For many years, Chinese leaders have argued that the international financial institutions have failed to recognize China’s elevated stature in the global economy.  While recent reforms have boosted China’s contributions and voting shares, China remains under-represented with respect to its weight in the global economy.  Since beginning market-oriented economic reforms in the late 1970s, China has averaged nearly 10% real GDP growth a year and is now the second largest global economy in nominal terms behind the United States. The creation of the Asian Infrastructure Investment Bank’s (AIIB) is part of a broader reorientation of Chinese foreign and international economic policy that has taken place since Xi Jinping became Chinese Communist Party General Secretary in 2012 and president in 2013. 
In October 2013, President Xi Jinping proposed an initiative to establish the AIIB. The regional multilateral development institution acts on the model and principles of the multilateral bank and is aiming supporting infrastructure construction in developing countries. The Ministers of finance and authorized representatives of the 21 founder-countries, including China, India, Singapore, and others, concluded an agreement on the creation of AIIB on October 24, 2014 in Beijing. The ceremony of the “Agreement on the Establishment of AIIB” signing was held on June 29, 2015. It was attended by the Ministers of finance and authorized representatives of 57 founder-countries, including 37 Asian countries and 20 countries outside the region. The AIIB was officially established on December 25, 2015. The list of member countries expand in 2017 since the president of AIIB said that the bank received written applications from more than 20 countries and in 2017, the number of member countries can reach 90. This is the first multilateral financial institution created on the initiative of China. In January 2016, the bank began its official work, a board of governors and a board of directors were founded.
Establishing of the AIIB led to joint action between China and Central Asian countries — Kazakhstan, Tajikistan, Uzbekistan and Kyrgyzstan. Considering that, Beijing initiated AIIB’s creation and in large part oversees its actions; the bank’s principles and policy are discussed in the frame of Chinese global and regional targets. By joining the bank, the post-Soviet states of Central Asia therefore accepted its principles. AIIB is a mechanism for the implementation of China’s investment projects in Central Asia. The start-up period of the bank correlates with the first agreements on the transfer of part of China’s industrial facilities to the countries of Central Asia. Through AIIB, Beijing can compete for regional influence with Russia, the United States, Japan, India, and the European Union, as well as regional institutions. With some parallelism with regard to the AIIB, other powers, including Russia, the USA, Japan, the European Union, and others, are pursuing an active policy there through bilateral and multilateral relations through Eurasian Economic Union (EEU), World Bank (WB), Asian Development Bank, and European Bank for Reconstruction and Development (EBRD). Thus, Russia promotes its integration policy in the region primarily through EEU, while China uses the Shanghai Cooperation Organization (SCO) and AIIB. While the countries of Central Asia may benefit from this situation, having a choice of favorable conditions, more economic contradictions and conflicts may arise between Russia, China, the U.S. and other rivals operating in the region. The formation of the AIIB forms China’s economic policy in Central Asia, making it multilateral, structural and serving Beijing’s interests.
The authorized capital of the bank is $100 billion, which is 1 million shares, $100 thousand per share. Thus, China accounts for $29.7804 billion, the share of votes is 26.6%. The second largest participant is India with a 7.51% stake, then Russia with a 5.93% stake. The countries of Central Asia have the following share of votes: Kazakhstan – 0.89%, Uzbekistan – 0.45%, Tajikistan – 0.29%, Kyrgyzstan – 0.29%. On June 25, 2016, AIIB President Jin Liqun said that the Board of Directors of AIIB approved for the first time loans totaling $509 million for four projects in energy, transport, urban development in Bangladesh, Indonesia, Pakistan, Tajikistan, and Uzbekistan. These are a project for the modification of the border roads (jointly with EBRD) in Tajikistan and Uzbekistan, EBRD’s contribution is $ 62.5 million, with a total project value of $ 105.9 million; the section of the state high-speed highway Shorkot-Khaneval m-4 in Pakistan for $100 million; the project modernization of the power distribution system and expansion to the amount of $165 million in Bangladesh, work to modify Indonesia’s slums for $216.5 million. On November 4, 2016, at the Beijing Forum Jin Liqun said that the bank approved the financing of 9 projects, issued loans of $1.7 billion. Thus, they are the Trans-Anatolian gas pipeline project (Azerbaijan), the commercial berth Dukm and the railway network (Oman), the modernization and expansion of the energy distribution system (Bangladesh) and others. All projects financed by the bank are located in Asia, most of the objects are being built as a part of the development of infrastructure, energy, and transport. According to AIIB president, the determination of AIIB to gradually increase the volume of work, noting that in the next 5-6 years the bank sets a goal to increase the volume of annual loans to $10-15 billion.
While working to deepen its economic relationships with its neighbors through Belt and Road Initiative (BRI), China has also intensified its engagement with the WB, International Monetary Fund and the regional development banks—with the aim of reforming the governance and operations of these institutions to accommodate China’s increased economic influence in the global economy. The BRI and AIIB are both aimed at supporting the development and construction of the respective countries. The two Chinese initiatives have the active support of many countries.
The overabundance of production is a problem of the modern Chinese economy. Since China passed the active phase of infrastructure modernization, the country of ‘productive economy’ needs provide its workers and contracture factories with a work outside the country. In the framework of infrastructure for BRI, it is important to transfer the ‘great construction’ from China to the countries of Asia, in particular, Central Asia. The AIIB is a major mechanism of financing these projects. Earlier China proposed to create a common the SCO bank and free trade area, but the other members blocked the initiative. Thus, China has found an alternative solution for this cooperation.
