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China-backed international development bank confronts graft worries

Chinese President Xi Jinping (C, front) meets with representatives of 21 Asian countries at the founding of the Asian Infrastructure Investment Bank (AIIB) in Beijing on Oct. 24, 2014. (Image courtesy of Xinhua/Huang Jingwen)News leaked a couple of years ago that China was promoting establishment of the Asian Infrastructure Investment Bank. The AIIB will compete for project funding against the IMF, World Bank, and Asia Development Bank, all seen as being under the thumb of the U.S., Europe, and Japan.

In November last year, 21 Asian countries formally agreed to found the bank. China contributed most of the original registered capital of $50 billion. The AIIB is expected to start operating by the end of the year with a $100 billion fund.

Membership has now reached 42 countries. Among the non-Asia members are Australia, Austria, Brazil, France, Georgia, Germany, Italy, Luxembourg, Netherlands, New Zealand, Russia, Switzerland, Turkey, and the United Kingdom.

Belgium, The Netherlands, Canada, and Taiwan are hoping to become members.

Japan and the United States haven’t joined. The U.S. and some other countries have questioned the bank’s governance, transparency, environmental standards, labor protection, and anti-corruption safeguards.

Huge China-funded overseas infrastructure and telecoms projects in South Asia and Africa have been tainted by corruption. Sri Lanka last month became the latest country to shut down a China-backed project because of alleged graft. Other countries that have done the same are Tanzania, Zambia, Algeria, and Uganda.

Questions have also been raised in Kenya about at least four China-backed mega-projects that might involve corrupt payments. State-owned Sinopec Ltd and China Road and Bridge Corporation (CRBC) are among the Chinese companies that have been named but not yet charged. The anti-corruption sweep has implicated 175 Kenya government officials.

In Congressional testimony, U.S. Treasury Secretary Jack Lew has expressed doubt about the AIIB’s standards on governance and transparency.

But some commentators in China have accused the U.S. of trying to block support for the AIIB to protect U.S. influence through the World Bank.

Last week, AIIB interim chief Jin Liqun said the bank will have a zero tolerance for corruption.

The construction sector is perceived as one the world’s most corrupt industries. The World Bank has barred at least a half dozen Chinese companies, including state-owned enterprises, from Bank-funded infrastructure projects for alleged fraud and corruption. The World Bank has also barred U.S., Canadian, UK, and Japanese companies, among others.

Jin said AIIB’s core concepts are efficiency, cleanness, and greenness.

“The AIIB will pay close attention to environmental protection and the interests of relocated residents involved in future infrastructure projects,” Jin said.


Richard L. Cassin is the publisher and editor of the FCPA Blog. He can be contacted here.

Hui Zhi is the Senior Manager for Content with the China Compliance Digest. Some reporting for this post first appeared in the China Compliance Digest. 

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  1. It is very unlikely that the AIIB will suddenly be a paragon of virtue, considering the manner in which peoples relocated for construction and development reasons inside the PRC are mistreated. The list of mis-demeanours is large and growing and includes the build up to the PRC Winter Olympics bid and the hydro-dams planned in Tibet. These and other examples appear to indicate that China is not ready to take on a world leading role, as it does not have the virtues listed by the AIIB engraved in its core DNA.

  2. The question remains whether this bank will be serious about guarding against corruption. Some of the countries that have signed on to this bank has not proven that they are willing to fight corruption in their own country. On the surface, putting out a statement that corruption will not be tolerated does not mean they are and will be serious about fighting graft. What will happen on the operational level once the bank opens for business is a big question.

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