China will reshape development finance landscape

Subject

The Asian Infrastructure Investment Bank.

Significance

Since July 2014, China has overseen the establishment of three development finance institutions: the New Development Bank ('BRICS bank'), the Silk Road Fund and the Asian Infrastructure Investment Bank (AIIB). As well as its geopolitical implications, this reshaping of the international financial architecture also represents a shift in the predominant model of development finance. The AIIB will grant Beijing greater influence over international finance, but it also compels China to develop a more financially sustainable, long-term foreign investment strategy through multilateral, transparent and rules-based mechanisms.

Impacts

• China's domestic 'Go West' strategy and inter-provincial rebalancing will receive a significant boost.
• Regional bond market integration through the Asian Bond Markets Initiative will experience positive spill-over.
• The ADB will assume a role of providing technical expertise, and turn towards other priorities.
• China will simultaneously develop parallel development financing mechanisms to pursue more overtly political goals.