China-led development bank careful to co-operate with critics

AIIB is determined to avoid mistakes and “reputational damage” in its first projects.

The Asian Infrastructure Development Bank (AIIB) unveiled its initial batch of projects at its first annual meeting in Beijing in June, giving the go-ahead to investments totaling US$509 million (3.4 billion yuan) and providing an important yardstick to assess the bank’s first six months.

The AIIB has swiftly been taking shape since China’s President Xi Jinping and Premier Li Keqiang announced its formation less than three years ago. Its mission, they said, was “to promote interconnectivity and economic integration in the region”.

By the end of 2014, 22 Asian countries signed up to the project. And in June this year 50 countries endorsed membership terms at a ceremony in the Great Hall of the People in Beijing. China is the biggest shareholder in the bank with a stake of almost 21 per cent.

Fears for influence

AIIB was greeted with alarm by the US and Japan, who have not joined. China’s decision to start a new multi-lateral development bank raised fears it might seek to displace the World Bank, or (conversely) narrowly serve China’s interests in Asia, especially its New Silk Road infrastructure web, woven around its own trade needs.

Environmental activists are also worried about the environmental and social impacts of AIIB projects, and whether hard-won international best practices as eventually applied by the World Bank, would be used for AIIB projects.

So what can be gleaned from its first months of operation, and what does the first round of approved projects tell us?

One thing is certain: the AIIB is determined to avoid reputational damage by making mistakes in its first projects.

Shouqing Zhu, sustainable finance senior associate, World Resources Institute China

Learning from others

The bank’s initial projects are all in Asia and has agreed to disperse US$165 million (1.1 billion yuan) for power grid upgrades in Bangladesh and to support two highway projects in Central Asia; US$100 million for Pakistani motorways; and US$27.5 million to upgrade the road linking Tajikstan’s capital, Dushanbe, with neighbouring Uzbekistan. The largest loan was US$216 million for the renovation of slum housing in Indonesia.

The AIIB is the sole investor in the Bangladesh project. But the three other loans all reflect AIIB’s pledge to “cooperate with existing multilateral development banks”, and are jointly-funded, either with the Asian Development Bank, the European Bank for Reconstruction and Development, and the World Bank.

China-based environmental activists have given the AIIB’s approach a guarded welcome, although international NGOs are more critical. 

Bai Yunwen, a researcher with Beijing-based NGO Greenovation:Hub, said the partnership approach shows the AIIB is being careful in terms of the minimising the environmental impact of its investments, and will gain experience quicker by working with and learning from, other multilateral banks.


“One thing is certain: the AIIB is determined to avoid reputational damage by making mistakes in its first projects,” Shouqing Zhu, sustainable finance senior associate at the World Resources Institute China, told chinadialogue.

In its own words, the AIIB has promised to be “lean, clean and green.”

AIIB’s joint projects apply the standards on environmental impacts and social issues, such as labour practices, that have been formulated by partner banks rather than the AIIB’s own fledgling policies.

However, the environmental credentials of the Bangladesh power project will be monitored closely.  

“If the environmental and social impacts of this [Bangladesh] project are not properly handled, we may see further revisions to the AIIB’s environmental and social framework,” said Bai.

This story was originally published by Chinadialogue under a Creative Commons’ License and was republished with permission.

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