One Belt to Rule Them All, One Road to Bind Them

Financing One Belt, One Road (OBOR)

AIIB's first India loan to an Andhra Pradesh power project heralds new stage in China's One Belt, One Road initiative.

People walk past the installation “Golden Bridge on Silk Road” by artist Shu Yong set up ahead of the Belt and Road Forum in Beijing, China May 10.

The China-led Asia Infrastructure Investment Bank (AIIB) has just approved its first loan for a project in India, a week ahead of the Belt and Road Forum in Beijing and as the rest of the world’s major powers start to pay serious attention to China’s new foreign and trade policies.

The AIIB is a cornerstone of the country’s One Belt, One Road (OBOR) initiative. This super-ambitious and over-arching plan aims to revive the 2,000-year-old Silk Road, including both land and maritime links from China to Europe. Along the belt, the land-based portion of the project, a corridor of free zones, power plants, industrial sites, pipelines, and transmission lines will create a transport corridor for goods and capital that should revamp trade as we know it.

The USD160 million loan provided by AIIB is directed at a power project that falls under the Indian government-led “power for all” program, but it is only the latest in a growing list of projects around the world that the AIIB is taking part in. In 2016, its first year of operations, the new bank awarded over USD1.7 billion in loans to nine projects across Europe, Asia, and the Middle East, considerably more than its initial target of USD1.2 billion. Over USD1 billion has already been committed to further projects since the start of the year.
Launched in January 2016, AIIB is China’s response to the likes of The World Bank and the Asian Development Bank (ADB). The AIIB has quickly worked to support the efforts of other development lenders, including The World Bank, also a donor for the Andhra Pradesh power plant project. The major difference, however, is that in contrast to The World Bank and the ADB, AIIB does not focus on reducing poverty; it is purely an economic structure aimed at supporting infrastructure development in partnering regions.

So far, the bank counts 53 countries as members. A further 18 other hold prospective member status. China holds the biggest share of votes, with 27% equity in the bank, giving it power of veto over the bank’s decisions. With an 8% share, India is the second-largest contributor. When questioned about the control China holds over the bank, Chinese officials have shown themselves open to see their share of votes go below 25%, losing power of veto, as new members join the institution.

While the US and Japan notably remain outside the bank’s membership ring, Chinese officials have already stated that this will not be an impediment to collaboration with these world powers.

With an initial capital of USD100 billion, and authorization to lend up to USD250 billion, the AIIB has quickly risen close to the financial reality of The World Bank and the IMF. Indeed, in April 2017 The World Bank and the AIIB signed an MoU to create a framework for knowledge sharing, staff exchange, analytical work, development financing, and country-level coordination. Whether China’s global strategies work or not, the AIIB has already proven its relevance in the global market.

A new approach

All this fits strangely with China’s usual bilateral approach to development loans through the Exim Bank of China, particularly, as we have seen over the years, with its partnerships in Africa. It is representative of a greater plan and a new strategy. China is making use of soft power and the prospects of economic growth through trade to foster a new level of influence in the region and beyond.

It is hard to predict how successful this venture will be, or how long it will take to implement, but it isn’t likely to be complete for decades. Chinese officials are aiming for 2049, the 100th anniversary of Mao’s cultural revolution, as the deadline to achieve concrete success, whatever that might be. At first glance, the plan will involve trillions in investment and require astute diplomatic interactions from China if it is to avoid bitter disputes with its neighbors over the details—India has already expressed concerns over plans between China and Pakistan to extend a portion of the land network through Kashmir.

For now, some issues are being actively tackled and more solutions may emerge in the coming weeks as we approach the Belt and Road Forum, which will take place on the May 14, gathering 28 world leaders in Beijing.
It is difficult to predict the success or failure of what the Chinese authorities define as the “most ambitious and all-encompassing economic development project in human history,” but it will certainly be one of the biggest stories of our time.

In the run up to the Forum, over a series of articles TBY will cover the different aspects of this complex initiative to give you a clearer view of what the initiative means for global commerce in the future.