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Experts Weigh Influence of China-Led Development Banks

Head of the Asian Infrastructure Investment Bank Jin Liqun speaks to reporters in Beijing. China is the top shareholder in the development bank which has lent $1.7 billion in a little more than one year.
Head of the Asian Infrastructure Investment Bank Jin Liqun speaks to reporters in Beijing. China is the top shareholder in the development bank which has lent $1.7 billion in a little more than one year.
Experts Weigh Influence of China-led Development Banks
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In a little over one year, Chinese-based development banks have made $3 billion available for projects in a number of countries.

Yet some observers question whether the banks will provide support for China’s One Belt, One Road program. It seeks to expand trade between Europe and Asia, similar to the ancient Silk Road linking China and the West.

The new banks are the New Development Bank and the Asian Infrastructure Investment Bank, known as the AIIB.

The New Development Bank was the idea of China and four other countries: Brazil, Russia, India and South Africa – a group known as BRICS. The New Development Bank says its members have equal voting power in the bank, which is based in Shanghai.

The AIIB is based in Beijing. China has the largest share of voting power in the bank. Fifty-six other countries are also members. They include Britain, France and Germany – three non-Asian allies of the United States.

Jin Liqun is the head of the AIIB. He recently said the United States could still become a member. The administration of President Barack Obama decided against joining when the bank was set up in 2015.

Jacob Kirkegaard is with the Peterson Institute of International Economics, based in Washington, D.C.

Kirkegaard said, “Setting up AIIB and showing that Beijing intends to play by the established rules has helped China.”

However, he added that the development banks are helpful mostly for diplomatic or political reasons. He said they will not help China in economic competition with American businesses.

Julian Evans-Pritchard is an economist for the research company Capital Economics. He says, “China has gained in terms of soft power because it could bring several European powers on the table through AIIB.” This could increase cooperation between China and European countries, he adds.

The AIIB most recently approved a loan to build the Trans-Anatolian gas pipeline. The pipeline will transport natural gas from Azerbaijan to Europe. The project would support China’s One Belt, One Road plan, to connect Europe through Central Asia.

Will the U.S. become a member?

Speaking to Chinese media, AIIB head Jin suggested that the administration of U.S. President Donald Trump may choose to join the bank.

“I was told that many in his team have an opinion that Obama was not right not to join the AIIB, especially after Canada joined, which was a very loud endorsement of the bank.”

The Trump administration has yet to comment on the AIIB. Some observers do not believe the United States is likely to join. They say such a move would give added credibility to the bank.

Jin said that, at first, the U.S. government resisted the AIIB because it appeared to be in competition with established banks like the World Bank and the International Monetary Fund.

Lourdes S. Casanova is with the Emerging Markets Institute at Cornell University in New York. She says the United States will not join because of the importance of investments in public works projects domestically. She also says the U.S. has been critical of multilateral organizations.

This map shows China's "One Belt, One Road" trade paths.
This map shows China's "One Belt, One Road" trade paths.

In the past year, the AIIB has lent $1.7 billion for nine projects. They include roads in Tajikistan and Pakistan, a hydro power project in Pakistan and a port in Oman.

However, experts note that all these projects have been studied and approved by the World Bank and Asian Development Bank. The problems, they say, will come when the AIIB must identify good projects on its own.

Evans-Pritchard says many project are not good investments. Local opposition to some projects could be another problem, he notes.

“There is a risk of running protests in several countries were projects are planned,” he says. “There is a protest against an industrial zone in Sri Lanka, which is part of the OBOR program.”

The One Belt, One Road, or OBOR, program may also face opposition from protectionist governments in Europe. They may be less willing to increase economic ties with other countries.

I’m Mario Ritter.

Saibal Dasgupta reported this story for Mario Ritter adapted it for Learning English. George Grow was the editor.


Words in This Story

intend – v. to want to, to mean to do something

advantages – n. benefits, good results of doing some action

soft power – n. gaining influence through economic and cultural ties

domestically – adv. taking place or having to do with one’s home country

multilateral – adj. involving many different countries our groups