Pulling the Plug on Canada’s Membership in the AIIB is a Really Bad Idea

Photo by Jason Hafso on Unsplash

Some in Ottawa are calling for the federal government to unilaterally withhold Canada’s contributions to the Asian Infrastructure Investment Bank (AIIB) as a way of punishing the Chinese Communist Party (CCP) for a variety of actions it has taken domestically and internationally. The proposal is based on a misperception of the bank’s ownership, mission and activities.

Those who want to withhold Canada’s payment seem to think that the AIIB is a proxy for the CCP, and that taking this action would in some way censure China’s leaders. Although creation of AIIB was indeed China’s idea, the institution is not a tool of the CCP or any individual government. It is an inter-governmental organization with 103 members, including all but one of NATO’s founding members. Nearly three-quarters of the bank’s shares are held by members other than Mainland China.

The AIIB began operations five years ago. Its main activity has been making loans to finance physical infrastructure, primarily in low- and middle-income countries in Asia. Developing Asia has a massive financing gap in the transportation, power, telecommunications, and water and sanitation sectors. Hundreds of millions of people living on the continent lack access to affordable basic services taken for granted by most Canadians.

Only about half of developing Asia’s estimated $US1.7 trillion annual infrastructure financing requirement is being met. Since 2016, AIIB has provided several billion dollars in sovereign and non-sovereign financing to help fill the gap. The bank’s Sustainable Energy for Asia Strategy sets out a framework for investment in energy projects that increase access to clean, safe and reliable electricity, and for supporting countries in making their contribution to the Paris Agreement on climate change.

AIIB projects approved in 2021 include one that will improve access to the delivery of solid waste management services in the Indian state of Kerala, another that will develop a solar plant and battery energy storage solutions in the climate-threatened island nation of the Maldives, and a third that will reduce traffic congestion in Mymensingh City, Bangladesh.

The emergence of COVID-19 early last year compelled AIIB to expand its remit. The bank launched a crisis support facility to make up to $13 billion available for emergency public health needs and infrastructure impacted by COVID-19. More recently, the facility is being tapped to help countries secure COVID-19 vaccines. On March 25th, AIIB announced the first such vaccine procurement project, a $300 million loan to the Philippines, which has just experienced a huge spike in the number of COVID-19 cases.

Since its establishment, AIIB has been led by Jin Liqun, a respected figure in the international development field. A fan of Shakespeare who speaks both of Canada’s official languages, Jin was a Hubert Humphrey Fellow in Boston University’s Economics Graduate Program. He learned the detailed workings of a multilateral development bank (MDB) when serving as a vice president at the Asian Development Bank between 2003 and 2008.

Jin has overseen an institution that has innovated and eschewed the static and expensive MDB model of a resident board of directors, dozens of field offices, and thousands of staff. AIIB’s non-resident board was already meeting virtually before the pandemic struck. The bank has eagerly adopted good practice from other MDBs, while recruiting several individuals with long experience in development finance to serve in senior roles (a Canadian heads AIIB’s communications team).

Through AIIB, Canada gains insights into the diverse economies of Asia (and beyond) and informs its foreign commercial policies and diplomacy. Together with like-minded AIIB members, Canada advocates high standards of accountability, transparency, good governance, and environmental and social safeguards. In its engagement with AIIB, Canada also promotes action on climate change, gender inequality, and mobilization of private sector financing — themes that are also a priority for many other AIIB members. Canada’s voice in AIIB policy making is a very good thing for the young institution.

AIIB’s growing investment in quality infrastructure and regional connectivity, and robust response to COVID-19, are helping low- and middle-income countries move up the economic ladder. Although the pandemic has caused great pain in Asia, signs point to a return to high rates of growth and continued expansion of a burgeoning middle class. In this way, AIIB is contributing to the creation of long-term opportunities for Canadian businesses by enlarging foreign markets for their goods and services.

By withholding agreed payment for its shares in the AIIB, Canada would violate an international commitment, snub a multilateral organization supporting sustainable economic growth and pandemic recovery in developing countries, eliminate any Canadian influence in an increasingly important institution in the world’s most economically dynamic region, and generate zero positive impact on anything important.

While it may add briefly to political theatre in Ottawa, the proposal that Canada renege on the terms of its AIIB membership runs counter to the interests of poor people in Asia, and Canada itself.

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