—the largest in the world—to make its own way on the international financial stage.

Endorsement from a number of G7 nations for the AIIB and the statement from IMF head Christine Lagarde that she "welcome[s] China's various initiatives in this area, including through the newly established Asian Infrastructure Investment Bank" appear to be deepening Chinese confidence. Given diplomatic concerns with China such as the dispute over the Senkaku Islands in Okinawa Prefecture, joining the AIIB would not be an easy choice for Japan, while even if Japan did join, there would be no guarantee of sufficient voice. Japan faces some difficult decisions in dealing with this new financial order which China has started to create.

(original article : Japanese)

*This article was written by a specialist journalist.
(For the Japanese version of this article)


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