The New Wave of Asian Banks
Barnaby Powell is a member of SACU and is well qualified to write this short article. He has a Chinese son-in-law and a veteran of development banking in east and south-east Asia. He has over 35 years’ experience in the strategic nature of Asian negotiations and was founding director of the Asia-Invest Programmes for the European Commission. He also served as Secretary-General of the European Chamber of Commerce in Taipei.
The geo-political shift in economic power from West to East has given birth to a brand new set of financial institutions. Each of these is designed to meet the Asian regions’ needs for improved international cooperation and development.
The biggest initiative has been the formation of the New Development Bank (NDB), set up in 2015 and head-quartered in Shanghai. The bank is backed by the group of BRICS countries (Brazil, Russia, India, China and South Africa), in which China sees itself as instigator and anchor of the existing financial world order which is slowly supplanting the one born at Bretton Woods in 1944. The NDB’s main purpose is to lend money to developing countries to help finance their infrastructure projects - as a further alternative to the World Bank and the IMF. It will seek to boost financial and development cooperation among the five emerging market areas of its constituent backers, who together account for over 25% of global GDP. Unlike the World Bank, each participant country shareholder will have one vote and no country will have the power of veto.
The BRICS countries signed the NDB into existence in 2014 with an initial capital of $100 bn. with a reserve currency pool of a further $100 bn. and the potential to accumulate funds of up to $400 bn. Of the initial capital, China is contributing $41 bn., Brazil, Russia and India $18 bn. each and South Africa $5 bn. The bank’s establishment is intended to balance out the dominance of Western financial institutions and the dollar.
Of no less importance is the formation of the Asian Infrastructure Investment Bank (AIIB), proposed by China in 2013 to use its huge foreign exchange reserves to support infrastructure construction in the Asia-Pacific region. The Chinese government was eager to hasten the pace of reform and governance within established institutions like the World Bank, the IMF and the Asian Development Bank (ADB), seen to be serving chiefly US, European and Japanese interests and offering unequal voting rights. The bank can be seen as a rival to the World Bank and the IMF as it is likely to impose less stringent terms and conditions on loans to borrowers in its role as an active promoter of economic globalization and regional integration. It will be a key instrument in the expansion of China’s New Silk Roads, both overland and maritime, the ‘Belt and Road’ initiative. This is an ambitious plan to collapse time and distance by enhancing ‘interconnectivity’ and ‘informationization’ - the claim of Puck in Shakespeare’s A Midsummer Night’s Dream to ‘put a girdle round about the earth in forty minutes’. Initial capital is set at $50 bn. to be doubled with growing demand for loans. It is perceived to be a logical extension of the infrastructure development platform underpinning China’s rapid growth ever since Deng Xiaoping’s ‘Reform and Opening’ in the late ‘70s. China is contributing the largest share of initial capital, $30 bn., India $8 bn., Russia $6.5 bn., Germany $4.5 bn., and South Korea $4 bn. China also commands 26% of voting rights.
Finally, the Shanghai Cooperation Organization (SCO) Development Bank is under formation as an instrument of the ‘Shanghai Pact’, whose initial signatories were China, Russia and the former Soviet Republics of Kazakhstan, Kyrgyzstan, Tajikistan, and Uzbekistan. The SCO is a Eurasian political, economic and military organization created in 1996. It is a rough equivalent of the NATO alliance in the West in its cooperation on security. Its economic cooperation is designed to link China’s massive network of roads, railways and pipelines through Central Asia with the Eurasian areas of the post-Soviet economic bloc. SCO members now include India, Pakistan, Armenia and Belarus. This initiative will merge the interests of the Moscow-led bloc with the deep pockets of China, which has already invested $50 bn. in Central Asia.
The new bank is being formed at a time of reinvigorated China-Russia relations and partnership - an arrangement that Russia has previously shunned for fear of giving China too much power in its own sphere of influence. The obvious economic benefits of China’s ‘Belt and Road’ initiative have caused Russia to take a pragmatic stance and have outweighed its objections to the bank’s establishment, particularly at a time when Russia is suffering the effects of Western sanctions. Thus, the SCO Development Bank will likely become the major economic framework organization from Shanghai to St. Petersburg. It is expected to speed up international road and rail transport and the construction of the new Continental Bridge and the Chongqing-Xinjiang-Europe railway connections.
© Copyright Society for Anglo-Chinese Understanding (SACU) 2015, reprinted from SACU's China Eye magazine Issue 47, 2015
The views expressed in this article are those of the author and do not necessarily represent the view of SACU.
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