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Fleur Huijskens, Richard Tucsanyi and Balazs Ujvari

EU member states can use the China-initiated organization to promote their standards for development financing and perhaps even to pursue geopolitical interests in Asia. This blogpost is a product of the MERICS European China Talent Program in April 2017.

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When the Asian Infrastructure Investment Bank (AIIB) was taking shape on China’s initiative, many Western observers feared that the new institution would become a vehicle for China to further its own interests. They warned that China (whose voting share of 27.5 percent would give it veto power within the organization) would use the bank to finance infrastructure projects with the aim of creating international markets for China’s state-owned companies without having to abide by the standards or transparency requirements of established Multilateral Development Banks (MDBs).

Today most would agree that, so far at least, this scenario has not materialized. On the contrary, the AIIB can be seen as complementing, not rivalling, institutions like the Asian Development Bank (ADB) or the World Bank. As of 15 June, the AIIB had approved 16 infrastructure projects, most of which are to be co-financed with other MDBs (e.g. World Bank, Asian Development Bank, European Bank for Reconstruction and Development). And there have been complaints from other members of the bank about Chinese attempts to wield its governance influence or dominate board meetings.

There is an increasingly broad agreement across Western capitals on the AIIB’s close alignment with the policies and standards of established MDBs. In the case of jointly financed projects, the AIIB often relies on partners’ safeguard policies on procurement, disbursements, environmental and social compliance, as well as project monitoring and reporting. The AIIB itself made notable commitments on environmental and social standards, but also on transparency, information disclosure and public participation. This has even triggered hopes that China will use the AIIB as a learning experience and transpose its approaches to its own national development banks.

EU countries have chance to shape standards and practices

European governments played a substantial role in shaping the new organization’s standards and decisions from the outset – and they are in a good position to keep doing so in the future. EU countries currently make up 14 out of 56 official AIIB member states. Most of these countries were also involved in the negotiations that led to the AIIB charter, which was approved in May 2015 in Singapore. The bank officially started its operations on January 1, 2016.

Three of the Bank’s five vice-presidents are from EU countries (Germany, France and the UK), and the German national Joachim von Amsberg, who previously served as vice-president of the World Bank, has assumed responsibility for the AIIB’s policies on procurement, financial management, and social and environmental safeguards. In contrast to the World Bank and the IMF, EU member states are not scattered across the board but are grouped into just two constituencies on the Board of Directors. The constituency grouping Eurozone members is currently presided by Germany, whereas the group comprising the remaining EU countries is led by the UK.

The AIIB’s alignment with established MDBs does not mean that EU member states should not strive for even higher standards. Drawing on the practices of the European Investment Bank (EIB), EU member states could, for example, advocate for an even stronger alignment of the bank’s activities with international agendas such as the 2015 Paris Agreement on Climate Change and the Agenda 2030 for Sustainable Development. They could push for the formulation of strategies on gender and sustainable development or for the incorporation of climate action indicators into lending decisions. The AIIB’s current performance indicators focus on annual lending volume ambitions and the expected contribution of AIIB-financed projects to the GDP growth of beneficiary countries. The EIB on the other hand is also bound to dedicate a minimum of 25 percent of its annual lending to climate action.

Using the AIIB as a vehicle to shape the Belt and Road Initiative

In addition to standards, EU member states might also be able to pursue common geopolitical interests collectively through the AIIB. The AIIB is the main organization that finances China’s Belt and Road Initiative (BRI), whose main objective is to boost connectivity between East Asia and Europe. It could therefore become the vehicle through which the EU can make sure that its own geopolitical interests are taken into account in the BRI. Should EU-China trade shift gradually to land routes as a result of BRI, it may be critical for the EU to ensure that not all of these railway routes and roads cross Russia to not give Moscow additional leverage over the EU (or over China, for that matter). It will be critical for the EU to work with Central Asian governments and business actors on the ground to identify and propose connectivity projects consistent with the objective of creating land connections between Europe and Asia that bypass Russia.

To maximize their influence and successfully promote their agenda within the bank, EU member states will have to speak with one voice. Co-ordination on AIIB matters is already taking place among EU member states in Brussels and Beijing. One entity that appears to have been absent from such gatherings is the EIB, which also has a field office in Beijing embedded in the EU delegation. EU member states could try to pave the way for the EIB’s presence in the AIIB by calling for an observer status for international financial institutions. Finally, with the UK currently presiding one of the two constituencies comprising EU member states and providing one of the bank’s five vice-presidents, the country will remain a crucial partner for the EU in shaping the AIIB. Firmly involving London in the co-ordination of EU countries in the run-up to, but also after Brexit will therefore be essential.

Fleur Huijskens is a Marie Curie Doctoral Fellow at Fudan University. Richard Turcsanyi is an Assistant Professor at Mendel University in Brno. Balazs Ujvari is a Joint Research Fellow at Egmont Royal Institute for International Relations and the European Policy Centre. All three authors participated in the third annual MERICS European China Talent Program in May 2017.