anuary 19 marks the third anniversary of the establishment of the Asian Infrastructure Investment Bank (AIIB). In the past three years, the AIIB has served as the spearhead of China’s ambitious Belt and Road Initiative, and has been under scrutiny, especially from Western governments and analysts. Many consider it a challenge to the existing global and regional financial order shaped by the US-led World Bank, International Monetary Fund (IMF) and the Japan-led Asian Development Bank (ADB).
Despite the controversy, the AIIB rapidly expanded, with its members increasing from 57 in 2016 to 93 by the end of the 2018. But as the trade war between the US and China is injecting uncertainty into global economic growth, as well as China’s domestic growth, the future of the AIIB appears to be less certain. NewsChina interviewed Jin Liqun, President of the AIIB, to gain his insights into the institution’s role in the global financial system, and the prospects for its future development.
Jin, 69, is a veteran economist, banker and politician. Prior to assuming the presidency of the AIIB in January 2016, he served as chairman of the China International Capital Corporation, China Investment Corporation, was vice president of the ADB and a vice minister of finance in the government.
NewsChina: The AIIB is considered the first China-led global financial institution. How do you perceive the relationship between China and the AIIB?
Jin Liqun: The AIIB is the result of four decades of reform and opening-up of China. Without this economic growth, there would be no way that China could take the initiative to establish the bank. With the experience obtained during these four decades, China can offer valuable insight into promoting infrastructure and other production-related projects through the AIIB. In the past years, China has participated in international economic cooperation at an unprecedented scale, at an unprecedented speed. During this process, China has become an active player in the building of world peace, promoting global development and safeguarding international order.
NC: Since the AIIB was first proposed, there has been concern about how it would operate and over its governance, with many fearing that it would serve the interests of China rather than the target countries. In the past three years, how has the AIIB decided which projects to finance?
JL: The AIIB adopts a systematic investment policy and risk-management plan. Simply put, there are three basic principles to guide its investment decisions. The first principle is financial feasibility, which means we aspire to ensure any project we finance will not create a financial loss to the host country. It must not only benefit the long-term development of the host country, but also the sustainability of the AIIB itself. The second principle is environmental sustainability, which means projects we finance should not cause environmental deterioration. The third is that any project we finance must be supported by the local community. Only when local residents believe that the project will improve their livelihood will they support and safeguard it. Otherwise, the project is very likely to fail.
We realize the key for any financial and development organization is long-term sustainability. Therefore, we have learned from the experiences of both private corporations and existing global financial institutions and have developed our own guidance and regulations.
NC: How does the AIIB differ from other multilateral financial institutions?
JL: Every financial institution has its own features. The World Bank, for example, covers a wide range, such as infrastructure, social development, education and health and poverty reduction. The AIIB concentrates [its efforts] in the field of infrastructure building and other production-related fields. So far, we are not considering expanding to other fields like education and healthcare. It may not always be the case, as the board can reconsider its primary focus in the future.
Moreover, the AIIB makes innovations regarding its internal institutional arrangements. Instead of setting up departments based on regions and countries, we set up departments based on industries and professions, and our experts can follow projects from one country to another.
We also do not have big offices in our member countries. Instead, we have a national planning department within the bank to work on loans to relevant countries. In our future work, we will hire experts and consultants from the host countries to help facilitate relevant projects. Our goal is to maintain the AIIB as a “lean” agency from the very beginning and to minimize the growth of bureaucracy in the bank.
But I have to say that our achievements are made on the shoulders of giants. In the past few years, I have received strong support from other major financial institutions such as the World Bank, the ADB, and European Bank for Reconstruction and Development (EBRD), which shared their valuable experience and lessons with us.
NC: Speaking of existing financial institutions, a major concern over the role of the AIIB is that it poses a threat to the existing global financial system. How would you assess the relationship between the AIIB and the current international finance framework?
JL: China’s leaders have on many occasions stressed that China has no intention to overthrow the existing international economic and financial system.
On the contrary, China is a beneficiary of the current system. China has joined most major international economic and financial organizations, such as the World Trade Organization, the World Bank and the IMF. In the past, China has been an active participant in international multilateral cooperation, and has helped to shape the current world financial system.
But in the meantime, we have to note that the current economic and financial system was set up by developed countries 70 years ago, and is still dominated by the developed world. But 70 years on, the combined GDP of the developing world accounts for over half the world’s total economic output. The rapid development of developing countries, particularly Asian countries, in the past three decades, offers valuable lessons for global development, which should be reflected in the global financial system.
As a result, China believes that the current world financial system needs to be reformed. Against such a background, the significance of the AIIB is not just to provide additional funding to the gap in infrastructure building, but to diversify the means of international economic and financial cooperation.
NC: We know that the US and Japan have voiced concerns about the AIIB, if not open objections. Recently, the two countries appear to have softened their tone, leading many analysts to believe that they will join the AIIB. Do you think that the US and Japan will join the AIIB?
JL: When the AIIB was established, it had 57 members. These countries joined the AIIB because they believed that China would follow a set of basic principles to promote the healthy development of the agency.
After three years, the Chinese government has delivered on its pledge that it will not intervene in the operations of the bank, and the bank’s major stakeholders can exert much influence through its board.
I believe that the AIIB has indisputably established itself as a multilateral financial and development organization of internationally high governance standards. This is why many more countries have chosen to join it in the past three years.
So far, the US and Japan have not joined the AIIB. But in the past years, many influential agencies and individuals, including think tanks, government agencies and rating agencies in the two countries have provided strong positive feedback about how the AIIB operates.
In the meantime, the AIIB has maintained regular and smooth communication with the US and Japan. Within the AIIB, there are also employees from the two countries. In its current and future operation, the AIIB does not and will not discriminate against corporations from the two countries, and we welcome them to bid for projects under the AIIB.
Also, I have said repeatedly that the door of the AIIB is forever open, and all countries can make their own decision whether or not to join. Whether a member or not, the AIIB will be open to cooperation with all countries.