China-backed AIIB bags World Bank deal

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Beijing’s answer to the World Bank, the Asian Infrastructure Investment Bank has cleared one of its highest-profile international partnerships, just weeks after China’s Communist Party accused it of intrusion.

The AIIB’s board last week approved a proposal to issue a $1 billion credit guarantee against sovereign-backed loans extended by the International Bank for Reconstruction and Development, the lending arm of the World Bank.

The partnership comes as multilateral development banks seek to think more ambitiously about their role in mobilizing finance. Last year the G20 Working Group on Capital Adequacy recommended that development banks expand their use of financial innovation to provide additional lending capacity.

The agreement with the AIIB will allow the World Bank to ease financial constraints and issue new loans, while its Beijing-headquartered counterpart will be able to better deploy its capital.

Danny Alexander, vice president for policy and strategy at the AIIB, linked the partnership to a broader global effort by multilateral development banks to increase financing for climate challenges by “deepening cooperation and increasing firepower”.

“This transaction will strengthen the funding capabilities of both institutions and is an example of how we can do more by working together,” he added.

The proposal was first considered in June when Bob Pickard, the AIIB’s former Canadian communications chief, abruptly quit the bank, alleging that the Communist Party was running it from the shadows “like an internal secret police”.

An internal review of the AIIB this month concluded that it “adheres to the highest standards of multilateral governance” and had no “undue influence” on decisions taken by the board of directors or management.

According to a statement released by the World Bank in June, an agreement with the World Bank will help the AIIB diversify its portfolio and increase lending to low-income borrowers. For the World Bank, the plan would “provide relief from capital constraints”, enabling it to make new loans.

The World Bank is yet to announce its approval of the plan. The World Bank did not respond to a request for comment.

The AIIB, which was launched in 2015 as a Chinese-led alternative to the World Bank and other Western-led multilateral organisations, has 106 members including India, Britain, France, Australia, Canada and South Korea. America and Japan have not joined.

China holds a 26.6 percent voting stake in the bank, which gives it veto power over key decisions.

Since its inauguration, the AIIB has signed cooperation agreements with the World Bank, with which it has co-financed several deals. It has an AAA rating, which is important to multilateral banks because it allows them to borrow cheaply and lend at low rates to low-income countries.

Picard’s allegations prompted Canada to freeze all government-led activities at the bank while launching a review. Picard said that the Communist Party at the time was like an “invisible government” inside the bank. He did not give specific examples of party interference in high-level decision making of the AIIB.

An internal review of the AIIB stated that the bank has “a sound governance structure, comparable to other multilateral development banks and based on lessons learned from them”.

“Half of the AIIB’s financing is co-financed with other MDBs (multilateral development banks),” the review said. “It (AIIB) also benefits from AAA credit ratings across all three major agencies, which also positively evaluate the bank’s governance.”

Picard’s allegations come amid an increasingly acrimonious geopolitical climate between China and the US and its allies. The allegations have also raised tensions between Beijing and Canada, with Chinese state media last month attacking Ottawa’s statements on the dispute as “politically motivated claims to discredit the AIIB”.