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The Asia Infrastructure Investment Bank

A front for Beijings cash?- November 18, 2014

China has launched its Asian Infrastructure Investment Bank (AIIB) with a $
50 billion investment, stepping up its challenge to International Financial
Institutions (IFI) such as the World Bank (WB), International Bank for
Reconstruction and Development (IBRD) and the Asian Development Bank

China has long-criticised the existing IFIs on the ground primarily that they
are dominated by the West, including the United States, Europe and Japan.
Initially China has been able to only mobilise 20 other relatively small
nations to join up for the launch at Beijing in October 2014. Most of these
nations have been described by analysts as virtual client states of the
Peoples Republic of China.
The list of nations which turned up at the Great Hall of the People in Beijing
for the launch is indeed revealing India, the only really big economy other
than China, Mongolia, Uzbekistan, Kazakhstan, Sri Lanka, Pakistan, Nepal,
Bangladesh, Oman, Kuwait, Qatar and all of ASEAN other than Indonesia.
Indonesia ducked the issue of joining at this stage because of recent
presidential elections. Mongolia and the two Stan states, Uzbekistan and

Kazakhstan, are within Chinas near sphere of influence.

Sri Lanka, Pakistan and Bangladesh are Chinas partners, in what has been
described by a US naval analyst as the String of Pearls strategy, the series
of naval bases and airports being financed by China in these countries,
including Hambantota (where the Chinese have leased four berths,
permanently, its been claimed as a conditionality for the loans) and
Colombo Port and Mattala Airport near Hambantota, Gwadar in Pakistan and
Chittagong in Bangladesh, Djibouti and Lamu on Africas East coast. Indeed,
there have been concerns expressed by India of visits by Chinese naval
nuclear submarines and battleships to Colombo recently, ostensibly on the
way to or back from antipiracy duties off the coast of Somalia.

Nepal shares a common border with the Tibet, a part of China. The three
Gulf States of Oman, Qatar and Kuwait are huge natural resource (crude oil
and gas) suppliers to China and have close trade links. India has concerns
about China expanding her sphere of influence in the Indian Ocean and
needs a seat at the AIIB desk to keep a tab on what and where China is
putting her money into in the region. The ASEAN states are also concerned
with Chinese expansionism, especially with their vulnerable domestic ethnic
population of Chinese origin. So, none of these states can be coming into to
the AIIB with altruistic reasons to support Asian Infrastructure Development
and Investment alone!
China hopes that these other members would quickly contribute funds to
push up the initial capital from Chinas inaugural $ 50 billion to $ 100
billion. But some nations were awaiting the approval from the highest level
of government for their participation. The Government of the USA, lobbied
heavily against the AIIB initiative, and that was the reason, analysts say,
that countries like Australia, Indonesia and the Republic of Korea did not
show up, although approached by China.
In the event Australia also plays a huge role in the ADB, together with the
USA and Japan, which is resented by some smaller nations, some of these
and other players may play safe by joining up later. If and when the $ 100
billion target is reached, the AIIB will have nearly two-thirds of the assets of
the Manila (Philippines) based ADB of $ 165 billion.
Developing the New Silk Road
Analysts have quoted Chinese economists in saying that the AIIB will
initially focus on developing the New Silk Road, which President Xi of China
has been promoting. This is for the purpose of opening new trade routes to
Europe for Chinese goods and also for imports from Europe, including a
direct railway line from Beijing to Baghdad and beyond. A highway from
Xian in China to Duisburg in Europe is also planned.
Already vast amounts of goods are being moved in and out of China
westwards by train. This is partially driven by Chinas fear that, the US
Navys blue water naval capacity with its aircraft carrier groups, dominating
the world sea routes, has the capacity to close up the southern sea route,
past Dondra head in Sri Lanka through the Straits of Malacca, areas critical
to China importing raw materials and export of finished goods to markets.
Politicians have been making a great song and dance about this New

