Author: Administrator

Area of Work: Regional Cooperation Integration

As the Asian Infrastructure Investment Bank inches closer to being established, China still has a monumental challenge to hurdle: convince Asia-Pacific’s three most influential nations -Japan, South Korea and Australia – to join the proposed $100 billion financial institution.

The fact that China is leading the creation of the bank, which will be based in Beijing, and reports that the East Asian nation intends to hold 50 percent of the financial institution’s

shares have raised doubts and concerns over the past year. Japan, South Korea and Australia are particularly concerned about AIIB’s proposed governance structure and safeguards guidelines, which they fear will not follow international standards.

Officials from South Korea and Japan told Devex they remain “undecided” over the AIIB invitation. Despite China’s “strong suggestions” for them to join, the three nations are waiting for the Asian behemoth to respond to their queries and address their concerns before making a decision. Some experts suggest, however, that this may all boil down to the United States’ strategic influence over Tokyo, Seoul and Canberra.

Will it even be possible for China to convince these nations to say yes to AIIB? For Syed Munir Khasru, chairman of Bangladesh’s Institute for Policy, Advocacy and Governance, the possibility is always there, given the region’s dire need for infrastructure investment to boost development.

“[The] three are likely to factor in the U.S. stance while making their decisions on joining or staying away from the strategically significant AIIB,” he told Devex. “However, economic diplomacy does not always strictly toe the line of geopolitics and there is no telling if 10 years down the line, the three countries would hold the same approach to AIIB.”

Asia-Pacific has huge infrastructure needs, with more than $800 billion in investments

needed annually over the next decade — an amount that even the concerted capital of traditional development banks, including the U.S.-led World Bank and the Japan-backed Asian Development Bank, may struggle to meet, justifying the need for more players to pump resources in.

Khasru shared that the competition AIIB presents may prove to be beneficial for the region in the long run. The bank may provide an alternative way to pursue development in the region, which, in turn, “might lead the incumbents to reconsider their existing policies and priorities and focus on where their expertise and resources can add most value.” The important thing, the expert added, is that these long-existing international institutions remain innovative and dynamic so they can appropriately respond to the ever-changing nature of global development as “their role may undergo changes.”

The doubts and uncertainties over the legitimacy and capacity of AIIB is warranted, especially for countries like Japan, South Korea and Australia, which have a significant stake in the region’s development progress — and leadership. But there is also the question of whether stakeholders are losing sight of what’s important in the debate. Shouldn’t the focus be more on how the region’s development can progress sustainably rather than who leads what?

“The existing gap between China and its three neighbors may not be permanent and inexorable differences,” Khasru said, adding that China’s “recent drive to strengthen integrity and rules- based approach may eventually bridge the gap between [its] expectations and plans … [with] other countries.”

And can these three nations’ hesitation to back the AIIB really stop China from gaining more influence not just as a development leader in the region, but also worldwide?

The way things stand, China’s rise as a global development leader seems inevitable. Despite the absence of Japan, South Korea and Australia, AIIB enjoys the support of 24 other countries that have agreed to become founding members, including India, Singapore and Uzbekistan. Experts from the other side of the Pacific are cajoling their governments, particularly Canada, to join AIIB.

But despite being included as among the 24 nations listed in an announcement by China’s Ministry of Finance, a spokesman for New Zealand’s finance minister clarified that it has not yet decided to “officially” become a founding member of AIIB. The decision for that agenda “is still some months away.”

Syed Munir Khasru is chairman of the international think tank, The Institute for Policy, Advocacy, and Governance (IPAG).

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