China’s “World Bank” tried in vain to carefully thread the geopolitical needle.
Canada, one of its members, is freezing activity at the Beijing-based Asian Infrastructure Investment Bank (AIIB) after its director-general of communications, Bob Pickard, resigned alleging on Twitter that the institution he left behind was infiltrated by Communist Party officials who operate it “like secret police.”
Ottawa’s reaction looks hasty, but delivers a small but significant blow to one of China’s responsible multilateral lenders.
The AIIB, set up as an alternative to the World Bank in 2016, has channelled funds from some 106 members including India, the UK and France to invest over $42 billion in 221 projects while promoting good governance.
That stands in contrast to the larger Belt and Road Initiative, through which Beijing has loaned hundreds of billions of dollars to expand its influence – and export some industrial overcapacity – throughout Asia, Africa and Latin America.
Fairly or not, critics have lambasted China’s lending practices along the BRI as “debt trap diplomacy”. From Beijing’s perspective, those overseas development loans have disappointed too: between 2008 and 2021, it has spent an estimated $240 billion bailing out borrowers like Argentina and Pakistan.
Whereas the smaller AIIB did things more the way developed countries wanted, even taking positions at odds with Beijing’s. The bank, for example, froze lending to Russia following its invasion of Ukraine.
It also effectively sided with the World Bank and International Monetary Fund in April when AIIB President Jin Liqun called for multilateral lenders to retain their prized-preferred creditor status, a standing which stops them sharing the pain with bilateral creditors in sovereign debt restructurings and ensures continued access to low-cost capital.
That was noteworthy because China is the world’s largest bilateral creditor to low- and middle-income countries, and the AIIB’s position contradicted the government’s lobbying to get the IMF and others to take haircuts.
Elsewhere, the Shanghai-based New Development Bank, known as the “Brics bank”, is in talks to welcome deep-pocketed Saudi Arabia as a member as sanctions weigh on Russia.
Published in The Express Tribune, July 16th, 2023.
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