There could be no more appropriate Asian city than congested Jakarta for China’s President Xi Jinping to unveil his sweeping plan for the Chinese-backed Asian Infrastructure Bank.
In a region home to more than half a dozen megacities with populations of more than 20 million, Jakarta, with its gridlocked traffic and growing pollution, beats Beijing, Bangkok, Manila and once-sleepy Yangon for its dense urban sprawl.
If the Association of Southeast Asian Nations’ (ASEAN) ambitious plan to create a regional economic community by 2015 is to have any chance of long-term success, the region must invest heavily in infrastructure.
China is well aware of this, and of estimates by the Asian Development Bank (ADB) that the
continent must invest about $8 trillion in national infrastructure and $290 billion in regional infrastructure from 2010 to 2020 to sustain growth. Reflecting such views, a central theme of the Asia-Pacific Economic Cooperation meet this year is “connectivity,” and more specifically, infrastructure.
Apart from Xi’s broad proposal, however, there was little concrete detail about China’s proposed infrastructure bank. Chinese media reports suggested that Xi’s team seemed surprised that he introduced the idea in Jakarta, suggesting the proposal is still being developed.
It followed then, that regional governments looked to Chinese Premier Li Keqiang’s speech at the ASEAN summit in Brunei for more information about the planned bank. Hopes were dashed, however, when Li simply said the proposed bank would “meet, on a priority basis, some ASEAN countries’ needs for financial support in infrastructure building.”
The Chinese proposal raises the question of how the new bank would fit alongside the ADB, founded in 1966 with the overarching aim of eradicating regional poverty through funding targeted projects such as infrastructure. The Asian Infrastructure Fund, conceived in 2006 by the ADB and most ASEAN countries and launched last year, further complicates the picture. The infrastructure fund’s goal is to “leverage more than $13 billion in infrastructure financing” by 2020. The China-proposed bank would probably dwarf the ADB in terms of financial clout.
While most ASEAN nations have talked for many years about creating their own infrastructure funds, the Philippines is so far the only nation to deliver on the idea.
China, meanwhile, is more intent on “showing it has a right to more say, and to more of a role in international decision-making,” Kerry Brown, executive director of Sydney University’s China Studies Centre, told The Nikkei Asian Review.
“The ADB is perhaps seen by the elite in China as a policy instrument imposed by Western interests,” he added. “So setting up an indigenous alternative is part of a process of China saying it is setting out a viable option for what the West offers. Expect to see more of this. With the capital China has at its disposal, it can be bold in what it decides to establish and how it deploys its capital.”
Within the region, there are rising expectations that the new bank will be headquartered outside China, with Jakarta, Singapore, Bangkok and Hong Kong being the obvious choices for hosting the proposed bank. Hong Kong, the region’s biggest finance hub, is already signaling that it wants to host the new institution.
In spite of Beijing’s apparent new-found regard for its Southeast Asian neighbors, its motives are clearly not merely neighborly. Like all Chinese investment plans, this one comes with a large dollop of self-interest.
With its rising middle class and steady growth in consumer spending, Southeast Asia looms as a coveted captive market of 700 million people for Chinese goods. Beijing is increasingly keen to tap into the region’s vital energy, commodities and food resources. And it needs efficient infrastructure networks of road, rail, pipe and power lines for ferrying these resources back home.
Already, more cynical observers including some regional diplomats believe the proposal is nothing more than a giant “vendor-financing scheme” for Chinese construction companies, which are eager to expand abroad and develop into truly global construction giants.
For China, setting up such a bank would bring the added benefit of being able to fund regional infrastructure at arm’s length. While its companies would benefit from big contracts, Beijing could step back from growing criticism over its high-handed approach to huge infrastructure projects in countries such as Myanmar. It may take more than a new infrastructure bank to silence criticism over China’s massive hydroelectric power projects, mines and gas pipelines. But, in the words of one ASEAN diplomat, the bank would be a very good start.
This story was originally published in Nikkei Asian Review, 16 October 2013