Jin Liqun (C), the first president of the Asian Infrastructure Investment Bank (AIIB), speaks to journalists during a press conference in Beijing on January 17, 2016. The new Asian Infrastructure Investment Bank will boost investment in the region while contributing to 'fairer' global economic governance, Chinese President Xi Jinping said on January 16 at the formal opening ceremony in Beijing. The China-backed AIIB -- which has 57 members including major economies such as Australia and South Korea but notably excluding the US and Japan -- is viewed by some as a rival to the World Bank and Asian Development Bank (ADB). AFP PHOTO / FRED DUFOUR / AFP / FRED DUFOUR (Photo credit should read FRED DUFOUR/AFP/Getty Images)

When China announced in 2013 that it would create the Asian Infrastructure Investment Bank to lend to developing countries in the region, a common belief held that this marked another sad stage in the slow death of multilateral co-operation.

Rather than channel its vast foreign exchange reserves through global agencies like the World Bank, the argument went, China was setting up its own development bank which it could dominate and in which other creditor countries could participate only on terms in effect set by Beijing.

With this week’s news that the AIIB will undertake a joint loan with the Asian Development Bank (ADB), this pessimistic scenario looks mercifully less likely. There is a strong argument for seeing the AIIB’s creation as a move by China towards embracing international co-operation, not rejecting it.

By the time Beijing announced the AIIB, it had already been hurtling rapidly away from multilateralism in the field of development finance for more than a decade. Starting in the early 2000s, China began to deploy its huge currency reserves to lend bilaterally to developing countries, often for infrastructure projects in Africa, through agencies such as the China Development Bank and the China ExIm Bank.

Frequently, these loans were tied to mercantile interests of Chinese companies and political backing for Beijing’s foreign policy goals from the recipient governments. They were, however, largely free of the human rights and environmental standards that have helped to make World Bank loans increasingly cumbersome to take out. This featherlight-touch approach proved a highly popular feature. By 2010, Chinese development lending had exceeded that of the World Bank.

However, a string of projects failing to work out, including a big loan to Ghana to develop its nascent oil industry, encouraged China to supplement its bilateral lending with a plurilateral project in the form of the AIIB. The US might not have liked it, and unwisely tried to discourage other governments such as the UK from joining the new bank, but creating a new international institution, even at the cost of bypassing the existing ones, was on balance a positive development.

Assuming it is confirmed and goes ahead, the loan with the Asian Development Bank is important both symbolically and in practice. The ADB, which has been around since 1966, has long been seen as a Japanese fiefdom, with Tokyo in effect appointing its head and Washington giving it support. Neither the US nor Japan has joined the AIIB. For Beijing in effect to co-operate with one of its main foreign policy rivals in the region suggests it is signalling that the AIIB is not simply intended to project Chinese interests.

Moreover, the ADB, somewhat like the World Bank, has rules on social and environmental protection which it says will apply to the joint project: thus it will allow China, at least partly, to submit itself to global norms of development lending.

These are early days for the AIIB, which has still to demonstrate which rules will constrain the bulk of its activities. It is, however, all to the good that it is sending out signals in the direction of international co-operation.

The initial hand-wringing, particularly in Washington, over the creation of the AIIB has been excessive. China will continue to lend bilaterally on a huge scale, and the new bank should be regarded as a pilot project rather than a dominant new model. By showing respect to the existing development agencies, Beijing is signalling that the AIIB is not simply the extension of Chinese influence by other means.

Letter in response to this editorial:

Cherished ideal of harmony bodes well for Asia / From Khairy Tourk

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