China's ex-finance minister to head new Asian bank

Tokyo

CHINA will appoint former vice finance minister and development bank official Jin Liqun as head of the proposed US$50 billion Asian Infrastructure Investment Bank (AIIB), sources have told The Business Times, strengthening the chances that the China-led bank could become a new Asian regional development bank.

It has been widely assumed that the AIIB would limit itself to financing basic infrastructure projects in Asia but the roots of the institution in China's Tianjin province link it with more ambitious initiatives to launch a North-east Asia Development Bank or NEADB.

Some 20 countries have shown interest in becoming shareholders of the AIIB, according to China's Ministry of Finance and representatives from South Korea, Thailand, Indonesia and Singapore were among those attending a recent meeting meeting in Beijing to discuss the issue.

A high-profile Chinese official, Mr Jin resigned as chairman of the China International Capital Corporation (CICC) this month and will assume the position of head of the AIIB, according to Chinese diplomatic sources. He has been involved with the AIIB project but not yet confirmed as its head.

With experience as a former vice president of the Asian Development Bank and as China's alternate governor at the World Bank, Mr Jin is a good candidate, some say, to head a new regional development institution that could in some respects become a rival to the Manila-based Asian Development Bank (ADB) which is heavily influenced in terms of policy and shareholding by the US and Japan.

Plans for a North-east Asia Development Bank (NEADB) have been under discussion for more than 20 years, given the vast infrastructure and other investment needs of the populus and resource-rich Northeast Asia region. But these plans have failed to come to fruition up to now.

An NEADB was first proposed in 1991 by a group of North-east Asian nations including China, South Korea and Japan among others. It has since appeared to be dormant but Chinese diplomatic sources told BT that the AIIB is linked to initiatives centred on Tianjin, which have gone on behind the scenes for more than 20 years. Meanwhile, China's build-up of foreign exchange reserves has provided a financial basis for launching a new bank, the sources say.

The decision to name the new bank an "infrastructure" institution and not a "development" bank appears to reflect China's desire not to present it as an overt rival to the ADB or World Bank, sources say. Despite this, there has been US and Japanese opposition to the plan and lobbying against it.

ADB president Takehiko Nakao said during an interview in Washington with BT that he understood the motives behind setting up the AIIB "because there is huge demand for infrastructure investment," put by the ADB at around US$8 trillion of investment during the current decade.

Mr Nakao stressed, however, that the ADB has "built up experience of developing and implementing projects and monitoring them including safeguard and procurement policies and due diligence" and that the ADB could cooperate with institutions only if they observed similar standards.

Diplomatic sources say that a principal motive for Beijing in proposing the AIIB (which they say will likely be headquartered in China though not necessarily in Hong Kong) is to invest part of China's US$4 trillion foreign reserves in higher-yielding assets than US Treasury Bills. Others told BT, however,that China feels frustrated by the dominance of the ADB by Japan, which is a co-equal shareholder with the US in the Manila-based bank and which has held the presidency of the ADB since its founding. An NEADB could dilute the ADB's function and influence in Asia.

The NEADB idea was first discussed by Ma Hong, now president of the State Council China Development Centre and introduced into the Northeast Asia Economic Forum meeting in Tianjin in 1991 by former South Korea prime minister Nam Duck Woo, according to former ADB vice president Stanley Katz.

An ad-hoc committee was established to guide the project and concluded that there was a "strong need for an NEADB and the unique role it would play in helping to finance infrastructure investment and economic development in the region" - a role, the committee conluded, is "not currently being met by existing development institutions."

Mr Katz, who has long been involved with the NEADB project, said in a paper that the prospective bank's operational territory could cover a "vast land area" including China, Mongolia, North and South Korea and the Russian Far East which is rich in resources but in need of capital and technology.

Mr Katz's paper proposed that prospective regional shareholders in the proposed bank would be China (including Hong Kong and Macau), Japan, South Korea,Mongolia, and Russia. The United States is expected to be a major participant among the non-regional members, along with the European Union, Australia, and New Zealand. The proposed capital structure for the NEADB suggests an initial capitalisation of US$20 billion, of which 50 per cent would be paid up, the paper said.