Asian Infrastructure Investment Bank president Jin Liqun outlines to Stefania Palma how the bank will be building a portfolio within and beyond Asia’s borders.

Jin Liqun

As president of the Asian Infrastructure Investment Bank (AIIB), Jin Liqun is at the helm of an institution whose creation alone has shaken up the multilateral world order.

Set up by China in 2015, the AIIB marked one of the country’s biggest incursions in financial diplomacy among a US-dominated World Bank, a Europe-dominated International Monetary Fund and a Japan-dominated Asian Development Bank. Mr Jin measures his words carefully, perhaps aware that all eyes are fixed on this youthful institution’s next move. 

At the time of writing, the AIIB had approved 13 projects overall, with Indonesia, India and Pakistan taking the bulk of its support. “It is alright if we have a few more resources allocated in these countries. But overall we have to look at the country and regional balance. We want to make sure that no country is left behind,” says Mr Jin.

In the future, the AIIB president says the bank is keen to start focusing on the poorest economies in Asia. “[At the beginning] we will try to go ahead with [shovel-ready] projects that are cleared of environmental and social issues. But over time we should pay more attention to those low-income developing countries whose institutional capability may not be that high,” he says.

Developing countries

Although the AIIB is now focusing on financing in Asia, the bank will start looking into projects beyond the region as the number of member states grows. According to its mandate, the AIIB can finance projects in any member country worldwide.

“Regional connectivity cannot stop short [at] Asia’s boundaries,” says Mr Jin. When asked if the AIIB’s international work will follow China’s Belt and Road initiative, Mr Jin says quite a few members will probably fall within this category.

In May 2017, Polish media reported that the AIIB was considering co-financing the new airport of Lodz, in central Poland. This would be the first AIIB project in Europe. But Mr Jin did not confirm or deny this plan.

“Poland is the first eastern European country [to have] joined the AIIB. We welcome any proposal from any government… I believe our professional staff will look at proposals of any member country very seriously,” he says.

Beyond Asia

As of June 2017, 34 of the AIIB’s 80 approved members were from outside Asia (Mr Jin says the total number of approved members could rise to 85 by the end of this year). The UK’s decision to become the first major Western founding member of the AIIB, to the dismay of the US, opened the floodgates for other non-Asian countries to follow suit. At $19.3bn, non-Asian states represent 20% of AIIB subscriptions by approved and ratified member states. 

Some analysts argue that a growing number of prospective members from Latin America and Africa could change the complexion of the AIIB. But to Mr Jin, this represents an opportunity to fulfil the bank’s aim of using infrastructure financing to grow regional and global integration.

“When [the AIIB’s] 57 founding members negotiated the article agreement, it was envisioned that a bank created in the 21st century with 21st century governance should be open and inclusive. All of these countries are very keen on promoting international co-operation, [as well as] regional and global integration. So we have all [these] non-Asian countries that are very keen on joining,” he says.

“We are very happy about it. It really demonstrates the spirit of international co-operation. This is also a vote of confidence in the bank, which intends to uphold high international standards, including safeguard policies,” adds Mr Jin. These include environmental protection, addressing global warming and protecting populations that are more vulnerable to climate change.

Rising protectionism

The ethos of the AIIB as outlined by Mr Jin contrasts sharply with the protectionist and climate change-sceptic rhetoric defining the US administration of president Donald Trump. On his first day in office, Mr Trump pulled out of the Trans-Pacific Partnership (TPP), a multilateral trade agreement involving the US as well as Asia-Pacific and Latin American countries, on the basis that it was not sufficiently beneficial to the US.

On June 1, the US withdrew from the COP21 agreement, which aims to reduce carbon emissions and was signed by all countries worldwide except Syria, which is at war, and Nicaragua, which wanted emission targets to be even higher.

The US pulled away from this commitment because it did not benefit the US economy. In a statement given at the time, Mr Trump said: “The Paris climate accord is simply the latest example of Washington entering an agreement that disadvantages the US... As of today, the US will cease all implementation of the non-binding Paris accord and the draconian and financial economic burdens the agreement imposes on our country.”

In an unusual development, as the Trump administration retreats from international trade and climate agreements, China has become a key advocate of free trade and emission controls, as marked by president Xi Jinping’s momentous speech at the World Economic Forum in January 2017.

Reacting to Mr Trump’s inward-looking policies, Mr Jin’s vision for the AIIB is in line with China’s renewed support for global co-operation. “The world economy has benefited greatly from enhanced trade and cross-border investment over the past three or four decades. Obviously this has brought about broad benefits to all participating countries,” he says.

AIIB projects

But Mr Jin also has words of caution regarding globalisation. “We have to be conscious of the consequences of uneven development. The globalised economy has not met the needs of many people and countries that did not enjoy a lot of competitive advantage. In the 21st century, the big issue is how we can protect the interests of these countries,” he adds.

He believes that working towards a more equitable economic model is essential, and that infrastructure could play a key role in meeting this objective.

“Infrastructure knows no bounds – a road or railway cannot stop at the border,” says Mr Jin. But building soft infrastructure – such as more harmonious cross-border regulation, software connectivity and customs policy – is necessary to achieving this aim.

Private investors

The AIIB hopes to build cross-border connectivity by liaising with both the public and the private sectors. “[The AIIB’s] great contribution is that we can enhance people’s awareness about the importance of hardware and software connectivity. And we can help mobilise private sector resources,” says Mr Jin.

Mobilising large-scale private investment remains an unresolved question for infrastructure financing. Projects in emerging markets particularly struggle to attract private institutional investors, whose investment criteria is largely limited to investment-grade deals.

But the AIIB has already begun working with private investors to address this issue. The private sector provided core financing for the first AIIB project in Myanmar and there are similar projects in the pipeline. “The beauty of supporting non-sovereign projects is it avoids building up public debt on the part of the borrowing countries. Some countries have reached 60% to 65% [debt-to-gross domestic product ratios] and this will raise concerns among creditors, [such as banks] and capital markets,” says Mr Jin.

Capital and leverage

According to its founding agreement, the AIIB can finance up to $250bn of infrastructure projects; that is, two-and-a-half times its capital base. But so far, the AIIB’s approved projects amount to a modest $2.18bn. Although member countries have a strong appetite for AIIB financing – in Asia-Pacific alone, the annual infrastructure requirements are estimated to be $1700bn up to 2030 – Mr Jin is not rushing to build the bank’s portfolio.

“[My aim] is to build a strong intrinsic financial position to help our bank operate on a solid basis without any concern about any sign of financial weakness on the part of rating companies or of our shareholders. This is my job: to make this bank rock solid on its financial position,” says Mr Jin.

The AIIB is also not keen on increasing its leverage any time soon. “Just because [lending up to $250bn] is in our agreement, it does not mean we will do it,” says Mr Jin. “For a number of years to come, we will focus on developing our lending on the basis of a $100bn capital base. We are not going to look at the leverage issue.” 

PLEASE ENTER YOUR DETAILS TO WATCH THIS VIDEO

All fields are mandatory

The Banker is a service from the Financial Times. The Financial Times Ltd takes your privacy seriously.

Choose how you want us to contact you.

Invites and Offers from The Banker

Receive exclusive personalised event invitations, carefully curated offers and promotions from The Banker



For more information about how we use your data, please refer to our privacy and cookie policies.

Terms and conditions

Join our community

The Banker on Twitter