January 20, 2015 10:30 pm JST
Asian Infrastructure Investment Bank

Former Thai foreign minister attacks China-led lender

ENID TSUI, Associate editor, Nikkei Asian Review

HONG KONG -- The Asian Infrastructure Investment Bank (AIIB) could further weaken the Asean community and impose Beijing's political will on southeast Asia, warned Thailand's former Minister of Foreign Affairs at a panel discussion hosted by the Nikkei Asian Review.

     Speaking at the Asian Financial Forum on Jan. 20, Kasit Piromya dismissed China's claim that the new regional lender was politically neutral.

     The creation of AIIB is part of China's global strategy to dominate, he said, and that the intensive discussions that would normally be required for the setting up of a multilateral institution is missing. Many countries have signed up to the bank "only as a result of China going around offering money," he added.

     The AIIB is part of China's ambitious vision of a new economic belt extending along the ancient Silk Road and a new Maritime Silk Road.

     President Xi Jinping of China announced plans to set up AIIB in 2013 and promised that his country would put up most of the bank's $100 billion in capital. Support has been growing and it received a major boost in November when Indonesia, Asean's largest economy, overcame its initial reluctance and signed up. Nevertheless, Kasit's comments show that skepticism remains.

     Li Yao, chief executive officer of the China-Asean Investment Cooperation Fund in Beijing, argued at the same panel that there was a clear separation between the AIIB and the Chinese government. He noted that Jin Liqun, the Chinese minister heading the working group for establishing AIIB, maintains that the bank is regional and does not belong to any one country.

     He added that the AIIB could partner with existing institutions such as the Asia Development Bank (ADB), the International Monetary Fund (IMF) and the World Bank instead of being a mere rival. The cost of many infrastructure projects have gone beyond just a couple of billion dollars and so require the backing of multiple lenders, he said.

     A former official of the World Bank's International Finance Corporation, Li said that new competition would be a positive thing that could help the IFC further improve.

     Kasit, who was foreign minister under Prime Minister Abhisit Vejjajiva from 2008-11, said Chinese bilateral assistance to some Asean countries have already split Asean over the South China Sea, where China and a number of its neighbors have territorial disputes. "With the AIIB, China will be dictating terms and that will further weaken the Asean community," he said. Kasit is currently the foreign affairs adviser to the leader of Thailand's Democrat Party.

     Yves Tiberghien, director of the Institute of Asian Research at the University of British Columbia, told the panel that China and other emerging economies had grown frustrated with the lack of reform at existing institutions such as the IMF and the ADB.

     "We are living through a giant shift in the balance of power. But at the ADB, China's voting right is only 6.5%. Japan's is at 15.7% and the US has 15.6%. So these institutions need to adjust to new realities. If you don't, you will get replaced," he said.

     Andrew Cainey, partner at Tony Blair Associates and another panelist, said he expected countries to see the AIIB as a way to reduce their reliance on other lenders.

     "It's to do with choice. A country would ask: Should we take the money? Could there be more attractive rates? Could it be easier to get money for a certain project? All these institutions need to offer competitive choices," said Mr Cainey.

     At the same time, both he and Kasit said there's no shortage of willing lenders at the moment. "The world does not need more institutions because there is so much money," said Kasit.

     Even if there is no clear demand for the Chinese initiatives, which also include the launch of the New Development Bank and the Silk Road Fund, Tiberghien said that they could still cause great disruptions.

     The global economy could not function without common rules of the game and common institutions, he said. "If the new institutions keep a good link with the old ones and focus on common rules, then they are positive steps," he said. The other scenario, he said, was for them to overrule what is the norm and simply create volatility.

     Western and Japan-dominated institutions have five to ten years to try and establish cooperation with their new, China-led rivals, he said. If they fail, the global economy will split into fragments, he said. 

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