A dragon tamed?

American fears about the China-led Asian Infrastructure Investment Bank have so far proven to be exaggerated.

Ungrateful treason. Irresponsible faux pas. Outright rebellion. These must have been a few phrases dangling in the mind of Barack Obama’s aides as a bunch of Western nations joined the Asian Infrastructure Investment Bank (AIIB) last year. The US had warned its allies to stay clear of the China-led multilateral lender, but most of them, including the UK, France and Germany, pressed ahead regardless. Probably best not to imagine what words the Republican-dominated, Beijing-obsessed Congress used then to describe that “crime”.

Washington had several reasons for feeling concerned. One was that the bank’s tenders would systematically be skewed towards providing business to Chinese contractors. In its effort to get off the ground fast, it was also feared that the AIIB would be prone to cutting corners on safety, governance and environmental standards. A third worry was that the institution would serve as a tool to advance China’s geopolitical goals, starting by placing the country at the core of infrastructure routes linking Asia and Europe. The net effect of all this being the AIIB would start elbowing out incumbents like the Washington-based World Bank and the Tokyo-led Asian Development Bank (ADB).

The US’ initial hostility did little to slow the lender’s advances. Fifty-seven countries ended up joining and 30 more are said to be queuing to get in. Out of America’s major allies, only Japan has refused Beijing’s invitation to join the bank. The AIIB, formally launched with an initial $100 billion in January, hopes to bring its eventual membership to 100. How come so many nations decided to ignore Washington’s warnings that joining would boost China’s dominance?

When the UK made its decision known, the US soon decried the country’s “constant accommodation” of China. But there’s something to be said about Beijing’s efforts at allaying Western concerns. First was its move to appoint Jin Liqun at the head of the bank. Jin had the right CV: he’d spent six years at the World Bank and six years at the ADB, the latter as its first Chinese vice-president. His international connections, fluency in English and relaxed demeanour, which made him an oddity among the Beijing intelligentsia, were also instrumental in attracting new members.

But it’s the more tangible facts that may now be contributing to cementing trust. For one, despite grand announcements about AIIB’s role in paving a new Silk Road, the bank is ramping up its operations only gradually: Jin recently said that it was aiming to deploy $1.5 billion this year and $5 billion by 2020. Most importantly, the AIIB seems more eager to partner with existing banks than to oust them.

Two weeks ago, it agreed to develop $1.2 billion worth of projects with the World Bank. The institution is also expected to back transport links alongside the ADB and the European Bank for Reconstruction and Development in Pakistan and Central Asia. In each case it will follow rather than lead: “The AIIB will simply co-finance,” said Jim Yong Kim, the World Bank’s president, after signing this month's agreement.

Such deals look like a win for both camps. The World Bank and its counterparts can only benefit from tapping into the lender’s coffers while saving capital for other projects. By initially focusing on projects led by other lenders, meanwhile, the AIIB can build a portfolio much faster than if it had to get the ball rolling alone.

Ironically, the institution now faces a different challenge – proving it’s not a ‘me-too’ of existing development banks. Jin says the AIIB will work more with private sector lenders than its peers; he also argues it will remain truer to its infrastructure mandate, rather than pursuing the looser goal of poverty reduction. Whether his words are more than an aspiration, however, will only be known when the bank starts flying on its own.

Write to the author at matthieu.f@peimedia.com