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China redefines international standards

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An Afghan security guard watches over a Chinese road construction site in Afghanistan's eastern province of Nangarhar on Nov. 19.   © Reuters

The China-led Asian Infrastructure Investment Bank with its 57 member countries aims to finance its first project early in 2016. The operational capital is likely to be raised by issuing unrated bonds, which means the debt will not be underwritten by any recognized financial institutions and will have to be bought "privately." While the AIIB's deputy chief, Chen Hun, was quoted as saying that South Korea will support the bond issuance, it is unprecedented that an international financial organization would come to market without a rating. In comparison, debt from the World Bank and the Asian Development Bank are investment grade, with triple-A ratings.

     The AIIB was born out of China's frustration with the slow reform process of the International Monetary Fund and the World Bank but also with a legitimate goal of financing infrastructure, which Asia needs badly in order to reap its growth potential. Japan did not become a founding member even though China had offered the country the vice-governor seat at the bank. Japan had requested China provide clarifications on the governance structure and the lending standards of the bank, but did not get clear enough answers.

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