Critics see AIIB as a China bank

A LEADING Asian nation proposes a new regional financial institution but the idea meets with opposition from the US and others while creating something of an international stir. It could be China's Asian Infrastructure Investment Bank (AIIB) but in 1997 it was Japan's plan for an Asian Monetary Fund, or AMF, that was making waves.

Now, the man behind the abortive AMF plan, Eisuke Sakakibara, is opposed to Japan joining the AIIB, just as China opposed Japan's initiative 18 years ago. Such are the ironies of history but the former "Mr Yen" says he is not "returning the compliment" by opposing but simply acting in the broader interests of economic development.

He does not see the AMF and the AIIB as being identical initiatives - the AMF was mooted as part of an Asia-wide protest against the way in which the International Monetary Fund handled (or mishandled) the 1997 crisis, whereas the AIIB is very much a unilateral or "bilateral" initiative on China's part, he told BT.

"Right now China's influence (in the AIIB) is too big so that as such it would not become a genuine international organisation," he said. "In order to make it (that), China has to reduce its shareholding and to ask other big countries like the US and Japan to participate with significant shareholdings in the organisation.

"Moreover, they have to come up with some kind of (executive) Board (within the AIIB) where decisions are made. Right now, it looks as though the decisions will be made solely by China."

Governance shortcomings in the AIIB are seen as its weak point. Japan "should not join at this time because as of now it is a genuine Chinese organisation rather than a genuine international organisation", said Mr Sakakibara.

Mr Sakakibara is not alone in having such reservations. "Although some 47 economies have signed up as founding members of the AIIB, China will be very much in the driver's seat," says former Goldman Sachs (Asia) vice president Kenneth Courtis.

"China will be the largest provider of capital to the AIIB, and the bank will be headquartered in Beijing," he told BT. "Perhaps more important is that after three decades of the most extraordinary build out of China's own infrastructure, Chinese firms are today the biggest and most competitive infrastructure builders on the planet. They see in the AIIB a powerful agent for investment and development across Asia, and in which they can be a primary player."

Mr Sakakibara, meanwhile, does not discount the possibility that Japan could join the AIIB at some point in time, and a planned meeting in June between Japan's finance minister, Taro Aso, and his Chinese counterpart Lou Jiwei appears to be a positive augury in this regard.

"I am watching very carefully how the AIIB will evolve," said Mr Sakakibara. "Since European countries are now in it, they will probably work from inside to make it more transparent and more governable. As China makes various concessions to (the norms of) international organisations, then we could join.

"I think all the European countries which do not have a strong foothold in Asia may benefit from joining this organisation and I think that is their view too. It is only natural. But Japan and the US are somewhat different. We both already have a big stake in Asia, and we also have the Asian Development Bank (ADB)."

The launching of the AIIB, which has reportedly attracted some 45 member countries, is seen as a potent symbol of China's rise to the status of a major economic player in Asia and the world at large. But it is also viewed as a kind of protest move by Beijing against the perceived underprivileged position of China in other multilateral institutions.

China is now exerting more influence in the world, said Mr Sakakibara, a former vice finance minister for international affairs of Japan. "In terms of GDP, China is now number two in the world and it will probably surpass the United States within 20 or 25 years," he noted.

Yet, China has been unable to achieve the increased shareholding and voting power that it and other key emerging economies are seeking in the IMF and World Bank. In addition, Mr Sakakibara acknowledged, "the Asian Development Bank is essentially managed by Japan and they [the Chinese) are dissatisfied with that".

It is "only natural that China would want to come up with some sort or alternative Asian development organisation - and that's the AIIB".

There is a certain poignancy or irony in his observations given that it was he who attempted to launch the AMF at the time of the Asian financial crisis in 1997 but was forced by opposition from Washington and from Beijing to abandon the idea.

"One of the reasons why I proposed an AMF was that we were very much dissatisfied with the way that the IMF handled the Asian crisis," he said. "I think it was wrong and that the IMF made basic mistakes in handling the Asian crisis. That was why I proposed the AMF, to provide funds to genuinely needy sectors in Asia."

SHAREHOLDING STRUCTURE

If China wishes to develop the AIIB as "a genuine international organisation, I would not object to Japan participating", Mr Sakakibara said. But "as of now it is a Chinese organisation and as of now all the money they provide is bilateral aid from China", he added. "They can use their own money in whichever way they wish but (that way) it will not become an international organisation which Japan and the US can join."

Could the AIIB in fact evolve into a genuine international organisation? "I don't know," said Mr Sakakibara. "It depends upon China. If China insists upon having something like 30 per cent or 40 per cent shareholding in the organisation, that's impossible. In the World Bank or the IMF, the US share is 17 per cent, which is veto power. But the Chinese share (in the AIIB) should be reduced to something around 16-17 per cent.

"The Chinese shareholding should be reduced quite substantially and other major countries like India and some Asean countries - plus Japan and the US, if we join - should have significant shareholdings."

If the AIIB becomes a "genuine international organisation where a Board (of directors) exists and major decisions are made by the board and in which governance becomes transparent, then it's alright", added Mr Sakakibara.

"We do need executive directors and those directors should have voting power according to the shares (that member countries) have in the organisation. They need to monitor projects. If you leave it up to the governor (president), he could decide whichever way he wants. The executive board has to be the final decision making body."

SOFT POWER STRATEGY

The Chinese perspective on the AIIB is, understandably, different from that of others, including Japan, who appear to see Beijing's initiative as an affront to the global economic order or status quo.

"For China, the issue is how we can use our money more productively, not just in the traditional sense of return on capital but also to strengthen China's influence and strengthen its soft power and to promote its economic development and globalisation and the bank will be headquartered in Beijing," said Yuqing Xing, a professor at the National Graduate Institute for Policy Studies (Grips) in Tokyo.

"The reason why the Chinese government is determined to set up the AIIB (is) because China has been a rising economic power and the global community has expected China to provide a lot of public goods but (global governance) is completely controlled by the US and the World Bank, IMF and Asian Development Bank," Prof Xing told BT.

"So China feels, okay, it is our obligation (to provide public goods) and also to use our soft power, because China needs the world market and also invests ( a great deal) overseas. But under the given system and institutional framework China may end up paying the money but without any benefits. Our responsibility should match our power and authority. I pay the money so that I should have the right to say how the money will be used. That should also fit China's diplomatic and strategic vision. Therefore, it makes sense for China to start its own (bank)."