Editor's Note:

The founding of the Asian Infrastructure Investment Bank (AIIB) has drawn global attention. Will the AIIB be dominated by Beijing? How does it compare to other peers? Global Times (GT) London-based reporter Sun Wei talked to Danny Quah (Quah), professor of Economics and International Development, London School of Economics and Political Science (LSE), at the annual LSE SU China Development Forum on January 30.

Danny Quah

GT: Do you agree that the AIIB is China's version of the Washington-based World Bank?

Quah: Yes and no. We should be clear this is not a Chinese bank.

When we look at the numbers, China's stake is just a little over 30 percent. But 57 countries are members. The combined vote of Western democracies alone would already overwhelm China's.

I am uneasy seeing it as China's version of the World Bank. However, it's obviously a China-driven initiative. China provides energy and puts this organization together. It is based in Beijing, and its president is Jin Liqun. There are many senses in which it is a Chinese bank. But there are also many substantial ways in which it isn't.

GT: How will the AIIB be different from the World Bank or the Asian Development Bank (ADB)?

Quah: In a way, its purpose is very similar to how the World Bank began. If this is about improving the world in developing countries, that's all the three institutions are about. The name AIIB emphasizes how it thinks about improving the status of the world. It is going to be investing in infrastructure to improve production capacity. The ADB has made poverty reduction part of its operating mantra now. Of course it's not inconsistent with infrastructure investment, which is actually a very good way to bring about poverty reduction.

I don't think that there is a clear divide between these three institutions. They are all in the game of making this world a better place. Of course for policymakers, there will be disagreements.

GT: Since the idea was brought up, the AIIB has been facing a great deal of criticisms. And it also created some cracks between the US and its allies. How do you see this?

Quah: It's very hard to tell the story that AIIB was put in place to keep out the US, because it kept inviting the US. 

Many Americans still think that the US should join the AIIB and it's still possible to do that. Membership is still open. The US appears to be on one side, the AIIB, China and its group on the other, it is not China or the AIIB's doing as brought this about. It has created tension between the US and nearly all the Western democracies, such as South Korea and Australia, which are all willing members. There is no coercion in involvement. If the US says it doesn't want to join, it's its choice to stay outside.

This means there will be continuing tension. There is always going to be tension as long as US policymakers describe the AIIB as being susceptible to endangering the environment, lowering procurement standards, and not safeguarding lending requirement. 

There are no reasons why this should be. US institutions suffered from these problems as well. China's policymakers and other policymakers involved in the AIIB recognize these problems and they want to fix them.

Right now a lot of this is all cheap talk. At this stage, you can say anything you wanted until doing. We need to see how it advances from here.

GT: The AIIB formally opened for business on January 16. What could be the challenges?

Quah: There will be challenges in terms of the projects undertaking, because there are so much attention. When one of the projects is undertaken, if even the slightest thing goes wrong, critics will come in.

The other thing is the AIIB needs to continue to look out for the best people. It needs to keep that momentum, hiring the best talent from around the world.

GT: Francis Fukuyama recently said a historic contest is underway over competing development models between China and the US and other Western countries. China's development model is based on massive state-led investments in infrastructure, while US and European development strategy has focused on large investments in public health, women's empowerment, support for global civil society, and anti-corruption measures. What's your comment?

Quah: When 25-30 years ago, Fukuyama talked about "the end of history," he explained how democracy was the only viable solution to the fundamental problems of human history. Even he himself has retreated a bit from that position. He has acknowledged there are multiple pathways to possible economic progress and development. Singapore and China are important illustrations.

When Fukuyama today describes competition between alternative models of development, he is fully aware that he is trying to draw a contrast that is sharper than what reality actually is. He talks about the eastern model or Chinese model is building infrastructure. But the US built public infrastructure too, like the US federal highway system, up to the 1970s.

He himself also knows that it's not entirely accurate to say that the West emphasizes the building of society, empowering women and children, and being clear about corruption. China does that too. So the difference is not as stark as he wants it to be.

The contrast is more a broad brush way of thinking about these alternative things.

He does have a point that China emphasized these large-scale infrastructure projects. Deep down, the West sees the importance of that. So the AIIB is a crystallization of that vision, and it's a very important one. Even at the different stage, the West still needs infrastructure; the East continues to push empowerment.

GT: Some people criticized that projects led by AIIB gave developing countries more privileges. For China, it can also solve over-production capacity problems. What's your view?

Quah: It's win-win. On one hand, China has access to production capacity, very good engineering skills, logical skills, and organizing skills for large projects. It also needs stronger consumption sector. On the other, the world needs that production capacity. If it's win-win, we should be careful not to cut off your nose to spite your face. We shouldn't say because China stands to benefit, we don't want that benefit.

GT: AIIB's President Jin Liqun has ruled out lending in currencies other than the dollar, signaling that Beijing will not use AIIB as a platform to promote renminbi internationalization. What does this signify?

Quah: The rest of the world has confidence in dealing with China as a true collaborator that will naturally lead people to trust the currency and use the currency more. Also the yuan is not quite mature, and its market is quite thin, it needs to build all of those.

I agree that it should not be used as an instrument to further internationalization of the yuan. Whether the currency is becoming acceptable or not, it's a matter of trust and confidence. It's not about forcing that currency on other people.