China is starting a new infrastructure investment bank and the United States, the largest shareholder of the World Bank, doesn’t like the competition.
China has pledged $50 billion in capital to start the Asian Infrastructure Investment Bank (AIIB), which as the name suggests, will offer loans to developing countries to build roads, bridges and other public works projects.
The United States has opposed financing by the World Bank and the Manila, Philippines-based Asian Development Bank (ADB) of projects that would involve building coal-fired power plants or dams that would displace large populations. Now, the Obama administration’s concern is that the new Chinese bank would be more likely to fund such projects.
“How would the new institution add value? How would the Asian Infrastructure Investment Bank be structured so that it doesn’t undercut the standards with a race to the bottom?” asked a senior administration official who spoke to The New York Times on condition of anonymity.
The Chinese are luring South Korea and Australia to contribute funds to the new bank, but the United States is urging those countries to abstain from doing so. If the U.S. effort is successful, it would damage the prestige of the AIIB by having its membership limited to smaller nations.
Neither of the two nations has announced whether it will participate. Australia probably will if China meets that nation’s standards of governance, Peter Drysdale, a professor of economics at Australian National University who has advised Australian governments, told the Times. South Korea is also hesitant, at least in part because the major decisions will be made by Jin Liqun, whom the Chinese chose to lead the bank, instead of its board of directors.
One point in favor of the new bank is that there is more demand for infrastructure funding in Asia than there is money available. The ADB estimated in 2009 that the region might need as much as $8 trillion in infrastructure investment by 2020, far more than it and the World Bank could handle.