The China-led Asian Infrastructure Investment Bank (AIIB) was launched two years ago on January 16, 2016 amid a storm of excitement and controversy. Excitement, as anti-American pundits hailed the arrival of a “new world order” with China at its center. Controversy, over fears that China would use the bank to undermine global standards for good governance and environmental protection.
The AIIB was “expected to lend $10 billion-$15 billion a year for the first five or six years” and its establishment was said to be “further proof of the rebalancing of the world economy” from West to East. The New York Times breathlessly claimed that the AIIB “confirms” that “China, with its vast wealth and resources, now rivals the United States at the global economic table.”
Now we have the numbers. The AIIB approved just $1.13 in loans in its first year of operation and $3.30 billion in its second , for a grand total of exactly $4,426,600,000 in approved lending to date. That’s less than a quarter of the expected amount. And there’s no word yet on exactly how much of the approved lending has actually been disbursed.
For comparison, the rival Asian Development Bank (ADB) led by Japan approved new loans worth $17.5 billion in 2016 and $19.1 billion in 2017, for a two-year total of $36.6 billion, more than eight times the approvals of the AIIB. In fact, China has borrowed more from the ADB than it has lent through the AIIB.
Given that Asia as a whole has an infrastructure deficit estimated at $8 trillion, there’s plenty of room for both institutions to do their work — or to work together. In 2016, the AIIB bought into an ADB highway project in Pakistan, and last year it also co-invested in a road project in Georgia. Another nine of the AIIB’s 24 loans to date are co-investments in projects led by the World Bank. It seems good projects are hard to find.
Lending to the enemies?
Despite fears that China would channel AIIB money direct to its military allies and other unsavory regimes, the number one beneficiary of AIIB lending to date has been democratic India. Just a few months ago, Indian and Chinese troops were locked in a tense standoff on the remote Doklam Plateau. That hasn’t stopped India from accessing the AIIB cash window.
To date, India has received five loans worth a total $1.074 billion from the AIIB. That’s nearly a quarter of all AIIB landing and two and a half times as much as went to its arch-rival Pakistan, China’s closest friend in South Asia. Another five Indian projects are in the AIIB proposal pipeline, compared to zero for Pakistan.
Welded pipes sits on the ground at the 63km point during the construction of the Trans Adriatic gas pipeline in Sikorachi, Greece, on Thursday, Feb. 23, 2017. The Trans Adriatic Pipeline (TAP) will transport Caspian natural gas to Europe crossing Northern Greece, Albania and the Adriatic Sea coming ashore in Southern Italy to connect the Italian gas network to the Trans Anatolian Pipeline (TANAP). Photographer: Konstantinos Tsakalidis/Bloomberg
The AIIB has also invested $600 million in the Azerbaijan segment of the new TANAP natural gas pipeline. This pipeline will allow Azerbaijan to export natural gas directly to Europe via Georgia and Turkey, avoiding transit through Russia. The AIIB is investing in TANAP alongside the World Bank.
Slightly over half of the AIIB’s loans to date have been co-investments in projects led by other multilateral institutions (54% by number, 56% by value). Those ratios are even higher for potential future loans. Out of 10 proposed projects currently under consideration, seven are co-investments in projects led by the World Bank and one is a co-investment with the European Bank for Reconstruction and Development. Together they comprise 70% of the lending currently before the AIIB board.
Half of the proposed projects are in China’s strategic rival India, one is in NATO ally Turkey, and one is in NATO partner Georgia. Two more are in Indonesia, which has a long-standing South China Sea maritime territorial dispute with China. That leaves just one proposed project in a potential Chinese client state, a $155 million garbage dump in Sri Lanka. The World Bank is the lead lender on that project, too.
Its own best customer
By the time of its first anniversary last year, the AIIB was already shaping up to be less of a game-changer (and less of a threat) than previously advertised. After two years in business and a third year already forming in the pipeline of proposed projects, it seems clear that the AIIB is unlikely to change much of anything. It seems to be providing a (very welcome) dose of more of the same.
Most of the AIIB’s projects are bread-and-butter development work, not strategic upgrades of dual-use, civilian-military infrastructure. A few miles of road in Tajikistan and improved drainage in Indonesian slums hardly constitute a new China-centered world order. They’re more like goodwill gestures from a successful middle-income country to its somewhat less fortunate neighbors.
China still faces enormous development financing challenges itself. So far, only one AIIB loan has focused on China, a $250 million investment in a $761.1 million air quality improvement project in Beijing. The project will finance domestic gas connections for more than 200,000 rural households in the vicinity of the capital.
Coal to gas conversion is an absolutely necessary environmental upgrade that has delivered substantially improved air quality this winter in Beijing, though not without controversy as gas prices have shot up. China needs much more of this kind of investment, which is why China is unlikely to fund hundreds of billions of dollars in similar improvements for its neighbors. As economic reality sets in, China is likely to start directing more of its AIIB development funds to itself.