No easy choices ahead in regional aid and trade governance

Asian Development Bank President Takehiko Nakao attends the Asian Financial Forum in Hong Kong, China, 15 January 2018.      REUTERS/Bobby Yip

Author: David Arase, Johns Hopkins University

As trade relations between the United States and China grow more rivalrous, the situation in the Indo-Pacific becomes increasingly vexed. Asian states and regional organisations caught in the middle are struggling to cope, and now even the low-profile Asian Development Bank (ADB) is getting caught in the crossfire.

ADB President Takehiko Nakao recently signalled a reduction in lending to China in coming years. This happened after Taro Aso, Japanese Finance Minister and ADB Governor, said that China — which absorbed 12 per cent of ADB lending in 2018 — should be put on a path to ‘graduate’ from needing financial aid. Assisting lower income and vulnerable countries, Aso said, should be the bank’s priority.

It is worth noting that Japan ended its bilateral official development assistance (ODA) to China this year, while World Bank President David Malpass last year began calling for an end to World Bank loans to China. Because the United States names the president of the World Bank and Japan names the president of the ADB, the banks appear to be acting in parallel with the two states.

The official explanation is that China no longer needs ODA because it has ample access to international finance on its own. For one, China is spending some US$900 billion over the 2013–2022 decade on its Belt and Road Initiative (BRI). This money will be used to design, finance, construct, and operate infrastructure connectivity between China and some 70 BRI partner countries, forming what China styles a ‘community of common destiny’.

China also leads the new 97-member Asian Infrastructure Investment Bank (AIIB) that has just successfully floated a US$2.5 billion international bond issue to finance AIIB infrastructure projects.

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