Beijing’s Development Bank Gains Momentum

The previous Obama Administration has long been opposed to joining the Beijing-led development bank initiative called the Asian Infrastructure Investment Bank (AIIB). U.S. concerns over the bank include transparent procurement, environmental and social safeguards, good governance, and additionality—given the existing and wide-ranging operations of the World Bank, International Finance Corporation (IFC), Asian Development Bank (ADB) and the European Bank for Reconstruction and Development (EBRD).

Despite U.S. objections and concerns, China’s $100 billion initiative seems determined in its quest for respectability and prominence. Now it appears that the U.S. will be one of the few major countries (along with Japan) not to back Beijing’s initiative. The Financial Times recently reported around 25 African, European and South American countries are due to join the bank this year, which was founded in January 2016 by 57 shareholder countries. Among the founding members are Singapore, Britain, Australia, France, Germany and Spain.

Following Chinese President Xi Jinping’s comments at the World Economic Forum in Davos, it would seem to some that Beijing has superseded Washington in pushing forward a liberal, globalized order. Beijing is also using the AIIB to further its efforts at soft power. Jin Liqun, the Chinese president of the AIIB recently argued, “China needs to do something that can help it be recognized as a responsible leader.”

In light of the “America First” inauguration speech by U.S. President Donald Trump, and inflammatory rhetoric from his cabinet nominees toward China, it is highly unlikely the new Trump Administration will join any Beijing-led initiative.

Critics say in refusing to join, the U.S. will forfeit any say in how the AIIB is run, including any input on environmental safeguards, transparency on potential corruption. Hopefully, other responsible founding shareholder countries should be able to impose, monitor and enforce protective measures. In addition, some of the AIIB’s nine current projects involve co-financing arrangements with other multilateral banks such as the World Bank, which has its own set of rules to deter unfair play and abuses.

Yet other multilateral banks, such as the World Bank, have been faulted in the past for their association with environmentally questionable and potentially corrupt projects. Despite this potential, and with or without U.S. membership, the AIIB still deserves a chance to offer a new alternative and prove itself to be a viable development finance institution.

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