Chinese President Xi Jinping (C, front) poses for a group photo with the delegates attending the signing ceremony for the Articles of Agreement of the Asian Infrastructure Investment Bank (AIIB) at the Great Hall of the People in Beijing June 29, 2015. [Photo/Agencies]
World Insight: http://english.cntv.cn/2015/06/30/VIDE1435616042104565.shtml
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Financial leaders of 57 states gathered in Beijing on June 29 to sign the agreement for establishing the Asian Infrastructure Investment Bank (AIIB), expected to become the region’s largest investment bank in the 21st century.
Seventy years ago, the World Bank was established, led by the US and its close western economic and political allies, as the first global financial institution. Along with the World Trade Organization and the International Monetary Fund, the western powers have commanded world financial and trade order for more than half a century. Even the Asian Development Bank (ADB), established 20 years later after the World Bank, has been largely controlled by Japan, backed by the US and other western economic powers.
China benefited from the global and regional development and financial institutions in the initial stage of economic reform and openness. As China expanded its economic strength it has aggressively contributed to financing them. However, despite its financial contribution to these institutions rising significantly China still has limited influence over management and operation.
China’s desire to influence world financial order and its inability to do so have been due to the governance structure of these institutions where China is not only a minority shareholder but its voting rights are marginalized.
Since the world financial crisis, triggered by the US subprime mortgage crisis and the EU’s debt problem, China’s relative importance in the world economy has risen rapidly. By 2010, it surpassed Japan to become the world’s second largest economy, and by 2012 it overtook the US to become the world largest trading nation as well as the largest producer and consumer of motor vehicles.
Apart from China’s second-to-none manufacturing capability, it holds the world’s largest foreign exchange reserves which have to be used effectively so they can generate a financial return and make appropriate contributions to infrastructural development in Asia, the largest and fastest growing region among all continents.
In addition, China, India, Russia and other initial AIIB member states have the financial strength and managerial confidence to create a new financial institution similar to the World Bank and ADB. For the initial $100 billion fund to be pledged, China has agreed to contribute 29.7 percent, India 8.3 percent, Russia 6.5 percent, Germany 4.4 percent and South Korea 3.75 percent. Other major contributors include the UK, Australia and Indonesia.
Both the US and Japan have not expressed their intention to join AIIB although many US political and economic allies have come to Beijing to sign the agreement, particularly the UK, Germany, France, Italy and Australia. The diversion of these countries' attention away from the US to China and Asia not only reflects ever rising business opportunities in Asia, but also the relative decline of the US-led western influence on the global economy and financial order.
The apparent shift of economic gravity from the West to the East reminds me of my personal experience in the past. Thirty year ago, I was awarded a World Bank scholarship from a university in Hainan to study in the UK in 1985. At that time, the salary of a Chinese university lecturer was less than 1 percent of his UK counterpart. Today, all the top Chinese universities are able to pay significantly more than the equivalent UK or US salaries to attract overseas talents to work in China. In addition, numerous university teachers in China can easily apply for more research funding than their western counterparts.
Although China is still a developing economy by definition, it has exceeded many western powers in a number of areas such as equipment manufacturing, high-speed railways, nuclear power, construction, infrastructure engineering and space technology. In 2014, Chinese scientists produced the second largest number of high-impact academic journal papers in the world.
China started the first high speed railway 30 years later than Europe, but by 2014, has built 16,000 km of high-speed tracks, twice as long as the total length of all the EU countries put together. BYD, one of China’s private auto makers, has marched to California to build electric buses for the local market.
India is racing to follow in China’s footsteps. Its economy was growing as fast as China in 2014 and is set to overtake China’s growth in 2015. However, India’s transportation systems are so poor that they are evident constraints on the country’s development. It is expected that India will require $1 trillion to improve its transportation systems, and the establishment of AIIB will be helpful to its development needs. Other Asian countries face similar problems of investment for roads, railways, airports, seaports, telecommunications and internet.
AIIB will become a potent propeller to accelerate economic and social development in Asia. Along with the Silk Road Fund and the Brics Bank, China will use AIIB to implement its “one- belt and one-road” regional and global development strategies.
The Silk Road Economic Belt and the 21st Century Sea Silk Road will cover more than 60 countries surrounding China, and many will benefit from China’s outward-looking investment and development strategies. Under Xi Jinping’s leadership, China has gained increased support from neighbouring countries in Asia and many others in Latin America, Europe and Africa, thanks to its persistent foreign policy of peaceful cooperation, mutual benefit and common prosperity.
The future operation of the AIIB may face many challenges and uncertainty, but the AIIB has signified the rapid emergence of China, India and other developing and transitional economies. The determination and confidence for success through the AIIB and other newly created financial institutions suggest that the world financial and political order will be different from now, as the overwhelming dominance of the World Bank and ADB in Asia and the world financial systems will inevitably decline in the future.
By Shujie Yao (chinadaily
The author is a professor of economics, Chongqing University and the University of Nottingham.
Through AIIB, China can learn to lead
Representatives of 57 prospective founding members of the Asian Infrastructure Investment Bank (AIIB) gathered in Beijing on Monday for the signing ceremony, with 50 of them endorsing the AIIB agreement. As the largest shareholder, China takes a 30.34 percent stake and correspondingly has a voting share of 26.06 percent, which actually enables China to wield a veto on major issues, such as electing the bank's president. This is a moment that our nation could never have imagined just 10 years ago.
