ADB and AIIB share interest in infrastructure

At the Asian Development Bank’s annual meeting, which is currently taking place in Frankfurt, Jin Liqun is perhaps the most interesting participant. Others certainly want to hear what the president of the Asian Infrastructure Investment Bank, which is based in Beijing and only recently began operations, has to say.

The big question is whether the ADB and the AIIB will cooperate closely or become fierce competitors. The US administration did not want its allies to join the AIIB because it considers the new multilateral bank an instrument of Chinese policy making and expects it to challenge the ADB and even the World Bank.

Jin stresses cooperation, and so does Takehiko Nakao, the ADB’s president. Nakao announced that both institutions have agreed to co-finance a road project in Pakistan worth up to $ 300 million. The details of the deal have not been agreed yet, but according to Nakao, both banks will invest the same amount of money. The ADB will implement the project, and its safeguards will apply, Nakao said.

This is an interesting development. Improving Pakistan’s transport infrastructure serves several purposes. First of all, Pakistan needs good infrastructure for its economy to prosper. Moreover, connecting Pakistan’s road system to western China would improve connectivity in Asia. Western China could benefit from Pakistan’s sea ports, and so could Central Asian economies that are linked to China’s roads. Improving such international infrastructure is a declared goal of Chinese policymakers, but it is one that does not hurt other members of the international community. On the contrary, it is likely to facilitate trade and create opportunities.

Beijing has launched a policy it calls “One Belt One Road”. The idea is to improve sea links in the Pacific and Indian Oceans, and to re-start something to resemble the historic silk road. Some suspect that China’s government has two selfish motives for pushing ahead with this programme: it wants to boost Chinese exports and get assignments for Chinese infrastructure companies.

In Jin’s eyes, this assessment is short sighted. He insists that the One Belt One Road programme  was launched by China, but is not owned by China. Nothing would happen, he says, if the countries concerned were not actively involved. They are the owners of infrastructure built on their territory.

These are early days. More co-financing is likely to happen. Moreover, ADB President Nakao also indicates that there are plans do co-financing in cooperation with the New Development Bank, which is based in Shanghai and owned by the BRICS (Brazil, Russia, India, China and South Africa), though that would be limited to projects in India and China unless the NDB decides to finance projects outside the borders of its member countries. 

What this kind of cooperation means for the long-term relationship between the various multilateral institutions remains to be seen. It certainly makes sense for the newcomers to learn in cooperation with the older multilateral banks and they obviously want to be acknowledged as serious partners. Once good cooperation is established, however, it is likely to continue. On the other hand, China and other emerging-market governments may well at some point decide to make the new institutions adopt policies that serve national interests in a more narrow sense.

The competition between emerging markets and established economic powers may play out within the ADB too, however. ADB President Nakao admits that the ADB may ask shareholders to increase its capital – and an option might be to boost the shareholding of emerging markets. Their voting rights would increase accordingly, reducing the influence of the established powers.