Banking on Acceptance: China and the Asian Infrastructure Investment Bank

The Beijing-headquartered Asian Infrastructure Investment Bank (AIIB) opened in January 2016, establishing itself as the newest member of the multilateral development bank community. Commonly billed as “China’s answer to the World Bank,” the AIIB aims to invest in infrastructure and other productive sectors across the Asian continent. Concerns about China using the AIIB as a front for its strategic and economic objectives plagued the bank’s planning stages and initial months of operations, but such concerns were difficult to substantiate before the bank had funded any projects. The recent announcement of the AIIB’s first four funding projects suggest that, while China is using the bank to its advantage, it is also maintaining the bank’s legitimacy as a multilateral institution.

China officially proposed a multilateral infrastructure bank for Asia in 2013, an announcement that received an unenthusiastic response from the United States and Japan. Both countries were concerned that founding a new bank, not necessarily beholden to “international standards of governance and transparency,” could provide China with the opportunity to exert disproportionate influence over Asia’s development agenda.

These concerns were substantiated in 2015 when it was announced that China would be the largest stakeholder in the bank, with a 26% voting share, after funding $29.78 billion of the AIIB’s $100 billion capital. Given that major changes to the bank, including capital increases or alterations to the governing structure, must be approved by a supermajority totaling 75% of the voting share, China effectively possesses an informal veto power over many AIIB decisions. However, Beijing has been keen to assuage worries of Chinese dominance. The chief of the bank stated that China will not seek to increase its voting share – in fact, he alluded that China’s voting share may decrease over time as more members join. In addition, China will not possess a formal veto power, a stark contrast to the United States’ formal veto over structural changes within the World Bank.

That said, Chinese interests were clearly supported when the AIIB began to consider development project proposals, the first of which were approved in June 2016. They included revitalizing slums in Indonesia and upgrading the power grid in Bangladesh, as well as constructing and improving roads in Pakistan and Tajikistan. While these projects will undoubtedly benefit China, they also show that AIIB’s reputation as a multilateral bank will not be undermined to serve solely Chinese interests.

To understand how the AIIB benefits China, it is necessary to look at Chinese development in the larger context of the country’s One Belt, One Road (OBOR) initiative. Inspired by the ancient Silk Road, OBOR seeks to connect China with trading partners through Asia, the Middle East, and Africa via an “economic land belt” and a “maritime road” that links Chinese ports to those of other countries.

The AIIB, as a formal investment institution with international support to increase regional prosperity, is partly a way to fund OBOR. It is therefore unsurprising that the AIIB’s projects for Pakistan and Tajikistan are directly related to OBOR.  Both projects call for the construction and improvement of roads, which is critical to trade between China and other Asian countries.

But consistency with OBOR’s objectives does not mean that these projects are simply moves by China to increase its regional influence. Rather, the AIIB has chosen to co-finance all of these projects, except the one for Bangladesh, with other multilateral agencies including the Asian Development Bank (ADB), the European Bank for Reconstruction and Development (EBRD), and the World Bank. Co-financing mitigates the risk that the young AIIB and its stakeholders are accepting and eases concerns in the international community regarding the transparency and governance standards of the AIIB. Cooperating with respected multilateral agencies ensures that the AIIB will, at least for these projects, comply with accepted international standards. This compliance strengthens the bank’s standing among multilateral institutions.

Still, some are convinced that the AIIB is prioritizing Chinese interests at the expense of regional prosperity. In particular, there is concern that AIIB rejected a project for India in favor of a road construction project for its strategic ally, Pakistan. However, the president of the ADB, which is the lead financer of the project, stated that there are “so many projects in the list in many countries. It just happened that the Pakistan project was approved first because it could be done quickly.” That this statement comes from the ADB strongly suggests that financing for the Pakistan project was not a case of the AIIB favoring China’s regional allies. Given Japan’s tenuous relationship with China, the Japan-backed ADB would have little incentive to finance a project in Pakistan if it believed that it would solely aide Chinese interests.

The AIIB is increasingly perceived as an institution that complements other development efforts, as evidenced by co-financing and support from other multilateral banks and the membership of other global powers such as Australia and Germany. Such acceptance is beneficial to both the multilateral development industry and China. Increased membership could augment the capacity of the AIIB to contribute to infrastructure development, leading to greater prosperity for China and the rest of the continent. Such a prospect is certainly motivation for the AIIB to continue to seek success not only in its project outcomes, but also in the eyes of the global development community.