Maritime Silk Route passing Dondra head, Sri Lankas southern most point.
They would do well to study the history of Admiral Cheng Hos visit to Galle
in 1410 and the plaque he left behind and also remember that the Admiral
kidnapped the local Satrap, whose descendants still live in China.
Indeed, cynical analysts have pointed out that this whole New Maritime Silk
Route rhetoric is aimed at putting a positive spin to what was, for China
unfortunately, branded as the String of Pearls, an aggressive military
strategy. It is essentially, some analysts say, a rebranding exercise to
market anew under an innocuous name what is in actual reality is an
aggressive military cum naval domination strategy, as a harmless trade and
infrastructure development initiative. Some unfortunate, dim-witted,
suckers (politicians and bureaucrats) seemed to have followed the dead
rope rebranding exercise, hook, line and sinker!
Challenge to global economic order
Combined together with the BRICS Bank, which was launched during the
Football World Cup in Brazil, at the BRIC nations summit, led by China and
consisting of Brazil, Russia, India and South Africa, the AIIB is the first
serious institutional challenge to the global economic order established
after the conclusion of World War II at Breton Woods in the USA, which set
up among other institutions the World Bank and the IMF.
Both the AIIB and BRICS Bank are led by China. Emerging and developing
nations may welcome these new upstart institutions as they are unlikely to
have the stringent environmental, procurement and human rights
standards which institutions like the World Bank and the ADB compel
borrowers to adhere to.
The Chinese think that the US opposition to the AIIB is to limit the influence
of China over the rest of the world and to ensure US dominance. Chinas
former Vice Minister of Commerce Wei Jianguo says; You could think of this
as a basketball game in which the US wants to set the duration of the
game, the size of the court, the height of the basket and everything else to
suit itself. In fact the US just wants to exclude China from the game.
Needless to say in countries in which there is highway robbery taking place,
resources being raped by the rulers, corruption rampant, environments
facing irrevocable abuse, citizens rights being systematically abused, these
words of Chinas rulers is music to the ears of the autocratic rulers, who are
irked by conditionalities imposed by the Breton Woods IFIs.

The BRICS Bank itself, set up when the leaders of Brazil, Russia, India, China
and South Africa met in Brazil after the Word Football Cup final in Brazil this
year, is also an attempt for the nations which feel they are second class,
not allowed to punch at their weight by world dominators such as the US,
Europe and Japan, to assert themselves and put their money where their
mouth wishes to be. Ironically or fittingly, depending on your point of view,
the BRICS Bank was set up in Brazil days after the spectacular defeat of
Brazil, the standard bearer of the BRICS, by Germany at the World Cup final,
by a whitewash of seven-zero!
The BRICS Bank is destined to be dominated by China; the headquarters
are in Shanghai, though India canvassed strongly for Mumbai. Further,
analysts point out that there are serious issues constraining the BRICS
Bank. The first is economic. Three of the five countries involved are in
economic trouble Brazil, Russia and South Africa.
India, after years of disappointing economic growth, is just after a landmark
election at which the Modi-led BJP got an unprecedented mandate but has
so far disappointed, barring the rhetoric. Only China is still growing but
slower and amidst a massive crusade against corruption and other
tendentious critical reforms. The shared economic dynamism which was
supposed to underpin the BRICS Bank has gone the way of the Football
World Cup defeat of Brazil!
The second difficulty is political. Their political systems are malfunctioning,
several with election driven changes and confidence is at a low. The third is
incoherence within the group. The BRICS claim to be a voice for the antiWashington Consensus world; they are very dissimilar and disparate. China,
an autocracy of the Communist Party, with exceptional Red Capitalist
businessmen, such as Jack Ma of Alibaba, and loss-making State Owned
Enterprises dominating the economy, is in a class by itself. India, a
democracy of sorts of V.S. Naipauls A Million Mutinies Now fame, whereas
the former BBCs Mark Tully famously said: India has no full stops, only
Brazil and South Africa are in a state of organised chaos, with huge
populations of marginalised poor and serious law and order problems.
Russia, under Vladimir Putin, is in the midst of deep and unique crisis both
internally and its relations with NATO and Europe. But they all have lowest

common factors crime and corruption.

Murder cases by the dozen are headline news daily in South Africa,
including the murder of the popular Captain goalkeeper of the National
Football Team and the murder trial of the once famous but now infamous
Blade Runner Oscar Pistorius. India is on a rape tsunami binge. Brazil has
to use military commandos to oust drug gangs from the Favela slums,
which the gangs try to control, and to protect the Amazon forest from slashand-burn agriculture and cattle ranchers.
Russia has its oligarchs who control business, industry, manufacture and
natural resource extraction. Putins opponents have dubbed his United
Russia Party as a party of crooks and thieves. All the BRICS countries
have issues with corruption. Can such a disparate group of nations, with
massive internal contradictions and problems, claim to speak with one
voice at any international forum with credibility?

