A Conversation on AIIB
Origin:Boao Forum for Asia      Time:2015-11-15 17:10:47     Views:597866


MW   Martin WOLF,

Associate Editor and Chief Economics Commentator, Financial Times


JL  JIN Liqun

President designate, Asian Infrastructure Investment Ban



Key points:

l  57 founding members of AIIB are expected to ratify the agreement next year, other 30 nations that missed the deadline have been on waiting list to join in.

l  AIIB will operate in LEAN, CLEAN, and GREEN manner.

l  On AIIBs initial $100trillion, the gearing ratio for lending is 1:1.  But when AIIB is on a solid basis with high quality assets, leverage can go to 1:2.5.    So lending could be $250 billion.

l  In the voting structure of AIIB, China would not have the power of veto.

l  AIIB is open for members of ADB, like HK and Taiwan to join

l  AIIB will be supper successful and then it can invest in Africa and Latin America



Jin Liqun said that despite it being a hot topic, many people may not be too familiar with this “ reature.  It is a multinational development bank.  He started working on the project in 2014 and was selected as to lead it in 2015.  it is now established.  57 nations have signed the agreement and he expects most of them to ratify it next year. And the other 30 nations, that having missed the original deadline, are on the waiting list for joining.  So in foreseeable future, AIIB could have 80-90 founding members.  The purpose is to promote infrastructure development in Asia and that this will help with poverty reduction.


He used the example of how China, when its precept income was $270, began to learn from other nations and borrowed massively for 15 years to invest in infrastructure, such as roads, rail, ports.  


He said they never had had debt problems because they borrowed to invest not consume.


600 million people had been lifted out of poverty in three decades.  He believed this could be an inspiration for other countries.


The bank would not be run for China.  Its key feature was a new approach for development and the environment.  He wanted this bank managed to the highest standard.  Best practice it is not the western standard, it is one that incorporates the best of development experience over the past half century.  China is part of that.  Western countries do contribute but so does Asia.


Martin Wolf asked what were the characteristics of best practice


Jin Liqun said it should be the standard that incorporates the global experience of the last three decades.  He said infrastructure development is not supposed to leave a heavy footprint on the climate and the environment although he conceded that may happen during initial phases of industrialization.  He said this bank would attract and retain talents of the highest calibre - no national passport would be rejected.


The key requirements for staff were: a clean bill of health on ethics and integrity, the applicants track record and loyalty to the bank.  He said the bank would use English.


Martin Wolf asked about dealing with corruption 


Jin Liqun said lean, clean, and green are the  three by words.  The administration would be small to avoid potential troublemakers. “It is like a human body.  You go to the gym each day to make sure you dont put on weight."


He said we want it to be sneaky clean.  zero tolerance of corruption.  The system is the most important aspect.  Get that right and  you can be reasonably sure that most people will behave.  He said that the head of integrity would be a non-Chinese and would be able to monitor staff down to the rank and file.


And he said that they are promoting green economy.  Investment may be great but it can only work if it doesnt leave a heavy footprint.


Jin Liqun said infrastructure and other productive sectors would be defined pretty broadly.  It could be energy: power generation and distribution.  It could be roads, rails, sea ports, mass transports and logistics in urban areas.


He said the early years would concentrate on physical infrastructure but he also spoke of going beyond that to areas like health and education.  He said the bank should be ambitious, looking ahead up to 20 years. 


And he spoke of the need to harmonize policy.  He said there was no point building a road if you got stopped at the border.  


Martin Wolf asked if they could support the private sector too


Jin Liqun  said development requires broader participation.  “We will work with anybody, on condition that they have a good reputation” and as long as other criteria were met, like not harming the environment.


Martin Wolf asked what he meant by Green.


Jin Liqun said it was a balance.  Projects might cut through a forest, which was not so good.  Power generation might mean fossil fuels. But improving the lives of people would create demand.  “ You cannot deny the people the privilege of a refrigerator  at home."