A Coalition For Asian Development

Following the introduction of the UN’s Sustainable Development Goals in 2014 many questioned how such ambitious goals could be met by 2030. The SDGs address, among other developmental issues, the eradication of poverty, hunger and income inequality. In Asia, civil society demonstrates that it can bridge the gap between these lofty goals and their eventual success. According to Nicholas Booth and Beniam Gebrezghi, it is “Precisely because of civil society’s role in representing the interests of the poorest, most marginalized and excluded groups, [that it] seems more urgent than ever before in every aspect of a new agenda which seeks to ensure no one is left behind.”

Over the last 30 years there has been dramatic growth in Asian civil society. Today, the United Nations Development Programme works closely with local civil society organizations on a variety of development projects. In the wake of Japan’s triple disaster in March of 2011 (the earthquake, along with the resulting tsunami and nuclear disaster) for example, civil society organizations played a crucial role in reconstruction and community development efforts. Nicholas Booth and Beniam Gebrezghi again point out: “These civil society groups worked side-by-side with local communities, educators, businesses, local governments, and national governments to help the victims and to get Japan back on its feet.”

More recently, civil society helped rebuild Nepal after the country was devastated by an earthquake in April 2015. With the Nepalese government unable to conduct proper disaster relief, the people of Nepal turned to one another. In June, our blog focused on Nepal and its efforts to rebuild with the aid of international philanthropy. Using Twitter and Facebook, Nepalese citizens were able to arrange rescues, deliver supplies and provide shelter. According to Christian Science Monitor, “Nepal’s response to the [earthquake] was helped by an increase in the number of civil society groups since the introduction of multiparty democracy in the 1990s.” In response, Google has brought back “Person Finder,” a system used after Haiti’s 2010 earthquake to check social media for possible updates on missing persons. Locally based initiatives including Tomnod, a program designed to crowdsource images of structural damage, provided first responders with valuable information.

While civil society is filling the gaps left by other sectors, there is still much that Asian governments can do to encourage third sector growth. China, Nepal and Japan have seen an increase in civil society registrations, but CSOs in other Asian countries are combating increasingly restrictive policies. In Laos, the Ministry of Home Affairs has amended the decree on nonprofit associations (NPAs) and foundations by adding the requirement that groups must notify or obtain permission from the government for funding that they receive from foreign sources. This new policy, which echoes Russia’s infamous “Foreign Agent Law,” can lead to funding delays of up to 18 months and pose significant operational difficulties for programs funded by international philanthropy. The Laotian government’s crackdown on civil society has been downright hostile. John Sifton, Asia Advocacy director of the Human Rights Watch explained the situation, “If a human rights defender like Aung Sang Suu Kyi were to stand up in Laos and speak out against authoritarian rule, she would be immediately arrested.”

These restrictions are, unfortunately, not limited to Laos. In Singapore’s recent elections, the People’s Action Party (PAP) retained its majority in parliament, a position that it is held since 1959. The PAP, positioned as a center right party, has a reputation for restricting the actions of free speech within the city. In March 2015 Amos Yee, a teenager responsible for a video that criticized a former Singapore leader was arrested. Yee was sentenced to 18 months of “reformative training.” Amnesty International was quick to respond: “According to the Office of the UN Commissioner on Human Rights, reformative training is ‘akin to detention and usually applied to juvenile offenders involved in serious crimes’ and was referred to in a recent Singapore district court decision as ‘incarcerative in nature and should be imposed cautiously’.” Limits on free speech have a direct and negative impact on many civil organizations whose intrinsic goals of aiding society often conflict with official government policy.

Without the assistance of civil society organizations, the Sustainable Development Goals laid out by the UN cannot be met by 2030. If Asia’s leaders want to see these goals met, the restrictions on civil society organizations must be eliminated. Asian countries have both the organizational capacity and financial resources to help combat poverty, hunger and inequality, but will they be able to step up to the challenge?

Anti-Rabies Strategies: Vaccinating Dogs to Save Human Lives

Rabies is a terrifying disease that kills approximately 60,000 people worldwide each year.  Though scientific innovation has created vaccines that are effective before and after exposure to the virus, there is no way to cure rabies once symptoms have begun.  Rabies is a zoonosis, meaning that it is transmitted from animals to humans. Rabies is a threat in about 150 countries, but its fatalities are constrained to the developing world with 95% of rabies cases occur in Asia and Africa.  Over 99% of deaths from rabies occur in developing countries, one-third in China and India alone.

Risk of human rabies, 2011
Risk of human rabies, 2011 (WHO)

Rabies is a neglected disease and most commonly affects poor, young, and vulnerable populations. Children are particularly at risk– 40% of those bitten by a suspected rabid animal are under 15 – and the risk is highest in rural areas, where required vaccines may not be readily available. While rabies is always present in the wild, most human cases are caused by dog bites.  Canine rabies threatens more than 3 billion people in Asia and Africa.

