Japan Institute for National Fundamentals

　　　　　The Asian Infrastructure Investment Bank that China has planned and will produce and control is likely to go on a dangerous maiden voyage. More than 20 countries agreed to found the bank at their meeting in Beijing last month. It is designed to develop infrastructure at the initiative of China in a manner to counter the Manila-based Asian Development Bank that is led by Japan and has achieved infrastructure development in Asia.
　　　　　Newly industrializing countries in Asia naturally want funds for infrastructure construction. But the planned bank will be based in Beijing with its presidential post and lending controlled by China that could give greater priority to political intentions rather than economic ones. AIIB participants may have to prepare to be dragged into the magnetic field of the Chinese world. It is a matter of concern that AIIB participants include Vietnam and the Philippines that have had territorial disputes with China in the South China Sea.

Concerns over AIIB
　　　　　Chinese President Xi Jinping advocated the AIIB initiative for the first time during his Southeast Asian tour in October 2013. The initiative will allow China to provide the new growth opportunity of overseas infrastructure development to its state-run companies plagued with overproduction. China will also take advantage of the initiative for using swollen foreign exchange reserves and for expanding the circulation of China's renminbi currency. China will shoulder half the AIIB capital, with the remainder contributed by other AIIB participants in accordance with their gross domestic product sizes. Given that the investment share reflects the voting power, China could provide AIIB loans on a discretionary basis. It thus could plunge lending target countries into deficits and take political control of these countries.
　　　　　The AIIB will refrain from intervening in internal matters of lending target countries, from imposing political conditions for loans or from calling for respect for human rights. Therefore, it could become a financial source for dubious projects rejected by the Washington-based World Bank and the ADB. AIIB loans will have a greater risk of turning sour. Nevertheless, the risk may be dispersed if the number of AIIB participants expands to increase capital.
　　　　　In a right decision for national security reasons, U.S. allies Japan, Australia and South Korea have chosen not to join the AIIB. AIIB participants must prepare to have both political and economic risks and should block China's attempt to provide loans to non-democratic countries. This is because these loans' souring will affect citizens of AIIB participating countries.

China’s expanded sphere of influence
　　　　　China earlier decided to create a new development bank competing with the World Bank in cooperation with the other BRICS members -- Brazil, Russia, India and South Africa. On the occasion of hosting the annual meeting of the Asia-Pacific Economic Cooperation forum in Beijing this week, China has also launched efforts to build a Silk Road economic belt extending to Central Asia. China has vowed to create a $40 billion Silk Road fund to develop infrastructure in relevant countries.
　　　　　China has been taking advantage of its strong financial power to steadily expand its influence. Currency and financing internationalization, as well as military power and trade expansion, is one of the conditions for a hegemon. China is attempting to fulfill all these conditions.

Hiroshi Yuasa is Columnist for the Sankei Shimbun and Planning Committee Member at the Japan Institute for National Fundamentals.