Infrastructure redefined
At the end of June 2015, 57 prospective member-states gathered in Beijing to sign the articles of association for an institution that China had first mooted in 2013, the Asian Infrastructure Investment Bank (AIIB). At the time of its launch, 50 countries had signed the bank's charter, and another seven were waiting for final domestic approval. China had managed to win the endorsement of a large number of countries, including the UK and those in Western Europe. Headquartered in Beijing, the development bank was formally launched by President Xi Jinping on 16 January 2016.
This widespread endorsement was telling, since the run-up to the launch was fraught with controversy. When the AIIB was formally announced on 24 October 2014, only 20 countries had agreed to be its founding members. The US, UK, Japan, South Korea, and Indonesia were not on the list. It included a few countries from Central Asia and West Asia, members of the Association of Southeast Asian Nations(ASEAN) excluding Indonesia and five countries from Southasia – India was the largest non-Chinese founding member.
Despite the fact that Beijing had put out an open invitation to join the new initiative, and many countries like Australia, Indonesia and South Korea had expressed an interest, there was limited participation. Something or someone had dampened that interest, leading to the no-shows in October. However, matters changed between October 2014 and June 2015, with many countries that had expressed scepticism or said they would "wait and watch", changing their minds and joining the AIIB as founding members. There was a rush of applications as the deadline approached.
The final tally of 57 applicants, though lower than the World Bank's membership of 188 and the Asian Development Bank's (ADB) 67, was significant given the concerted US campaign against the bank. The US refused to join on the grounds that the governance of the bank would not meet 'required' standards, with China having a veto on decisions and the likelihood that the impact of financed projects would not meet international safeguards on environment, labour and human-rights. The US also campaigned vigorously to keep its allies, principally the UK, European countries like Germany, France and Italy, and Asia-Pacific partners such as Japan, South Korea and Australia out of the AIIB. In the event, of these countries only Japan stayed away.
While the AIIB is clearly seen as an organisation led by China, the reference to China's veto power, though technically correct, concealed important features of the distribution of voting rights in the organisation. Twelve percent of voting rights are distributed equally amongst all members, while another three percent each is given to founding members. The remaining 85 percent is distributed on the basis of equity. Therefore, though China has a shareholding of 30 percent, its voting right is restricted to a total of 26.06 percent. This has two implications: First, all member countries, have a voice irrespective of how much capital they contribute. Second, China has a veto only on those decisions which by virtue of being considered important require a super majority of 75 percent of the votes.
Eye to Eurasia
Though smaller than existing multilateral banking institutions, the AIIB is no pushover. With an authorised capital base of USD 100 billion, the AIIB as a start-up compares well with the Asian Development Bank, with around USD 160 billion of capital, and the World Bank, with around USD 220 billion.
The significance of the AIIB increases when we recognise that it is part of a slew of financing initiatives that China is either promoting or engaged in. The New Development Bank (NDB) or 'BRICS Bank', for instance, is far larger in scope, though it too has an authorised capital of USD 100 billion. While the NDB is slated to be a global bank, with its five founding members accounting for large chunks of the world's population, land area and GDP, the AIIB is to have a definite Asia focus. What is more, 75 percent of the AIIB's capital is from the Asian region, placing control in the hands of Asian governments. It also has an explicit infrastructure focus that would, among other things, increase connectivity within Asia. Since Japan has stayed away, China and India would have leading roles in this process.
But there is more power behind the China-led Asian financing thrust. Soon after the creation of the AIIB was announced, President Xi Jinping declared the launch of a Silk Road Infrastructure Fund, to which China will contribute an initial USD 40 billion, but which will be "open" and welcome other investors from Asia and elsewhere. The Silk Road Fund will, according to its chief executive Jin Qi, function more like a private bank and "seek reasonable mid- and long-term investment returns and protect the rights of the shareholders." Finally, China has initiated a plan to establish a Development Bank of the Shanghai Cooperation Organization (SCO), whose members include China, Kazakhstan, Kyrgyzstan, Russia, Tajikistan, and Uzbekistan (with others like India slated to join). Here too China will be contributing the bulk of the capital, and the bank would serve as a vehicle to strengthen its investments in central Asia.
Armed with these instruments, China has launched the "One Belt, One Road" Plan, a pet project of Chinese president Xi Jinping. The plan combines two initiatives announced by Xi in 2013 – the "Silk Road Economic Belt" and the "21st Century Maritime Silk Road". Recreating in different forms the ancient Silk Route, the "One Belt, One Road" project aims to establish connectivity within the Eurasian region and link it to Africa and Western Europe, by combining overland road and rail routes and other infrastructure such as oil and natural gas pipelines (the "Belt"), with a maritime counterpart linked by a network of ports and coastal infrastructure projects (the "Road"). This would connect China, through Central Asia, with Russia and Europe, as well as through hubs in South and Southeast Asia to East Africa and the northern Mediterranean Sea. The two major initiatives within the belt-and-road project of relevance to Southasia are the China-Pakistan Economic Corridor (CPEC) and the Bangladesh, China, India, Myanmar (BCIM) Corridor. In April 2015, China committed USD 46 billion to the CPEC initiative, which would extend the Karakoram Highway to the Gwadar port in Pakistan, providing China direct access to the Arabian Sea, and will give Pakistan access to markets as far away as China's Xinjiang province. The BCIM, on the other hand, will give China access to India's resource-rich Northeast and India access to markets in China and the ASEAN.