The Economist Explains: Why China is creating a new “World Bank” for Asia -The Economist


“…the AIIB has stoked controversy because Asia already has a multilateral lender, the Asian Development Bank (ADB). Why is China creating a new development bank for Asia?

China’s official answer is that Asia has a massive infrastructure funding gap. The ADB has pegged the hole at some $8 trillion between 2010 and 2020. Existing institutions cannot hope to fill it: the ADB has a capital base (money both paid-in and pledged by member nations) of just over $160 billion and the World Bank has $223 billion. The AIIB will start with $50 billion in capital—hardly enough for what is needed but still a helpful boost. Moreover, while ADB and World Bank loans support everything from environmental protection to gender equality, the AIIB will concentrate its firepower on infrastructure.”
“But the real, unstated tension stems from a deeper shift: China will use the new bank to expand its influence at the expense of America and Japan, Asia’s established powers. China’s decision to fund a new multilateral bank rather than give more to existing ones reflects its exasperation with the glacial pace of global economic governance reform. The same motivation lies behind the New Development Bank established by the BRICS (Brazil, Russia, India, China and South Africa). Although China is the biggest economy in Asia, the ADB is dominated by Japan; Japan’s voting share is more than twice China’s and the bank’s president has always been Japanese. Reforms to give China a little more say at the International Monetary Fund have been delayed for years, and even if they go through America will still retain far more power. China is, understandably, impatient for change. It is therefore taking matters into its own hands.”

The Guardian also has a few interesting things to say about the new bank. In addition to echoing the Economist’s comments about competition between China and the US/Japan, it also argues:
“the world suffers from insufficient aggregate demand. Financial markets have proven unequal to the task of recycling savings from places where incomes exceed consumption to places where investment is needed.
When he was chair of the US Federal Reserve, Ben Bernanke mistakenly described the problem as a “global saving glut.” But in a world with such huge infrastructure needs, the problem is not a surplus of savings or a deficiency of good investment opportunities. The problem is a financial system that has excelled at enabling market manipulation, speculation, and insider trading, but has failed at its core task: intermediating savings and investment on a global scale. That is why the AIIB could bring a small but badly needed boost to global aggregate demand.”

In defence of the Asian Infrastructure Investment Bank