The move forward in the AIIB, however, seemed to have no bearing on people's feeble confidence in China's stock market, as shares plunged amid a flurry of automatic sell orders on this remarkable day.
However, the country's fundamental confidence has been elevated to a new stage. This is the first time ever that China is leading an international multilateral bank. Its influence is prominent and far-reaching, and it carries more profound significance than successfully hosting an Olympic Games.
It took China less than six months to complete the signing of the AIIB agreement and this efficiency shocked the world.
Although China barely has any experience in this regard, it is proof of its excellent capacity to learn and of its eager pursuit of fairness and equity. The first batch of 50 signatories is far more than the number of founding members of the Asian Development Bank (ADB).
China's attempt to lead the international financial institution may have been forced by unfair treatment in other institutions or China may want to test experiences with the AIIB as we are still a developing country. But from now on, we must shoulder our responsibilities.
Of these responsibilities, the foremost is to bear criticism as numerous Western observers are waiting to find faults with and go bearish about China. But regardless of what they say, China must stick to its current trajectory.
In recent years there have been fewer protests by China, but frequent ones against Beijing overseas. China needs to stick to its major principles, but it does not need to be entangled in minor issues.
US allies that have joined the AIIB do not mean to flatter China, but they see the benefits will outweigh their relations with Washington. With GDP at the $10-trillion level, can China build more platforms of common interest and convince the outside world that working with China always means a win? This serves as the key to China's further rise without encountering strong resistance from the outside.
Compared with the IMF, World Bank and the ADB, the AIIB indicates that the environment where China is rising may not be as terrible as we conceive. We must grasp the opportunities.
Source: Global Times Editorial
50 nations sign AIIB deals - China wields veto powers, enjoys 26% voting rights
China's role as the largest shareholder with significant voting rights in the Asian Infrastructure Investment Bank (AIIB) will make the country shoulder more responsibility in turning the bank into a high-quality financial institution to complement existing multilateral development banks, experts said Monday.
A total of 50 prospective founding members of the AIIB on Monday signed the bank's articles of agreement (AOA) in Beijing, which outlines the bank's objectives, operating principles, governance structure and decision-making mechanisms.
Seven members, including Denmark, Thailand and the Philippines, failed to sign the AOA on Monday. China's Ministry of Finance said they can sign the agreement anytime this year.
"The signing of the AOA is a milestone in the establishment of the bank," Vice Minister of Finance Zhu Guangyao told the Global Times Monday on the sidelines of a forum in Beijing.
The bank was proposed by President Xi Jinping in 2013 during his visit to Indonesia.
Xi said on Monday that China's development would not have been possible without Asia and the world.
"As China grows stronger, we are willing to make our due contribution to world development," he said.
Zhu said the AIIB's establishment process has outpaced other multilateral development banks, and its objectives have won support from members within and outside Asia.
"We hope AIIB members' legislatures will approve their AOA membership as soon as possible and get the bank's operations going by the end of the year," he added.
Voting shares
The AIIB will have an authorized capital of $100 billion, and Asian members are required to contribute up to 75 percent of the total capital, leaving the rest to non-Asian members, according to the AOA.
China is the bank's largest shareholder with a 30.34 percent stake. This gives China 26.06 percent of the voting shares, also the largest, within the multilateral financial institution.
"It is within expectations given China's huge economy, and it also means China needs to shoulder more responsibility in building the AIIB into a high-quality bank," Ruan Zongze, vice president of the China Institute of International Studies, told the Global Times Monday.
According to the AOA decision-making mechanism, China has effective veto powers over major decisions because it has voting shares of over 25 percent.
China does not seek veto powers in the AIIB, Vice Finance Minister Shi Yaobin told the Xinhua News Agency Monday. He said the country's stake and voting shares in the initial stage are natural results of current rules, and may be diluted as more members join.
"Being a major Asian economy, Japan's entry will dilute China's stake and voting shares more than any other country, but so far we have not seen such a sign," Ruan said.
He said he believes the AIIB is not likely to approve a large number of new members in its initial stage. Instead, it will focus on rolling out investment projects.
Owning veto powers does not mean that China will use these powers in AIIB's future operation, Jia Qingguo, dean of the School of International Studies at Peking University, told the Global Times Monday.
Jia said China might use the powers only if the projects would seriously hurt China's interests or are not in keeping with the bank's objectives, adding that the possibility for such conditions is low.
After the signing of the AOA, the bank's senior management will be appointed before it starts operations.
The bank's headquarters will be located in Beijing, and its president will be selected through an open, transparent and merit-based process, according to the AOA.
The AIIB's future investments will focus on Asian infrastructure projects in the energy, power, transport and agricultural sectors that also meet environmentally friendly and energy-saving standards, Jin Liqun, secretary-general of the AIIB's interim multilateral secretariat, said at a forum held in Beijing over the weekend.
The Asian Development Bank said it believes Asia would need infrastructure investments worth over $8 trillion between 2010 and 2020.
"The AIIB will complement existing multilateral development banks to promote sustained and stable growth in Asia," Zhu said.
World Bank President Jim Yong Kim welcomed the signing of the AOA.
"More funding for infrastructure will help the poor, and we are pleased to be working with China and others to help the AIIB hit the ground running," he said in a statement on Monday.
- Song Shengxia contributed to this story
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