Sara Hsu
Sara Hsu

The China-led Asia Infrastructure Investment Bank (AIIB) caused much controversy, even before it took off. Such a bank can improve the governance of projects, writes financial analyst Sara Hsu in the Diplomat, although there is no guarantee that will happen.

Sara Hsu:

The AIIB, along with the New Silk Road initiative, which is also led by China, is designed to improve infrastructure throughout Asia. China’s pockets are bursting with foreign exchange, which the nation intends to use in part for these endeavors. Chinese companies have also proven their ability to build infrastructure (albeit excessively in recent years) through construction of the world’s largest dam (although controversially displacing millions of citizens), the longest bridge, and the largest express road network. Employment of Chinese construction companies in these multilaterally funded projects would boost China’s gross national product.

Good governance of the AIIB would help to ensure that infrastructure projects maximize their humanitarian impact and are carried out efficiently. Some of China’s infrastructure projects remain controversial, including construction of the Three Gorges Dam and the South to North Water Transfer Project. The Three Gorges Dam has come under fire for its displacement of local residents, extremely negative impact on the environment and climate, and adverse impact on water availability in surrounding areas; the South to North Water Transfer Project has been viewed by some as unnecessary, wasteful, and environmentally damaging. Infrastructure companies have also been accused of corruption, funneling money away from construction of these projects. In recent years, local governments have been increasingly wasteful in building up so-called “ghost towns,” entire urban areas devoid of residents.

If Germany and other European nations are to help oversee governance of the AIIB, better planning may occur, but this is not guaranteed. German federal transportation projects are notorious for their long delays and inefficiencies. Italy is only just improving its infrastructure, from relatively low levels. However, while European nations may not boast exemplary efficiency in the construction of infrastructure projects, certainly their human rights record is better than that of many nations in the AIIB, including China, Laos, Uzbekistan, and Myanmar. Hence active participation by European nations may prove essential in ensuring proper governance.

Washington’s negative stance on European enthusiasm for the AIIB has been rightly criticized by Robert Zoellick, former president of the World Bank. Zoellick faulted the Obama administration for taking an unfavorable position on the AIIB in advance of knowing the details of its governance. Strangely, this relatively uncontroversial institution has become a point of contention between the U.S. and Europe, even before the rules of the organization have been established.

More in the Diplomat.

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