20th May 2024

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Business Industry and Financial

Opinion: Canada must remain engaged with China’s Asian Infrastructure Investment Bank

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Flags of China and Canada next to the logo of Asian Infrastructure Investment Bank (AIIB), on June 15.FLORENCE LO/Reuters

Bart Édes is a former director at the Asian Development Bank. He now serves as a professor of practice at the Institute for the Study of International Development, McGill University, and a distinguished fellow at the Asia Pacific Foundation of Canada.

Given the political risk to the Trudeau government of looking weak on China at a time of heightened bilateral tensions, Finance Minister Chrystia Freeland had little choice but to do something in the wake of a provocative and unsubstantiated social-media post gone viral.

A Canadian national responsible for communications at the Asian Infrastructure Investment Bank (AIIB) had quit and turned to Twitter to assert that the bank, an intergovernmental organization and multilateral development institution, is “dominated by Communist Party members and has one of the most toxic cultures imaginable.”

So Ms. Freeland called a timeout on Canada’s engagement with AIIB and instructed “the Department of Finance to lead an immediate review of the allegations raised and of Canada’s involvement in the AIIB.”

On first glance, this is concerning. We don’t know if the Ministry of Finance’s review will find deeply worrying truths about AIIB that have somehow been kept under wraps. But we do know that Canada benefits from AIIB membership.

For example, this country gains insights into Asian economies and governance systems. These insights inform Ottawa’s diplomacy and foreign commercial policies. Moreover, any differences with China are precisely why Canada should engage with the AIIB – otherwise, we lose all influence within the organization.

But the good thing is that Ms. Freeland’s quick response may lessen pressure on the government to take more dramatic (and irresponsible) action, like pulling Canada out of the bank immediately without a thoughtful review of the assertions made.

Ottawa halts participation in China-led development bank

It’s important to recognize that there is nothing unusual about governments promoting their countries’ interests within intergovernmental organizations, which by their nature are political entities. In multilateral development banks (MDBs), governments do this through their representation on boards of directors and through their nationals appointed to senior positions.

So it is not news that the Communist Party of China, which governs AIIB’s largest shareholder, exerts influence at the bank.

But China does not have anything resembling a monopoly on decision-making at AIIB. Indeed, the crafting of AIIB’s charter was a collaborative exercise among dozens of countries.

A key reason why India joined AIIB was because it felt that it would have a say in how the bank was run. Despite current tense bilateral relations with China, and rejection of China’s Belt and Road Initiative, India is fully engaged with AIIB and has been its leading borrower. India, along with Australia, Germany and Britain, are among the AIIB members that have been vocal in meetings of the bank’s board of directors.

AIIB’s senior leadership includes not only Chinese citizens, but also seasoned professionals from European states, New Zealand, Brazil, Indonesia, India and other countries. A Canadian national with decades of experience in evaluation and finance serves as managing director with responsibility for complaints resolution, evaluation and integrity.

More than 60 countries are represented among the bank’s staff, which has worked diligently over the past half dozen years to build a highly reputed organization. Fitch Ratings regularly confirms AIIB’s AAA rating.

Proposed financing projects cannot make their way to AIIB’s board of directors for consideration before passing through rigorous approval processes that are presently managed by non-Chinese nationals (risk management, investment operations and strategy and policy). Checks and balances have been incorporated into the bank’s rules to deter any one country from having undue influence.

To date, Beijing has been committed to the concept of an MDB operating transparently with solid governance and a clear accountability framework. AIIB’s Western members insist on it.

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. In this way, the bank helps to create long-term opportunities for Canadian businesses by enlarging foreign markets for their goods and services.

Membership in AIIB also supports implementation of Canada’s Indo Pacific strategy and reinforces Canada’s commitment to multilateralism.

In its engagement with AIIB, Canada promotes action on climate change, gender inequality and mobilization of private-sector financing – themes that are also a priority for many other AIIB members. Together with like-minded AIIB members, Canada has successfully advocated for high standards of accountability, transparency and environmental and social safeguards.

While Ms. Freeland’s call for a review of Canada’s involvement in AIIB does delight the critics who say this country should leave it, one thing that the review is likely to find is that the sensible reasons that drove Canada to join AIIB in 2018 all remain valid today.