The Dushanbe-Uzbekistan Border Road Improvement Project will enhance the connectivity and mobility along the Tajikistan segment of the Asian Highway Network and the Central Asia Regional Economic Cooperation Corridor 3 (CARECC-3). Under the Project, the 5-km section will be rehabilitated and upgraded between Avicenna Roundabout and West Gate of the Dushanbe-Uzbekistan border road. The project road – the last missing section of the Asian Highway Network and the CARECC-3 in Tajikistan’s territory was built 30 years ago and is currently in a poor condition. The Project will help increase national and regional trade, reduce traffic congestion, and improve road safety.
The Project has a road rehabilitation and reconstruction work component, and a consultancy service component to provide construction supervision. The detailed engineering design of the road work component has been completed. The scope will include:
(1) Constructing a 3-level traffic interchange and related pedestrian under-passes at 82nd roundabout;
(2) Building a 3-level traffic interchange at Avicenna roundabout;
(3) Constructing two 2-level traffic interchanges at key local road crossings;
(4) Widening the Project road to dual 4 lanes;
(5) Improving adjacent intersecting roads;
(6) Reconstructing pavements;
(7) Constructing several pedestrian underpasses.
The Ministry of Transport of Tajikistan is the project’s executing agency. The project implementation period is from December 2016 to December 2020. Improving the Dushanbe-Uzbekistan border road is essential to promoting economic growth in Tajikistan and trade in Central Asia. The Project will help increase national and regional trade, reduce traffic congestion, and improve road safety. The new financing will help Tajikistan upgrade a section of the road in the capital, Dushanbe, between the Avicenna Monument and the Western Gate, including the 82nd and Avicenna roundabouts. Providing a direct connection between Tajikistan and Uzbekistan, as well as Afghanistan, Kazakhstan, Kyrgyzstan, and Turkmenistan, it is one of the most important international roads still requiring urgent reconstruction.
To conclude, the AIIB is an important means to increase the influence of China and implement its economic strategy in the countries of the BRI’s part – the Silk Road Economic Belt, primarily in Central Asia. Otherwise, China needs to diverse its goods delivery through developing of the land-locked Central Asia connectivity with Europe and outside world. Obviously, currently China and AIIB are the main investors in Central Asian infrastructure. Despite the growth of investments in the countries of Central Asia, joining the AIIB also leads to a certain increase in debt, which causes concern for the local political elite and the population, and does not allow insisting on its priorities and partnership plans. The scale of China’s economy has long gone beyond the regional one, so large-scale infrastructure construction in Central Asia is beneficial for China, satisfying its long-term interests and profiting from interest rates and offers for Chinese equipment manufacturers and construction companies. For the countries of Central Asia, this is an opportunity to modernize the infrastructure and increase international relations. For China, it is also important for the implementation of the Silk Road Economic Belt project. After launching the AIIB, international competition with China for influence in Central Asia is becoming more intense. Another top priority for Beijing in its relations with post-Soviet Central Asia is the partial displacement of its industrial facilities and the lease of agricultural land in the region. Due to China’s significant shareholder capital and leadership in managing AIIB, it can provide support for such initiatives. In their expectations from AIIB, the priorities of the post-Soviet states of Central Asia and Russia differ: Beijing puts priorities in infrastructure projects, and the countries of Central Asia have a joint need for infrastructure investments and investment in production.
1- “China’s calls for reform at the World Bank, IMF and ADB cannot be ignored any longer,” South China Morning Post, September 12, 2016.
2- He, A. (2016) “The Dragon’s Footprints: China in the Global Economic Governance System”, McGill-Queens University Press, p.28.
3- Morrison, W. (2014) “China’s Economic Rise: History, Trends, Challenges, and Implications for the United States”. CRS Report RL33534. Retrieved from https://digitalcommons.ilr.cornell.edu/cgi/viewcontent.cgi?referer=https://www.google.kz/&httpsredir=1&article=2323&context=key_workplace. Accessed on 22.10.2018.
4- Muratshina, K. (2017) Asian Infrastructure Investment Bank and post-Soviet Central Asia: New Multilateral Bank Formation in the Context of China’s Economic Interaction with post-Soviet Central Asian Countries, Central European Journal of International and Security Studies 11, no. 3, p. 84-106.
5- Yang, H. (2014) “From “Taoguang Yanghui” to “Yousuo Zuowei”: China’s Engagement in Financial Minilateralism”, Center for Global Governance Innovation, CIGI Working Paper No. 52; See also, Yang, H. (2016) “The Asian Infrastructure Investment Bank and Status-Seeking: China’s Foray into Global Economic Governance,” China Political Science Review.
6- “Tajikistan: Dushanbe-Uzbekistan Border Road Improvement Project”, Retrieved from https://www.aiib.org/en/projects/approved/2016/tajikistan-border-road.html. Accessed on 20.11.2018.
7- Pyrkalo, S. (2016) “Road project in Tajikistan becomes first joint EBRD-AIIB investment”, Retrieved from http://www.ebrd.com/news/2016/road-project-in-tajikistan-becomes-first-joint-ebrdaiib-investment.html. Accessed on 25.11.2018.
Note: The views expressed in this blog are the author’s own and do not necessarily reflect the Institute’s editorial policy.
Azhar Serikkaliyeva graduated from China Studies Department of the Faculty of Oriental Studies in Al-Farabi Kazakh National University in 2008. She completed master education in 2010 by presenting her master thesis namely ‘Chinese strategy of peaceful rising and current sino-kazakh relations ’. She holds a Masters in Area Studies from al-Farabi Kazakh National University. Azhar Serikkaliyeva started doctorate process in 2010 and completed it in 2014 by presenting her PhD thesis ‘Chinese social and economic activity at the SCO’. During academic career she has published more than 20 scientific p