Chinese technical ability alone won’t ensure success of Asian Infrastructure Investment Bank

AIIB_logoAs the deadline for applications closed on March 31, several countries rushed to sign up as institutional founders of the Chinese-led Asian Infrastructure Investment Bank.

The critical question is, will it work, or merely serve as a political iconoclast to long-established Western development institutions? Both Japan and the US have greeted any idea of a Chinese-led development bank with antagonism. Deep scepticism abounds, with some considering the initiative a threat, and not a legitimate option, to the current world order of the International Monetary Fund, the World Bank and the Asian Development Bank in Manila.

According to the ADB, Asia needs upwards of US$8 trillion in infrastructure investment yearly for up to the next 10 years. Nonetheless, the IMF and World Bank have most recently been focused on European and rich-country issues, seemingly ignoring much of the world’s “pivot” to Asia. This has not gone unnoticed. Simply, Asia is where economic growth is; the time is certainly right for this type of bank.

The Chinese development model of infrastructure development and technology transfer (dams, power plants, airports, railways and so on) has served it well since the late 1980s to significantly alleviate Chinese poverty and raise millions into a middle-class existence. Exporting this development model could prove to be the next key step in China’s ascent as a responsible emerging superpower.

However, effective investment today is not merely defined in capital intensive projects dealing with finance, but also in human capital initiatives. Both the World Bank and IMF have gained credibility in this area because of their world class talent, much of it sourced from the developing world, particularly Asian countries. Possibly no other institutions have the same degree of aggregation of financial, economic, and legal knowledge on hand to work on their myriad projects, many of which are politically mandated. The China-led bank will be hard-pressed for any talent development initiatives.

China’s development model has traditionally been a “one size fits all” approach because of state capitalism and industrial planning that favours state-owned companies while ignoring critical social components of labour, human rights and the environment.

Domestically, China’s one-party government has allowed no dissent regarding project-related protests concerning fair pay, “not in my back yard” issues, and pollution (or other industry-related concerns such as water depletion). Sulphuric smog in big Chinese cities is off the safety scale, as health-related concerns take a back seat to growth at all costs. And that smog is mostly due to burning coal for electricity generation and steel production.

The Three Gorges Dam project, the most significant infrastructure project in modern Chinese history, with a current capacity of 22.5GW of electrical power, and largely within budget, was centrally planned and ordered without local input. Therefore, historic sites were submerged, some wildlife was destroyed, and farmers were relocated without debate (and many never received promised compensation).

The high-speed railway system has also been a major infrastructure success, unifying much of China with cheap and efficient transport for goods and people. However, corruption and safety-related issues have tarnished its lustre.

Not all big Chinese infrastructure development projects have been glowing successes, however. Chemical and refinery spills in major rivers have killed huge numbers of fish and contaminated drinking water. “Ghost” city developments such as Ordos in Inner Mongolia and around Tianjin have shown that even if you build it, they may not come.

China certainly has the technical ability to lead a development bank. However, the overall track record is not good when considering non-financial metrics of liveability and mobility. Hence, the new bank must make green technology a centrepiece for any development issues, lest development lead to ugly urban sprawl, as in some US cities, or a “car culture”, as in Malaysia.

A successful Asian Infrastructure Investment Bank is not merely about technical ability and successful bond subscriptions. Incipient human capital and societal and environmental awareness is key to supplanting Western influence. If poor standards are tolerated for political reasons (corruption, pollution, public safety) in large infrastructure projects for, say, electrification in Laos or dams in Nepal, the bank will receive negative backlash in our socially connected world.

For true legitimacy, the actors of any investment bank must have high standards built into their mission. China is now taking on problems such as corruption and smog more aggressively, but whether these actions will change regional attitudes in less developed countries such as Cambodia or Bangladesh remains to be seen.

By : Will Hickey

Will Hickey is organisation capability adviser and associate professor at the School of Government and Public Policy, Indonesia