All it took was $50 billion and the possible trillions to follow to get participation from the main European allies of the United States. China has a large economy and $4 trillion in reserves.
In the ADB (Asian Development Bank), China is a major capital provider but has a tiny share of the voting power (5.47%, compared with 15.7 and 15.6 percent for Japan and the US, respectively). And the US has thus far dragged its heels on implementing a 2010 deal that would give China and other developing nations a larger voice in the World Bank and IMF. The formation of the AIIB and BRICS bank may represent a loss in international influence for the US and its allies, but it’s a loss that is, in some respects, overdue.
The World Bank and ADB are more focused on poverty reduction and concessional lending than infrastructure investment, and Asia has a huge unmet demand for infrastructure investment. In an often-cited 2010 report, the ADB estimated that developing Asian countries need to invest US$8 trillion between 2010 to 2020 to meet infrastructure needs. However, the ADB lends only $10 billion annually for infrastructure. Theoretically, the AIIB could complement rather than compete with the ADB and World Bank in Asia.
Germany, France and Italy followed the U.K.’s lead in applying to join a China-led international development bank, lending the weight of Europe’s largest economies to the project despite U.S. opposition.
Europe’s four top powers have now broken ranks with Washington in moving to become founding members of the Asian Infrastructure Investment Bank. The decision is expected to spur other U.S. allies to back the potential challenger to the World Bank and the Asian Development Bank, where Washington has significant influence.
Tuesday’s decision, announced by German Finance Minister Wolfgang Schäuble after a meeting with Chinese Vice Premier Ma Kai in Berlin, underscored the willingness of traditional U.S. allies to split with Washington on policy to curry favor in Beijing. The readiness of the U.K.—one of the U.S.’s closest allies—to defy Washington with its decision last week to join helped to clear the way for other Western economies to follow suit, a European diplomat said.
China launched the AIIB in October—one in a series of moves to boost its regional and global influence—and invited other countries to join as founding members by March 31. Endowed with an initial capitalization of $50 billion, the bank would have a mandate to finance infrastructure projects around the world.
European officials also say that moving quickly to join the bank could benefit their economies. The British government has said it wanted to become the main European destination for Chinese investments, and China is Germany’s fourth-largest trading partner, accounting for 7% of Germany’s exports.
“This is basically about money,” said Ted Truman, a senior fellow at the Peterson Institute for International Economics and former assistant secretary of the U.S. Treasury. “The Europeans figure they can affect the changes from the inside, and still get some of the contracts.”
China issued a restrained welcome to the latest European applicants for the bank. The finance ministry said in a brief statement that Beijing would seek the opinions of other participating countries before deciding on whether to admit the three European countries. In practice, however, the approval is expected to be perfunctory, according to diplomats and academics in Beijing who have followed China’s efforts to form the bank.
Beijing has been lobbying countries to join, saying that the bank would fill an immense need for infrastructure financing and that founders would have input in setting the bank’s standards for transparency and other governance issues. Oxford Economics and consultancy PwC forecast global infrastructure spending of nearly $78 trillion between 2014 and 2025, with nearly 60% of that in the Asia-Pacific region.
China has focused particular attention on drawing in key U.S. allies in the region—South Korea and Australia—both of which have also come under pressure from Washington. The South Korean foreign ministry said Tuesday the decision requires a “time-consuming” review by the finance ministry, suggesting Seoul might not meet the March 31 deadline. Australian officials have said the government would decide soon whether to join the AIIB.
Europe and China can work together on a Pan-Europe asian high speed rail network and on energy and infrastructure throughout central and south asia and into Africa.
China is offering to fill the worlds infrastructure gap. This will enable all of the developing world to follow the China economic development plan. In a few decades, they will have no shortfall in transportation, industry, modern buildings, energy plants, energy grid and other infrastructure needs. China will also help them finance it. China will also have progressively richer trading partners who have ports, roads and rail and warehouses to build or buy what China needs or wants to sell.
China will build a global prosperity network.
People look at China’s massive domestic construction of the last few decades and are amazed at the scale. China will further expand domestic construction to get to 90-95% urbanization and will have 3-5 times the construction externally for the entire world. This global construction will be in full bloom around 2040-2060. China will be completing dozens of nuclear reactors every year. The high speed rail network will stretch across Europe, Asia and Africa. There will also be a separate South America network.
The $4 trillion is just the seed financing to get the first phases rolling for the global transformation. This is following the money for futurist prediction. $4 trillion is a lot of money to follow.
There are trillions of dollars needed to build a shortfall of global infrastructure. China is going to try to finance and build as much as possible. It will solve the problem for decades of how will China still have high levels of investment driven GDP growth. Notice- Electricity is half of the need. China will fill this with nuclear exports in the 2020s and beyond
Factories, properties, rail, ports and high speed rail will be first
Boosted by President Xi Jinping’s Silk Road belt and road initiatives, China is currently in negotiations with 28 nations, most of which are along the trade route. Should discussions bear fruit, a network of over 5,000 km is on the cards.
The Silk Road economic belt and the 21st century maritime Silk Road are a land-based belt from China via Central Asia and Russia to Europe; and a maritime route through the Strait of Malacca to India, the Middle East and East Africa
SOURCES – World Nuclear Association, Reuters, China Daily, Wall Street Journal