Washington Consensus and Beijing Consensus

Other analysts say that this is in fact just a single episode in the ongoing
battle over the so-called Washington Consensus and the Beijing
Consensus. The Washington Consensus is said to be what the Breton
Woods IFIs and the USA, the European Union, Japan and the UN system
among others are promoting- representative liberal democratic
governance, separation of powers, protection of fundamental human rights
and freedoms in line with the UN Charter, treaties, conventions and
covenants, the Rule of Law, an independent judiciary and administration, a

free media, limited state intervention in the economy with private

enterprise in the driving seat, and promotion of foreign investment.
The Beijing Consensus on the other hand is a state-dominated autocracy,
state-owned enterprises dominating the economy, media under the
management of the state, a Confucian administration committed to the
implementation of state policies and not autonomous, the Rule By Law, the
judiciary and other arms of government subordinate to the executive,
rubber stamp legislatures at all levels, community, group and state rights
taking precedence over individual fundamental human rights, placing
controls on foreign investment.
The Singapore Consensus
In practice the dividing line between the two Consensus models is very fine.
Take the case of Singapore. The Peoples Action Party (PAP) dominated by
the Lee Kuan Yew family has ruled Singapore since independence for
decades, being re-elected, albeit with reduced majorities, at every
consecutive election. Lees son is the current Prime Minister. Their civil
servants are paid private sector salaries and given a free hand, subject to
PAP policy domination of the political process.
State-Owned Enterprises have a huge role in the economy, partnering with
private enterprise. Foreign investors play a big role. The media is not wholly
free; the law of defamation is used by the rulers to bankrupt critics who
comment negatively about them. The judiciary is free, but carefully
managed, foreign lawyers appearances are controlled. The rights of the
Republic of Singapore and Community rights have priority over individual
Under this regime Singapore has bloomed from a Third World backwater to
a first world oasis in a region dominated by Third World basket case states.
But is it Washington Consensus or Beijing Consensus? No, its just the
Singapore Consensus and it has worked. Pakistans Field Marshall Ayub
Khan, when he took power in a military coup in the 1950s, criticised
Pakistans then constitution and trumpeted that he would find a system
suitable for the genius of the Pakistani people.
When he left power, the only difference was that, before him 12 families
dominated Pakistans economy. After him it was 13 his own had been
added! Singapore has found a blend of the Washington and Beijing
Consensuses, which suits the genius of the Singaporean people the

industrious work ethic of the majority Chinese (Babas) and the laidback
Malays (Alis), which is what any sensible nation should do.
Begging bowl nations already salivating
Meanwhile the begging bowl nations are already salivating, like Pavlovs
dogs, at the prospect of the AIIBs concessionary funds. An official of one
country, who thinks that they are a key link on the route, the effective debt
creators of developing nations, debts which his grandchildren will have to
repay, was quoted recently that the AIIBs new lending would fund the
construction of roads, power plants and telecommunication networks in the
country at concessionary terms without attaching strings which will keep
the countrys economy buzzing.
He also made a prophecy that the WB and ADB would become more flexible
in lending due to the presence of the AIIB. He said his countrys next phase
of Chinese assistance would be from the AIIB, which would become
operational in 2015, including international marketing of the infrastructure
already developed, especially sea ports, airports and highways making his
nation a regional hub for aviation, shipping and logistics located at a
strategic position in the silk route.
The AIIB is expected to finance the Silk Road Economic Belt and the
Maritime Silk Road (sic) re-establishment and nations on the routes will
become one of its beneficiaries. China has already set up a $ 1.6 billion
fund to take forward its ambitious Maritime Silk Road (sic) plan to build
ports and boost maritime connectivity with South East Asian and Indian
ocean countries, Beijing sources have been quoted as saying.
Commercial lending converted to concessional lending
Its really wonderful how gullible people can be suckered. Commercial
lending is converted to concessional lending overnight, just because the
AIIB has been launched. The established lenders with their traditional
modalities will be converted into shivering wrecks offering virtual free
money sans conditions, just because the new player has appeared on the
block! A Maritime Silk Route has been converted into a (tarmac!) road over
the sea! Borrowing nations which will be indebted and whose future
taxpayers will have to pay these debts overnight become beneficiaries!
Cynical analysts have expressed the view that the AIIB is a front for the
Peoples Republic of China to fund the String of Pearls strategy, currently
rebranded as the Maritime Silk Route. The AIIB and the BRICS Bank very

well may put some pressure on the existing IFIs to not be too explicit in
promoting the Washington Consensus and to relax strictures designed to
curtain environmental degradation, corruption, transparency and the
promotion of human rights. After all, at the end of the day, banks are banks
they have to lend and recover money at interest, albeit concessional or
This may take the pressure off Third World dictators, but what of the poor
citizens of those countries? The future will tell. Sri Lankans would do well to
read up the history of Admiral Cheng Hos voyages and his exploits in Galle
and thereabouts. History repeats itself for the illiterate maybe with the
eunuch Admirals successor being in the guise of a brand new IFI!
(The writer is a lawyer, who has over 30 years of experience as a CEO in
both State and private sectors. He retired from the office of Secretary,
Ministry of Finance and currently is the Managing Director of the Sri Lanka
Business Development Centre.)
Posted by Thavam