How China-led AIIB can expand its remit to build a greener, more inclusive post-pandemic world
- The recovery-boosting infrastructure spending sprees favoured by developed nations are out of reach for less-well-off countries that need them most
- The AIIB has the scope and track record to expand to a global level and help those nations left behind
Underinvestment in infrastructure is a chronic problem that predates the pandemic. The world faces an infrastructure financing shortfall of US$18 trillion out to 2040.
As the global economy struggles to recover, it is time to consider forming a new institution to address this gap. The world needs a dedicated global infrastructure bank that can mobilise capital to spur recovery and build for long-term goals related to climate, resilience and inclusivity.
In the past six years, the AIIB has established itself as an effective multilateral development bank (MDB). Having attracted several advanced economies as members and adopted the high standards of other MDBs, it has gained recognition from organisations such as the UN and AAA ratings from ratings agencies.
To succeed, the Global Infrastructure Investment Bank would need a clearly defined mission. Three areas stand out.
The third priority would be mobilising private capital. With public finances limited during the pandemic, innovative financing models are needed to encourage private sector involvement. The AIIB is already focusing on this with a goal to boost the share of private financing to 50 per cent by 2030.
Some might question the need for a new multilateral development bank when others already exist. However, it could add unique value while complementing the work of other institutions.
The World Bank and other multilateral development banks also fund infrastructure, but they already have stretched balance sheets and have shifted their focus to other initiatives. By contrast, the Global Infrastructure Investment Bank could focus solely on infrastructure.
A little overlap is not a bad thing. The AIIB has brought fresh impetus to development financing since its launch, and its innovations have put pressure on other banks to raise their game.
The new bank would be designed to complement existing MDBs, not compete with them. The AIIB pursues a collaborative model, and most of its projects have been co-financed with other multilateral development banks. It could further develop this model and find new ways to co-finance, share expertise and work with other organisations.
This collaborative role has grown more important with the proliferation of integration efforts at the national and regional level that do not always mesh well. The Global Infrastructure Investment Bank could be a multilateral platform to enable long-term planning and coordination, promoting intra- and inter-regional connectivity in a cost-effective manner.
China has the experience and resources to make valuable contributions to global public goods in infrastructure. The AIIB can create effective multilateral institutions and provide a ready-made framework for a new global infrastructure bank, but US participation would be essential to realise its true potential.
Getting Western countries to work with China on such a venture might seem like a tall order, but the high stakes in ensuring a green, inclusive post-pandemic recovery call for bold action. As rich countries dole out trillions for infrastructure at home, they should be open to ideas that help less-fortunate nations “build back better”, too.
Wang Huiyao is the founder of the Centre for China and Globalisation, a Beijing-based non-governmental think tank