China’s AIIB not a ‘threat’, can cooperate to finance large investment needs in Asia, says ADB chief Takehiko Nakao

China-led AIIB is not a “threat” to the Asian Development Bank and both the institutions can cooperate to meet the large investment needs across Asia, ADB President Takehiko Nakao said today. Speaking at a news conference to kick-start the bank’s annual meeting, Nakao said the ongoing trade dispute between countries is a matter of “concern” and “utmost efforts” should be made to keep economies open in terms of trade and investment. With the Manila-based multilateral lender developing a long-term strategy- ‘Strategy 2030’- to deal with the changing dynamics in the way Asian countries need finances and assistance to come out of poverty, Nakao said the new strategy would focus on gender and climate change issues as well as involvement of private sector in funding needs. Asked if Strategy 2030 is being developed on account of growing Chinese dominance in the region as well as aggressive lending by Asian Infrastructure Investment Bank (AIIB), Nakao said, “China is becoming a very important player in international community as a lender and as a borrower from us.

But it is not the motivation for starting Strategy 2030. “We are forming the strategy because of so many new developments in Asia. We have COP-21, sustainable development goals, there is observation that we might have more severe kind of phenomenon due to climate change issues and must address those. So there are many reasons to review our strategy.” Under the strategy, ADB will sustain its efforts to eradicate extreme poverty, given the region’s unfinished poverty agenda, and expand its vision to achieve a prosperous, inclusive, resilient, and sustainable Asia and the Pacific. With regard to growing lending by AIIB, Nakao said ADB and AIIB have so far agreed to co-finance four projects. “AIIB is not a threat to us, we can cooperate with AIIB because we need larger investment in Asia. We have a large system, including staff and resources like equity and so on. We can collaborate with AIIB very effectively… ADB has 3,100 staff as compared to AIIB’s 100 something,” he said.

Nakao said the bank is looking at ways on how to fund the ‘one-belt-one road’ initiative, which would connect China with the rest of Eurasia and is open to collaborate with AIIB. “On the belt and road initiative (BRI), we have an MoU with the Chinese authorities about things to do together. We have been promoting these ideas since 1990… ADB started this idea of regional cooperation and we are happy to cooperate with BRI when there are appropriate projects because good connectivity is important,” he said. With regard to the apprehension of trade war between the United States and China, Nakao advocated for a more open trade and said the recent tension between the countries did not have a “major impact” on investor sentiment. “Of course we are concerned about the ongoing disputes among some countries and if trade is interrupted it could cause damage to Asian and other countries. At this point, trade has picked up very strongly since 2017 because of higher prices of resources and stimulated by stronger growth in countries, including the US.

“Trade dispute and its negative impact if escalated, is a concern, but at this moment it does not have major impact on sentiment of investor and market player. But if it continues and is escalated it might have an impact,” he said. ADB was founded in 1966 and was mandated to lift people out of poverty and fund projects which will benefit society at large. Since its inception, ADB has been led conventionally by a Japanese governor, with larger quantum of funding coming from Japan and the US. ADB has 67 member countries, including 48 from the Asian region. Set up in 2014, the China-led AIIB has around 80 member countries and plans to fund infrastructure needs across Asia by 2030. Asked how ADB plans to continue to fund China, Nakao said: “China has been a very important partner for us since it joined in 1986. I want to continue to lend to China in a meaningful way. About 12-15 per cent of ADB’s lending finance goes to China, it’s a small amount for China considering their large financing needs.

“We would like to continue to lend to China, but at the same time China is more developed. So in terms of income per-capita increase, how to focus on needed areas for the country. We started discussion on differentiated approach which can mean pricing and other terms of lending can be different between countries,” Nakao said. Asked if ADB would seek additional capital from its board, Nakao said the bank’s equity-to-loan ratio stands at 50 per cent. “We can still increase our lending in a reasonable way until we meet in 2020. So we don’t have an idea of general capital or special capital increase at the moment… We are watching how it (capital increase) happens in other agencies and if World Bank expands its operations dramatically in Asia and increase their capital substantially, we won’t be shy of asking for an increase in capital in future. But at this moment, we are not seeking capital increase, he said.