Creation of AIIB all about China's hubris

Creation of AIIB all about China's hubris

By Jake van der Kamp

Jin Liqun, who has been heading a panel to initiate the Asian Infrastructure Investment Bank (AIIB) is expected to be the top candidate to become the lender's president when the bank is formally launched later this year.

And the prize of the top job at the new AIIB is to go to … may I have the envelope, please … China!
Well, well, what a surprise. 

Please join me, ladies and gentlemen, in congratulating our winner.
And pardon me for a touch of cynicism. 

This new bank is not about infrastructure investment. 

It is about the hubris of global national standing.
Infrastructure investment in Asia does not require another development bank, in fact may be misdirected by such a bank into wasteful projects.
The national hubris is obvious. 

By mutual consent the United States has control of the World Bank. 

A French citizen gets the top job at the International Monetary Fund, and Japan runs the Asian Development Bank.
What role in an equivalent institution has ever been given to China?
It obviously galls Xi Jinping, particularly as these institutions are clearly used to further the political and economic goals of the countries that run them. 

The Asian Development Bank, for instance, is a Japanese export agency given the further task by Tokyo of promoting yen finance in Asia. 

The haves of this game are, of course, unhappy to let the have-nots in.
Thus Japan remains aloof from the AIIB while American bureaucrats make noises about how very careful one must be in setting up such a bank, and perhaps the time is not yet ripe and … blah-blah-blah.
But not for nothing does China's own name for itself translate into English as "centre of the world" (and you thought it meant "middle kingdom", did you?).
Xi now has the clout to make something of it. 

Both Japan and the US have already begun to eat humble pie with the international success of his sign-up campaign for the AIIB. 

How very satisfying this must feel. 

How gratifying that China is now making its way into the spotlight.
And how pointless.
Development banks such as the AIIB are an idea from the late 1940s when many poorer countries did indeed have occasional trouble sourcing funds for worthwhile development projects.
There is, however, no longer such a thing as a shortfall of capital for the developing world. 

The scale of today's global money flows was simply inconceivable in the 1940s. 

Foreign commercial bankers now fall over themselves to provide money that was once only available from government-backed institutions.
But note that I speak of worthwhile projects. 

The failing of development banks was always that, for reasons of political convenience, they were prone to fund projects of dubious viability.
One of the ADB's great failings, for instance, was funding Indonesian irrigation projects with yen loans for the purchase of Japanese equipment. 

The yen then went up, the rupiah went down, and the Indonesian farmers went bust with Jakarta having to pick up the bill. 

This happened over and over again.
In addition, the ADB has the enormous cost base of a palatial Manila headquarters full of highly paid consultants and economists writing academic treatises for each other.
Will Japan now shut down the ADB? 

If so, that would be one worthwhile achievement for the AIIB.
But I suspect things will go the other way.
The AIIB will get its own grand palatial complex in Shanghai, staff itself to overflowing with PhDs at sea in the real world.
Worthwhile projects will still get the funding they need from commercial bankers who understand the value of money and put proper store by return on investment.
Elsewhere, however, the AIIB will give us six-lane highways and multi-kilometer-long bridges from nowhere to nowhere. 

But what will that matter to the Beijing bureaucrats compared with the great value of being able to snub their noses at Tokyo and stand in the same line as France?