China-led development bank approves first loans

BEIJING, China – A new Chinese-led development bank has approved its first loans and expects to suffer no impact from Britain’s vote to leave the European Union, the bank’s president said Saturday at its first annual meeting.

The Asian Infrastructure Investment Bank, launched in January with 57 member governments, already has received expressions of interest from possible additional members, said Jin Liqun at a news conference. He said observers from 24 other nations attended the meeting.

The bank reflects China’s rapidly growing financial might and desire for a bigger voice in global finance, which is dominated by the United States and Europe.

Despite initial U.S. opposition, the AIIB attracted unexpectedly wide support from American allies including Britain, France, Australia and South Korea. Washington and Japan have refrained from seeking membership.

The bank’s board approved a total of $509 million in loans Friday for a power project in Bangladesh, slum-upgrading in Indonesia and road-building in Pakistan and Tajikistan, according to Jin, a former chairman of China’s sovereign wealth fund.

“We have quite strong demand from borrowing countries,” he said.

Jin noted the shockwaves in financial markets following the vote by Britain, one of the AIIB’s biggest shareholders, to leave the EU but said the Asian bank would not be affected.

“This decision does not affect our bank’s future development,” he said. “I believe the U.K. will continue to play an important role in the development of this bank.”

The Asian Development Bank has estimated developing Asian economies need to invest $8 trillion in roads, railways, ports and other infrastructure in the decade through 2020.

China, the world’s second-largest economy, has the bank’s biggest voting stake with 26 per cent of shares and has pledged to put up most of its initial $50 billion in capital but has no veto power. India has the second-largest voting stake at 7.5 per cent and Russia is third with 5.9 per cent.

“AIIB is owned by all its members,” said Jin. “This is not China’s bank.”

China has chosen not to borrow from the AIIB to avoid “crowding out” other borrowers but might do so in “special cases,” Jin said.

The bank’s staff of 39 is expected to grow to 100 by the end of the year, according to a report by Jin to the board. At the news conference, he said staff will be recruited worldwide, regardless of citizenship. He noted its controller, who is in charge of accounting, is from Japan, a non-member country.

The AIIB initially was seen as a potential rival to the World Bank and Asian Development Bank, and U.S. officials argued it might undercut them by failing to enforce environmental and other standards. But the Asian bank forged co-operative relations with them and pledged to adhere to global standards.

In a reflection of that co-operation, the World Bank contributed to the Indonesia project. Money for the Pakistan project also came from the ADB and the British government. The Tajikistan project is co-financed by the European Bank for Reconstruction and Development.

Jin said the AIIB will require any lending project to be financially sustainable, “environmentally benign” and “socially acceptable.” He said it would look for possible “green infrastructure” projects.

“We have set very high standards for projects we can finance,” said Jin.

The bank’s lending target this year is $500 million to $1.2 billion, and it might exceed that, according to Jin’s report to the board.

Its launch coincides with a Chinese government initiative dubbed “One Belt, One Road” to build ports and other infrastructure to expand trade links between China and Europe.

Jin said the bank would support countries targeted by the Chinese initiative but would make its own lending decisions.

Speaking earlier at an opening ceremony, South Korea’s deputy prime minister called on governments to show the value of international co-operation following the British EU vote.

“The global economy is now faced with greater uncertainty and volatility,” said Yoo Il-ho, who also is minister of strategy and finance.

“Though we do respect the voices of U.K. voters, it is a big blow to those who believe a more integrated world economy is beneficial,” said Yoo. “We should use this opportunity to show that we can co-operate to overcome challenges and achieve common prosperity.”