Following Jane Perlez’s article in the New York Times a few days ago, China’s proposed Asian Infrastructure Investment Bank (AIIB) has become the latest talking point for the cottage industry of experts portending growing U.S.-China rivalry in the Asia-Pacific.
Tying any initiative to great power rivalry is a surefire and simple way to grab headlines. Reality, however, is far more complex – particularly when viewed from the region itself.
First, the reason why 21 Asian countries have supported the AIIB has nothing to do with picking sides in a U.S.-China rivalry and everything to do with national economic development. Asia is growing rapidly, and the region will account for almost half of global GDP by 2030. An important part of that growth story is infrastructure, and the Asian Development Bank (ADB) calculates regional infrastructure needs at a whopping $800 billion each year for the next decade.
The sheer magnitude of this infrastructure financing means that most individual governments cannot go it alone, but will need to rely heavily on the private sector as well as external sources such as development banks. But even the existing banks like ADB and the World Bank publicly admit that they are increasingly stretched for funds. To take just one example, using some quick math you can calculate that the entire $50 billion that the World Bank now lends every year to all countries barely covers the annual financing gap for Indonesia’s infrastructure requirements alone from 2015 to 2019. Given this massive funding shortfall, it is easy to see why Asian countries would welcome the additional $50 billion in capital initially expected from the AIIB. It also suggests that the perceived threat the new bank would present to the existing Bretton Woods institutions may be exaggerated considering how much assistance is required.
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