Opinion / Op-Ed Contributors

A bank that will realize inclusive development

By Huang Wei (China Daily) Updated: 2014-05-22 08:27

The proposed Asian Infrastructure Investment Bank is likely to boost regional development and, hence, speculation over its intention and competition is not necessary.

President Xi Jinping and Premier Li Keqiang both have proposed to establish the Asian Infrastructure Investment Bank to offer developing countries in the region financial support for their infrastructure projects. Although Beijing's initiative has been warmly welcomed by regional countries thirsty for funds for infrastructure development, it has evoked strong reactions from certain countries which allege that China is trying to reshape Asia's financial landscape.

Reviewing the rising process of Asian economies, we can see that all the emerging economies in region, including those that were once known as the "Four Asian Tigers" and the Chinese mainland, are heavily dependent on funds for high-speed growth.

The region's immature financial sector offers limited support for the development of the real economy of emerging markets in Asia. The result: their development level is still relatively low and their infrastructure far from perfect. Therefore, the AIIB should be seen as an institution that would supplement the existing regional financial infrastructure to promote interconnectivity and economic integration, which is the trend and demand of the times.

Experience shows that investment, especially that goes into infrastructure construction, is an important contributor to economic development. The United States saw a nearly 4 percent per capita GDP growth during the last 30 years of the 19th century, with investment contributing almost 30 percent to that growth. Foreign capital, which came mainly from Britain in the 19th century, played an important role in boosting the US' large-scale investment in infrastructure, which, in turn, promoted its economic growth.

Similarly, China's infrastructure investment increased nearly 158 times - from 12.6 billion yuan ($2.02 billion) to 2 trillion yuan - from 1981 to 2000, greatly facilitating the country's economic growth.

Most of the Asian economies are still in the developing stage, and their ongoing urbanization drive will create a huge demand for investment in urban infrastructure, such as roads, water and power supplies, and sewage systems. For instance, the demand for infrastructure investment in Indonesia is as high as $200 billion, but the Indonesian government can afford only a quarter of that. Even after other financing channels, such as state-owned enterprises and public-private partnership, are employed there will remain a funding gap of $33.5 billion. This is where the proposed AIIB could be of help.

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