<![CDATA[Regional investors bet big on China-backed Asian Infrastructure Investment Bank's first bond. Can it deliver?]>
Institutional investors in Asia have bet big on the China-backed Asian Infrastructure Investment Bank (AIIB), which debuted its first bond offering in London on Thursday. Half of the backers for the five-year US$2.5 billion bond were in Asia, and nearly two-thirds were central banks or other institutional investors " a sign the region considers China's alternative to established multilateral banks a safe choice.
The vote of confidence cements the 3½-year-old institution's status in the upper echelon of international development banks alongside the likes of the World Bank and Asian Development Bank (ADB).
In an interview with the Post, AIIB President Jin Liqun said Asian investors were "very much enthusiastic about working with us".
"The geography of the investors in this bond clearly indicates a strong interest in Asia."
A natural gas transmission station for Sino-Myanmar pipelines at Kunming in China's Yunnan province. The China-backed AIIB is financing infrastructure around Asia. Photo: Imaginechina
Jin said the bank, which counts 97 countries as members, could help Asian nations weather the storm of the US-China trade war.
AIIB projects were held to the highest international standards and followed new and improved environmental, social and governance investment principles, he added.
The bank had consequently gained a reputation as an agile institution compared with established development banks, Jin said " a much needed asset in the region, according to experts.
J. Soedradjad Djiwandono, professor of international economics at the S. Rajaratnam School of International Studies in Singapore (RSIS), said Southeast Asia would benefit from the bank's newer working model.
"We are so used to being dictated to by the Western institutions like the World Bank and IMF [International Monetary Fund]," he said.
Nie Wenjuan, associate professor at China Foreign Affairs University in Beijing, said the AIIB was established to meet a need for infrastructure funding in Asia that existing institutions could not fill.
"It is difficult for the ADB and the World Bank to meet this major funding gap," she said.
In 2017 the ADB estimated Asia would need in excess of US$1.7 trillion annually before 2030 to finance development. Experts say the region only stands to benefit from growing global confidence in the China-backed lender.
AIIB President Jin Liqun says Asian investors 'are very much enthusiastic about working with us'. Photo: Nora Tam
The AIIB had been created to achieve similar goals to China's Belt and Road Initiative, Jin said, but the two should not be conflated.
The initiative is a global trade strategy based on the ancient Silk Road trading route that aims to link China and Europe through ports, roads, airports, pipelines and other infrastructure.
But persistent association of the bank with the trade strategy has saddled their projects with many of the same concerns, including doubts about sustainability, transparency and debt burdens.
Malaysian Prime Minister Mahathir Mohamad has renegotiated a deal with China over construction of his country's East Coast Rail Link owing to such concerns. Belt and road-related investments have also faced resistance in Myanmar, Laos and the Philippines.
The AIIB has to date funded projects worth a total of US$7.94 billion, mostly in India, Indonesia, Pakistan and Bangladesh. By comparison, the ADB invested US$24 billion in 2017 alone.
The AIIB's headquarters in Beijing. Photo: Kyodo
Cassey Lee, coordinator of the regional economic studies programme at Singapore's ISEAS-Yusof Ishak Institute, said the World Bank and ADB had also developed strong reputations as knowledge centres " an underdeveloped aspect at the AIIB.
Lee said the AIIB's average project size in 2017 was about US$183 million, meaning the new bond could fund about 14.
"On most its early projects, the AIIB has replicated the standards of more established multilateral development banks," said Jonathan Hillman, director of the Reconnecting Asia project at the Centre for Strategic and International Studies in Washington.
"The question is, can it continue to do that without running the risk of scaling too fast?"
Despite attaining similar credit ratings to the ADB and World Bank, experts maintain the AIIB has yet to prove it can execute comparable projects or deliver the tangible results its Western counterparts have produced.
True equivalence will only be proven by performance, according to Djiwandono.
Hillman said: "There's some scepticism about what this institution can be " there's a lot of advertising, promises and rhetoric surrounding it. A lot of it warrants some further scrutiny."
Siwage Dharma Negara, a senior fellow at the ISEAS-Yusof Ishak Institute, said the proof would be in the pudding.
"To achieve a comparable status like that of the World Bank or ADB, the AIIB will need to showcase real projects that might affect government policies and eventually people's lives," he said.
Additional reporting by Wendy Wu
This article originally appeared on the South China Morning Post (SCMP).
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