But he said theyd look to improve renewable energy and energy consumption.  Buildings could be more efficient, as could power transmission, or the phasing out of more polluting stations.  And mass transport systems helped improve the environment.


Martin Wolf asked about how much could be lent with the AIIBs initial $100 billion.


Jin Liqun said the initial gearing ratio is 1:1 and this was a pittance when set against the trillions of dollars needed.  But when the bank was on a solid basis with  high quality assets, leverage could go to 1:2.5.    So lending could be $250 billion.  He hoped to get and preserve a Triple A rating.  But he accepted that the mind set of ratings agencies meant he had to be cautious.


With a Triple A, lending conditions would be similar to other international institutions like the World Bank.  Funding costs would be similar but the smaller administration meant operating costs could be cut and much lower. 


He said that while it was very important that people look at the terms and conditions, people can lose sight of efficiency.  If a project is up and running in a year, it earns revenue.  Delay loses revenue.


Martin Wolf said that in some ways the World Bank was hobbled by the need to be so transparent


Jin Liqun praised the contribution of the World Bank and IMF but said they had problems that couldnt be eliminated overnight. And there is always room for improvement.  “ With a new bank you can pick up the pluses and avoid the mines....  we are not smarter.  We have the benefit of learning from their experience positive and negative."


Martin Wolf asked how theyd be more efficient.  


Jin Liqun said theyd ensure the environmental assessment isnt compromised and that people were resettled properly.  And then theyd move faster.   He said sometimes it was internal problems that were the issue, as when people in redundant posts created issues to justify their role. 


He said their building now had 30,000 square meters for 700 professionals.  But they have plans for permanent buildings on one site  of 230,000 sq meters and 5,000 staff - a fraction of the staffing for the World Bank,   


Moving to membership Martin asked whether he was surprised the UK had joined.


Jin Liqun said no, not much.  Theyd been in constant discussion. However, “We are certainly delighted to see the UK make the first move leading to a deluge of applications.  "Your political leaders have clear sight and vision."  They believed the UK should be involved.



Martin Wolf asked if the  US and Japan have been foolish to stay out?


Jin Liqun rejected that word.  He said they had asked about AIIB, it could be understood that such an initiative on AIIB from China could lead to questions.  The US and Japan  never overreacted,  It was better to give them time to make their own assessment.


"You must allow some people to raise questions, to be skeptical.  if you really believe you are going to do a good job you dont have to worry


So the door keeps open for any country to join as long as they accept the articles of agreement worked out by the 57 founding members.


Martin asked whether China would really be running the Bank.



Jin Liqun said  25% of shares were for non-regional members,  75% for Asia.  He explained the voting structure under which big shareholders like China had smaller voting rights.  And that would decline as more members joined.  Two thirds of the members had three quarters of the votes.   He said China would not have the power of veto.


As a number of countries have yet to ratify and send funds, they dont yet have voting power.

So the intention is to proceed for now on the basis of consensus.  


it doesnt make sense to dominate the institution.If you dont believe me, watch and see. I love your skepticism, the more skepticism you are, the more disappointed you will be, he jokingly told Martin.


Martin said he expected to be surprised. Then he asked about Taiwan


Jin Liqun said it is a family member.  The articles have the provision that it is open for members of ADB, like HK and Taiwan to join.


But, he warned, "What we dont want is the meddling of neighbors."



Asked what countries they can you lend to, Jin Liqun said initially  to developing and emerging nations in Asia.  But 30 years down the line, that could change.


He discussed the issue of countries seen as outside Asia applying to be regional members.   He said they have a special provision with a super majority vote of the board that they can invest in any country.  He said he was sure that this bank will be supper successful and then it can invest in Africa and Latin America


On the relationship between the governing board and management, he said companies dont have resident boards, and they have separation. 

The issue was governance.  And micromanaging by a board was not a solution. 


If a resident board decides policy, the management has no responsibility. 


They did not want the board to approve each project.  Management would be fully responsible.  "If you make a mistake you can be kicked out."


He said it might sound revolutionary, but it is something have picked up from the private sector.




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