“This is a disease of the poorest of the poor who can’t afford the vaccine.” – Dr. Herve Bourhy of France’s Pasteur Institute.

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The Surge of Foreign Investment in Myanmar: Raining Gold or Acid?

As the military junta relinquished their power in Myanmar, the world became hopeful for the country’s growth under democracy and a liberalized economy. This has sent a signaling effect to staunch critics and investors around the world that Myanmar can now be discerned as the new field of opportunities.

And so, the quest for growth begins. What seemed elusive in the past is not so distant now. Like many other newly liberalized countries, it is not surprising to see that Myanmar has been growing rapidly in recent years since the democratization and economic liberalization. In fact, the country’s GDP growth rate remarkably soared from -0.5% in 2003 to 5.5% in 2011. This rapid growth is captured in Solow Economic Model that explains how developing countries usually have lower capital to labor ratio, indicating that there is a high marginal product of capital in which the capital has not experienced depreciation or diminishing returns and will in turn boost the economic growth to a higher rate.

“Under the core scenario…which assumes that the military-backed Union Solidarity and Development Party (USDP) maintains its grip on political and economic power while orchestrating superficial reforms to win international legitimacy,(Myanmar’s) GDP growth for the period 2016-2020 will rise to an average of 7.7% per year.”

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Philippines Economic Growth: Harbinger of Hope or Symptom of Illness?

Last week, the Asian Development Bank raised its 2012 Philippines GDP forecast to 5.5%, an especially notable feat considering it cut most of its estimates for the rest of Asia including powerhouses like China and India.  While this may appear a promising sign of future prosperity, upon further examination it becomes evident this growth can not be attributed to labor reforms putting the unemployed back to work, or the creation of new markets.  The Philippines economic growth is attributed to the country’s most successful export – its people. Continue reading

The Korean “Goose Family” Phenomena: Educational Migrants

Travelling thousands of miles to attend university in a more developed country is nothing new: China and India combined sent over 260,000 students to the United States in 2011, making up a staggering 36% of all international students.  It’s not surprising that these emerging economies along with other developing nations want to send their youth to highly regarded universities abroad. Surprisingly, South Korea, now a DAC donor, also sends vast numbers of students to study at universities in English speaking countries, with 73,351 in the U.S. alone.  However, South Korea distinguishes itself by not only sending university aged children, but elementary, middle, and high school children as well.

Seoul – The hyper modernized capital of South Korea.

In South Korea, the 15th largest economy with the fastest and widest broadband internet coverage, and some of the top performing students, a mass “education exodus” is taking place. An estimated 200,000 middle class families are sending their pre-college children overseas to be educated in Western countries; most often New Zealand, Australia, the U.S., Canada, and the U.K. Continue reading

Digital Dumping: The Growing Problem of E-waste

In an era of rapidly progressing technology, there is a constant demand for the latest and greatest electronics. Be it phones, computers, televisions, or any other electronic device, it is not long before a product becomes obsolete and is replaced with a newer one. These outdated devices, known as electronic waste or e-waste, are left to be disposed in one manner or another. By a large margin, it is the fastest growing waste stream globally and is posed for significant growth in coming years.

Annually, some 53 million tons of e-waste are produced, predominately by developed nations with large amounts of disposable income. A majority of the waste is simply thrown away, but an increasing amount is being recycled.  Recent estimates have found that about 20 percent of the waste is properly recycled. What happens to the rest? Much of the waste finds its way to developing countries, particularly nations in Africa and Asia.

A child in Ghana’s capital, Accra, searching for e-waste.

Like many other services in emerging economies, it is far less costly to break down e-waste into its reusable components than it would be in the country that produced it. The problem is that with lower environmental standards and fewer safety regulations, the recycling of e-waste can cause serious health and environmental challenges. Electronic products are laced with a plethora of toxic materials such as lead, arsenic, cadmium, chromium, and mercury. To extract the reusable materials, workers typically burn the waste or dissolve it in acid, usually with little or no protection. In essence, 21st century toxics are managed by labor that uses 17th century technology.

The impact on local populations has been devastating. Frequently, the toxic materials find their way into the air, water, and soil, poisoning the workers that recycle the waste. Communities that have large e-waste recycling operations have seen significant increases in respiratory illnesses, birth defects, developmental damage, cardiovascular disease, and cancer. The problem is further complicated by the fact that much of the recycling work is done by children, leaving them at-risk for illnesses other occupations do not have. Continue reading