China’s International Bank

Published on Author greenwoodp14

Over the past year in an attempt to expand its economic influence, China has begun proposing the Asian Infrastructure Bank. This regional development bank would focus on infrastructure construction and economic cooperation in Asia. China has promised to provide most of the US$50 billion in initial capital with the understanding they would be the largest shareholder. China has begun pitching this idea to more than 20 nations and has support from leading Middle Eastern nations, Saudi Arabia and Qatar.


Economists project Asia will “need as much as $8 trillion in investments in physical infrastructure by 2020” (New York Times). This number is much greater than what the World Bank and Asian Development Bank will be able to provide to this region. China plans to play off of these banks capital limitations to gain support for their proposed bank. However, the Asian Infrastructure Bank desperately needs South Korea and Australia’s commitment if it hopes to establish itself as a major international Bank.

It will be very interesting to see if China can convince South Korea and Australia to join the growing list of nations committed to the Asian Infrastructure Bank. Both nations are allies of the United States. The U.S. vocally opposes this bank, viewing it as a “deliberate effort to undercut the World Bank and the Asian Development Bank” (New York Times). I don’t foresee Australia and South Korea going against the U.S. and committing to the Asian Infrastructure Bank. However, Singapore, a U.S. ally went against the U.S. and committed to the bank.


NYTimes story and Reuters story

3 Responses to China’s International Bank

  1. China is playing “good guy” to the “bad guy” memory of the IMF in Asia during the 1990s, where funds contingent on economic restructuring fueled the massive economic crisis across the region. If China is able to offer an increasingly attractive alternative to the World Bank and IMF, it would build further leverage in the region, along with goodwill from neighboring countries.

    I do agree, though, that it seems unlikely that the Republic of Korea and Australia will cooperate with the current endeavor.

  2. China really irritated Australian Prime Minister Tony Abbott with the recent coal tariff which will hit Australian coal mines and coal companies particularly hard. This does not seem to be a good tactic to win over Australia’s support for the Asian Infrastructure Bank.

  3. Likely the parties in China pushing for the Asia Infrastructure Bank are different from those who deal with tariffs — in practice international relations isn’t a consistent strategy, its rather the union of often contradictory policies by local governments, trade ministries, defense ministries, the foreign affairs people, private businesses (in China some are State Owned Enterprises) and politicians who have no formal role in any of the above. So yes, while one group is working to launch the AIB, others aren’t always helping.

    Now foreign aid is certainly approached as a tool of international relations, or at least of commercial promotion. Bringing others on board is a way to lessen the perception that such aid serves China (and Chinese firms) more that it does the borrower. China could in principle work through the Asian Development Bank. However, a Japanese national has always been the president of the ADB, and it, the US and South Korea would surely resist an increase in China’s voting rights. More important, China can’t keep turning to the ADB and the World Bank for project lending – they would need to shift from the borrowing to the lending side. So … set up their own institution. Of course the US has the Export-Import Bank and most other developed countries have similar institutions (though in the US the Exim Bank is currently under attack, and not purely for partisan reasons).