China checkmates US on Asia bank

Updated: 2015-04-03 11:06

By Zhao Yinan(China Daily)

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China checkmates US on Asia bank

Red tape question

Whether the AIIB can reduce the red tape that has long hampered international financial institutions is unknown, he said, but the competition provided by an alternative credit lender could aid infrastructure upgrading and speed up interconnectivity in Asian countries.

Zhang Yuyan, director of the Chinese Academy of Social Sciences' Institute of World Economics, said it is difficult to predict the return rate while details of the bank are still undecided. However, the outlook for the infrastructure building business is hopeful, he said, not only because of the continent's large demand, but also because the Chinese government has shown how to build economic strength by expanding transportation and other facilities.

As China has invested widely in infrastructure construction, both overseas and at home, the rail equipment manufacturing and construction industries have surged.

On Monday, China's two leading rail equipment manufacturers reported all-time high profits for 2014, with an annual increase in sales of more than 20 percent, amid strong efforts of the government to export the equipment to developing markets in South Asia, Africa and Europe.

"However, as its economic clout is growing, China faces increasing risks in geopolitics and commodity price changes," Zhang said. "I think the country is trying to reduce the risks by inviting other nations to join in bilateral projects on a multinational platform, where every country is a stakeholder."

In November, Mexico scrapped a $3.75 billion contract with a Chinese-led consortium to build a 210-kilometer, high-speed rail line. The line would have connected the capital, Mexico City, with a northern industrial hub.

Such a U-turn is a risk faced by many Chinese investors overseas.

Sri Lanka recently resumed a $1.4 billion port project in Colombo after a suspension that lasted months due to changes in policy caused by a leadership reshuffle. Media reports estimated the commercial losses ran as high as $380,000 a day.

Yu Yongding, an academician at the Chinese Academy of Social Sciences, said China has taken too many risks by lending money to places such as Ukraine and Latin American and African countries where there is political unrest.

"Some people believe it is all settled once they reach a deal with a local government, but it's not always the case," he said, adding that major infrastructure construction projects can often pass through several countries, making them even more complicated.

Ultimately, the AIIB is a chance for Beijing to set its own economic agenda, according to Ding at the State Council's Development Research Center.

"The country has become tired of the fact that its say in the global financial system does not match its economic strength," he said. "Beijing has been waiting for the West to change the spectrum, but now it seems to have decided to make its own, as little progress has been made over the years."

During his meeting with the US Treasury Secretary on Monday, Premier Li Keqiang expressed hope that the US will approve reform of the International Monetary Fund "as soon as possible", the second time he has mentioned the issue in of week.

China, along with other developing countries, has been trying to increase its say in the institution by reallocating the IMF quota and including the renminbi in the basket of special drawing rights, an exchange arrangement under the institution.

By preventing the reform project from taking effect for more than two years, the US has maintained its power to veto major IMF decisions as the largest stakeholder.

"It's too early to say if better integration in Asia and more economic influence over Asian countries will lead to changes in the region and eventually challenge the US-dominated international financial system," Ding said.

"But it's likely, since changes to the international order have all gradually begun."

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