Member countries and creaks criticize’debt trap’… Is the dream of a’Chinese version of the World Bank’ far away?

On January 16, 2016, the state guesthouse of Diaoyutai, Beijing. Chinese President Xi Jinping (習近平) held an opening ceremony in front of foreign envoys on the same day and expressed pride in the Asian Infrastructure Investment Bank (AIIB), which started its activities.

AIIB is an international financial institution led by China for the first time. It was founded to support investment in infrastructure (infrastructure) in developing countries with the dream of becoming a’Chinese version of the World Bank (WB)’. After President Xi first proposed its establishment in 2013, it successfully started out as 57 member states despite US checks. AIIB, which has challenged the US-led global financial order, has been inaugurated for 5 years.

The bulk has grown. According to Shinhwa News, 103 countries have joined AIIB. It has nearly doubled compared to when it was launched. It exceeded the number of member states (68 countries) of its rival Asian Development Bank (ADB). The number of projects invested in five years was 108. The investment amount also increased from $1.69 billion in 2016 (about 1.87 trillion won) to $9.98 billion last year.

However, in reality, it is evaluated as’good light dog apricot’. The number of member countries outpaced ADB, but compared to the size of funds and loans, the game does not work. According to the US think tank Institute for International Strategic Studies (CSIS), the total amount of AIIB funding was $37.8 billion as of September last year. It is 8 times different from ADB ($250 billion). That’s one 20th of the World Bank ($600 billion).

The Wall Street Journal (WSJ) said, “Although loans surged last year due to the novel coronavirus infection (Corona 19), AIIB still accounted for only 5% of loans to international financial institutions. He was described as a challenger, but five years later, the reality is far from the hype at the time.”

AIIB is one of China’s foreign economic strategies to weaken the US-led financial hegemony. In 2014, it invested in infrastructure instead of U.S. government bonds with its foreign exchange reserves, which reached $4 trillion, while making use of overseas infrastructure construction to relieve overproduction in China. For this purpose, the’Daiiru (一帶一路: land and sea silk road)’ project called the’Chinese version of the Marshall Plan’.

AIIB was established to efficiently finance the Idairu project. As it provided money to Asian developing countries in need of funding, multilateral investment could also be expected to reduce the burden of China’s sole investment in infrastructure investments in developing countries with low profitability and high risk. While contributing to the internationalization of the renminbi, it was also seen as a means of strengthening China’s soft power.

China’s enormous ambitions, led by the Idairu Project and AIIB, are in trouble. Faced with criticism that the Idairu project is a’debt trap’.

Countries that participated in the Idairu project started to build SOCs such as roads and ports with funds borrowed from AIIB and state-owned banks of China. I fell into a situation where I was doing. Tanzania, Africa and others have also declared defaults. There was even controversy over’new imperialism’.

In 2019, the President of the International Monetary Fund (IMF) Christine Lagard said, “The World Bank and the IMF are working together to increase transparency in order to specify the size, conditions and maturity of loans (related to the Dairu project).” did.

The’debt trap’ can return to the AIIB as a boomerang. Nikkei pointed out that “the loan repayment problem is likely to become a matter of AIIB’s asset quality and credit rating in the long term.” AIIB’s provision for bad debt in the first half of last year was $190 million, more than ten times higher than in the first half of 2019. Provision for bad debt is money prepared in advance for losses that the debtor cannot properly pay off the principal and interest. This is why AIIB net profit was cut in half from the previous year.

Relations with member countries within AIIB, a multilateral organization, are also creaking. In particular, these are countries that have joined the AIIB due to China’s economic influence even in the midst of the U.S. India, which has the second largest stake after China in the AIIB, is showing a strong anti-Chinese sentiment by boycotting Chinese products after a border dispute with China last year.

For Australia, which has discussed China’s responsibility for Corona 19, China is retaliating against the economy by banning imports of iron ore and coal. The British also turned their backs to China in the course of the Hong Kong democratization protests for reasons such as Chinese suppression. WSJ said, “China has lost the hearts of major AIIB member states,” and said, “This overshadows China’s claim that AIIB is a multilateral financial institution.”

As the situation is unfavorable, AIIB is targeting the Corona 19 incident as an opportunity for reversal. Last year, countries in Asia and Africa, including Bangladesh, who received $250 million in loans from the $10 billion Corona 19 Response Fund, benefited. It has spent over 7 billion dollars to date.

The Corona 19 vaccine is another card. On the 13th, AIIB governor Jin Jin-Jun said, “We will set the loan size to 13 billion dollars in 2021 and support the purchase of vaccines.” However, the cost of purchasing a vaccine is also a difficult money for developing countries. You can also fall into a’debt trap’.

CSIS pointed out that “the aim of the establishment of AIIB is to develop economies in developing countries through investment in infrastructure,” and pointed out that “support for vaccine purchases is out of the scope and not sustainable.”

Reporter Seungho Lee [email protected]