As Canada’s relations with China have sunk to a low point, some Canadian politicians are calling on Ottawa to “stand up” to China by pulling our $256 million (US$189 million) investment from the Asian Infrastructure Investment Bank (AIIB). They charge that AIIB is an “institution that is clearly being used by the government of China to expand its foreign influence in the region”, a “Chinese-run bank” or “Beijing’s multilateral development bank”.
Canadian China hawks claim that by withdrawing its investment from AIIB, Canada will give Beijing a black eye or trigger a reaction. But such demands are misguided hubris, based on uninformed assertions about the AIIB and on faulty assumptions about Canada’s potential leverage in dealing with China. Pulling Canada out of the AIIB would ultimately harm Canada’s interests.
The AIIB is a multilateral financial institution that opened in 2016 and has grown to more than 100 members. It invests in sustainable infrastructure and other productive sectors in Asia and its members beyond Asia to “improve economic and social outcomes”. Canada joined the Bank in 2018.
The assertion that AIIB is “Beijing’s bank” is uninformed, or unverified at best. The Bank was initiated by China, its head office is in Beijing, and China did make the largest initial financial contribution to the Bank. China does hold a de facto veto on the governing board, and Bank president Jin Liqun and many of the staff are Chinese nationals.
However, the most detailed research to date on the inner workings of the Bank, and on the broader membership, finds that the AIIB is in fact structured, governed and operating as a multilateral bank. Many non-Chinese nationals work at the Bank, including Koreans, Indians, Germans, Britons and Canadians. The Bank has quickly built a reputation for being a professionally managed, credible and innovative multilateral financial institution. It is abiding by global standards and has received a Triple-A credit rating from the world’s leading rating agencies.
The AIIB continues to draw on the expertise, experience and arrangements of the existing multilateral development banks. It partners with the established multilaterals on many of its large-scale projects even while it also pursues some innovative governance features, such as the non-resident Board of Directors, streamlined decision-making and uniquely detailed oversight arrangements. The Bank is pioneering new financing arrangements for green and climate-friendly growth. It has developed transparent practices, professional risk control and internal oversight measures. It is operating according to environmental, governance and social impact standards that match those of the major multilateral development banks.
Equally important, there are AIIB members who stand ready to call out China if it acts unilaterally or in a domineering way, such as trying to subordinate the Bank to its own national security interests. The European members exercise significant influence over the Bank – some in Asia say too much, given that the Asian members are supposed to remain the leading force in the Bank. Often, China has been caught in the middle, trying to be the “honest broker”. The European nations have successfully pushed the AIIB to adhere to global standards and to support the Paris Climate Agreement. European NGOs are keeping a close eye on the AIIB’s environmental and climate performance.
Other Asian members also play influential roles inside the Bank, holding key seats on the Board of Governors and the Board of Directors, as well as in the senior management. India, Indonesia, South Korea, Pakistan, Bangladesh and Turkey have particularly strong voices in the Bank and are shaping the AIIB’s sustainable growth agenda – often balancing off against the Europeans. New Delhi watches China closely, and India, the leading recipient of AIIB project loans, is very supportive of the Bank, even though it opposes the China-led Belt and Road Initiative.
Chinese authorities and AIIB President Jin are aware that the success of the AIIB depends on being a professionally run and truly multilateral bank. Chinese finance officials have made a conscious effort to restrain China’s influence over the Executive Committee of the Bank by limiting their interventions and checking those of other Chinese government ministries.
Finance Canada officials are working in partnership with like-minded partners inside the Bank, especially at the Board of Directors level, to ensure that the AIIB is operating according to global standards, rules and norms. These measures include the ongoing public consultations for the review and amendment of the AIIB’s “Environmental and Social Framework”, where Canada is encouraging the Bank to further come in-line with high standards or to improve on existing standards. Canada’s interventions have addressed some of the concerns initially raised by the US when the Bank was created.
The Canadian Executive Director at AIIB heads a constituency of 11 member countries from Africa and Latin America and also serves as the Vice Chair of the Audit and Risk Committee. Canadian companies, including Mississauga engineering firm Hatch Consulting, have been hired by the AIIB to consult and service the Bank’s business, and a growing number of Canadian companies are interested in participating in AIIB projects. TD Securities was one of the lead underwriters on the AIIB’s debut US$2.5 billion bond sale. AIIB is now considering issuing a Canadian dollar-denominated “Maple Leaf” bond.
The proponents of Canada’s withdrawal have ignored the good results that the AIIB is achieving, in supporting sustainable infrastructure, environmental protection, climate change mitigation, smart and sustainable cities, improving public health infrastructure and containing the COVID-19 pandemic.
Most importantly, those calling for Canada to pull its investment fail to understand that such a move would be greeted by Beijing with indifference. The politicians and China hawks hope that if Canada withdraws from AIIB, it will somehow cast aspersions on China’s international standing and maybe even get China’s leaders to change their treatment of Canada. In fact, Beijing has already considered the scenario of Canada withdrawing, planned for it, would leave it to the AIIB to manage the technicalities, and move on.
Canada-China relations have worsened to the point that Beijing no longer expects much from Canada. Beijing sees Canada’s political elite as toadying to the Trump administration, acting largely as a US surrogate. Chinese leaders think Canada is likely to focus even more on the United States under a Biden presidency.
With such low expectations on the part of Beijing, pulling Canada’s investment would not bring the response from China that hard-charging Canadian politicians hope for. Instead, leaving the AIIB would hurt Canada’s international reputation as a credible international actor in the eyes of the more than 100 member countries, hurt our like-minded partners in the Bank, reduce our influence in Asia – the fastest growing region in the world economy – and hinder our ability to work constructively with Asian countries on climate change and other international challenges.
In sum, pulling out of the AIIB would be detrimental to Canada’s own national interests and foolish on many levels – a punch to our own face.
By Gregory T. Chin : The McLeod Group : 30-11-2020.