By Rebecca Colquhoun*
Sitting across a polished wooden table, pre-prepared notes arranged in front and frequently referred to, speaking only on their specific subjects of expertise – but always taking notes – these are the people charged with explaining China’s new infrastructure bank.
Based in Beijing, they are here to tell us, a group of visiting journalists, the Asian Infrastructure Investment Bank (AIIB) is effectively updating a 70-year-old economic system that is not meeting Asia’s modern demands.
They’re from the China Institute of Contemporary International Relations (CICIR), a think tank created with state backing to research government policy analysis in China and other nations. One of their roles is to “explain” the AIIB to foreigners.
The “system” they’re referring to is the Bretton Woods system, named after the New Hampshire location where the first truly global monetary order was created and institutions including the World Bank and the International Monetary Fund (IMF) were born in the aftermath of World War II.
The current Bretton Woods system has been operating on a global scale for more than 70 years. Its role in markets around the world shaped by disasters it has outlived, such as the end of the fixed rate of exchange in 1971, the collapse of the Soviet Union after 1989 and, most recently, the global financial crisis of the late 2000s.
According to the group, the AIIB, the world’s newest infrastructure bank will ease a looming funding drought in Asia’s infrastructure.
A dire need
In the wake of recent financial and national crises, the IMF and the World Bank have been on the receiving end of much criticism of their policy prescriptions and governance, with experts around the world suggesting both bodies are in dire need of reform.
China is one of the countries holding this view. President Xi Jinping has repeatedly called for broader representation and an increased voice for emerging market countries in the IMF, most recently last month at the Brazil, Russia, India, China and South Africa summit in Russia.
This push for change was also supported by US President Barack Obama when he called for reform in the IMF last year.
China proposed doubling the IMF’s quota while also shifting 6 percentage points of the total voting power to developing countries, one of those China.
Many have argued this is what prompted China to finalise the draft AIIB plan, which officially formed late last year.
This push for reform in these global lending institutions hasn’t only been limited to the IMF, with other institutions operating in the Bretton Woods system also criticised in recent years.
A different world
Xu Feibiao of the CICIR told our delegation many people in his country argue international banks, such as the Asian Development Bank (ADB), should be left to fend for themselves.
“[The AIIB will] promote reform and progress of the existing system that was set up 70 years ago,” he says. “The world has changed a lot since then.”
In the CICIR’s view there are manifold benefits of a new infrastructure bank in the region. But the group emphasises the AIIB’s goal has never been to overrule previously formed global financial institutions. The bank only hopes to help finance Asia’s almost insatiable appetite for infrastructure spending, which a 2009 study by the ADB forecasts could amount to US$8 trillion between 2010 and 2020.
“We’ve pointed out in a very clear way that we should fill this gap in the future,” chief executive of the South Pacific Unit at CICIR Dr Guo Chunmei says. “Other global financial institutions are seeing this and acting on it as well.”
This includes the World Bank, which recently offered US$11 billion in loans to Indonesia, a small portion of the estimated US$2.5 trillion needed in south and south-east Asia alone.
Indonesia’s President Joko Widodo remains sceptical of the World Bank. Earlier this year he said the global economy needs “to avoid the domination of certain groups of countries” by not being dependent on the World Bank, the IMF and the ADB.
“They need to reform, to refocus,” Dr Guo says, again referring to the Bretton Woods system’s “outdated practices”.
Academics from around the world have warned of the potential risks the AIIB poses to Asian economies, particularly regarding corporate governance, transparency and geopolitical positioning.
The key question is what if the investment bank becomes a tool for China on a global level? Why can’t China fall in line like every other country in cooperation with the Bretton Woods system?
The CICIR response is frank. The answer includes a mention of China’s move to surrender its veto power earlier in the year to win key European nations’ support, a power the US has retained with the World Bank.
While most of the attention the AIIB has gained lately is directed at their role on a global level, professor of economics and public policy at Harvard University, Kenneth Rogoff, recently wrote about multilateral development lending and more precisely whether or not the AIIB will work in the region.
“China is already pouring money into the developing world, often through highly opaque channels,” Rogoff said. “To the extent that the AIIB [normalises] a portion of Chinese development assistance, and subjects it to scrutiny from the new bank’s advanced-country members, the new bank’s existence should be all for the better.”
After one-and-a-half hours with the panel, as Australian journalists we in turn are questioned on Australia’s delayed signing of the AIIB memorandum of understanding.
We then collect our notepads and exchange business cards, and as we’re guided out of the building we pass a table with the institute’s most recent research journal. The first paper is titled “A Turning Point in the Global Order”. The journal says “the institute focuses on government policy analysis, both that of China and of other nations….CICIR is one of the major policy-oriented research bodies in China. A primary purpose of the journal is to present the views of CICIR researchers on international politics and international relations”.
It concludes: “We need to foster a greater international awareness when we set foot on the world stage, and stress the need for cooperation and the protection of common interests. This is key to having a strong soft power and winning the hearts and minds of people around the globe”.
*This article first appeared on ANZ’s BlueNotes website here and is used with permission. Rebecca Colquhoun is a BlueNotes correspondent. You can find her on twitter @christina_mayc