BEIJING — At a ceremony imbued with quiet triumph at the Great Hall of the People, China’s president, Xi Jinping, hosted 56 member countries on Monday for the founding of a China-led infrastructure bank for Asia, including major American allies from Asia and Europe that Washington had counseled not to join the bank.
[by Jan Perlez | June 29, 2015 | NY Times]
Conspicuously absent from the gathering were the United States and Japan, the leaders of the World Bank and the Asian Development Bank, the institutions that were created after World War II to build a Western-designed global financial architecture and that Washington has feared will be undermined by the new body.
Australia, one of the allies that the Obama administration had vigorously lobbied to stay away from the bank — called the Asian Infrastructure Investment Bank, or A.I.I.B. — was the first country to sign the articles of agreement.
The country’s powerful treasurer, Joe Hockey, bearing a $700 million contribution that will make Australia the fifth-largest shareholder of the bank, said before the ceremony that the bank offered “great opportunities” for Australia to work with China, its biggest trading partner. Britain, which also joined in defiance of Washington’s wishes, sent Jim O’Neill, commercial secretary to the Treasury.
Seven countries present at the ceremony that have agreed to become members of the bank, including the Philippines, one of China’s most ardent antagonists in Asia, did not sign the articles on Monday, pending final approvals at home.
The new body is the first large international body established by China that, like the World Bank and the Asian Development Bank, meets the standards of the Vienna Convention on the Law of Treaties, legal experts said, and as such could be seen as an effort by China to shoulder more responsibility in underdeveloped parts of Asia, even as some neighbors fear its growing military and territorial claims.
In a video of the Monday event by Phoenix Television, Mr. Xi stressed the “open and inclusive spirit of unity and cooperation,” wording that seemed to reflect his satisfaction at garnering far more members, and more powerful ones, than China had originally envisioned.
Some of the early sour feelings expressed by competitors of the new institution had dissipated by Monday, with the president of the World Bank, Jim Yong Kim, saying in a statement that he welcomed the newcomer, and with the Asian Development Bank offering to join hands to do business.
“The Asian Development Bank would be pleased to cooperate with A.I.I.B. in cofinancing projects that meet our common objectives and looks forward to the opportunity to do so,” said Christopher H. Stephens, general counsel of the Asian Development Bank in Manila. His institution is already looking at possible projects for collaboration, he said.
Similarly, the president of the European Bank for Reconstruction and Development, Suma Chakrabarti, said in Beijing on Saturday that given the overlapping membership of his bank and the new bank, there was a “huge” potential to jointly “make a difference on the ground.”
China will be the biggest shareholder in the bank, which aims to have $100 billion in capitalization. Beijing will contribute $29.8 billion, with India a distant second at $8.4 billion, the articles of agreement show. In all, the member countries range from Western Europe, to Russia, to the Middle East — including Iran and Israel — to the Asia-Pacific region.
As the biggest investor, and with the voting structure based on several factors, including gross domestic product, China will have 26.06 percent of the votes, and those votes could be diluted as new members join, according to a statement by the Finance Ministry on Monday. On certain matters that China most cares about, including leadership, structure, membership and capital increases, China will be able to exercise its will, according to people close to the bank who were not authorized to speak publicly.
China, for example, has insisted that the bank be led by a Chinese official, and almost certainly, these people say, the first president will be Jin Liqun, the head of the interim secretariat of the bank and a former deputy finance minister.
“The United States or its allies can’t complain that the Chinese want to have a Chinese as head of the bank,” said David Dollar, a former United States Treasury official, now at the Brookings Institution, who has offered advice to the new body.
“The United States always has an American as head of the World Bank, the Europeans always get the head of the I.M.F., and the Japanese head the A.D.B.,” Mr. Dollar said, using the initials of the International Monetary Fund.
Mr. Jin is known to have strong opinions about the shortcomings of the World Bank and the Asian Development Bank from stints as China’s representative at the two institutions.
Mr. Jin told a conference of international economists in Beijing on Saturday that the new bank would learn from the mistakes of the past as it tackled the problems of how to meet the estimated $8 trillion in infrastructure needs in the Asian region by 2020.
“This will not be a simple cloning of existing institutions,” he said. “We will learn a lot from them.”
The bank’s regulations lay out a set of environmental criteria for projects, Mr. Jin said, and the bank “will explore a new development model that tries to address the conflict between improving people’s livelihood and environmental protection.” The bank’s headquarters, to be built in the financial district in Beijing on land donated by the municipal government, will be eco-friendly, he said.
Some of the Obama administration’s public critiques have centered on whether the new bank will repeat China’s frequent disregard for environmental standards and the displacement of villagers in its projects in Asia, notably in Myanmar.
With a transparency unusual in China, the Finance Ministry posted the articles of agreement on its website Monday.
In a nod to European countries that had expressed concerns similar to Washington’s at a planning meeting in Singapore in May, the articles say the bank will ensure that it addresses the environmental and social impact of its projects and that it will foster “sustainable economic development.”
Some countries said they would strive to ensure that the bank lived up to Mr. Jin’s promises. “We will work very actively to see that A.I.I.B. is oriented toward poverty alleviation and that environment and climate considerations are included in every project,” said the Danish ambassador to China, Friis Arne Petersen.
The Chinese have also insisted that the new bank will forgo the World Bank and Asian Development Bank tradition of a resident board — officials from member countries who function above day-to-day management and who critics say provide little efficient oversight but lots of bureaucracy.
Instead, the articles of agreement say a board of 12 directors, with nine from the Asian region and three from outside the region, will meet “periodically through the year” to provide supervision of the operations and management.
“There won’t be as much oversight because the directors are not there all the time,” said Ko-Yung Tung, a former general counsel of the World Bank. “For the skeptics, that might mean China wants to run the show without too much interference. I take the Chinese at their word that they don’t want too much bureaucracy.”
Even though the United States was not at the ceremony on Monday, the door remains open to it, said Xu Hongcai, a Chinese economist who worked on the plans for the new bank since before Mr. Xi officially announced its creation in late 2013.
“The United States should join at an early date since China is still open to its participation,” said Mr. Xu, head of the economic studies department at the China Center for International Economic Exchanges, a think tank associated with the National Development and Reform Commission, the top state planning body. “We welcome the U.S. to join.”
Yufan Huang contributed research.