Geopolitics, climate change and the Pacific hot topics at AIIB roundtable

The Asia New Zealand Foundation Te Whītau Tūhono recently hosted a delegation from the Asian Infrastructure Investment Bank (AIIB), led by its president, Jin Liqun, for a roundtable. Caleb Hoyle, the Foundation’s adviser research and engagement, explores some of the themes covered during the wide-ranging dialogue.
Three panellists speaking to a room

AIIB President Jin Liqun speaking at the roundtable discussion

The Asian Infrastructure Investment Bank is a Beijing-based multilateral development bank that has 109 members – including New Zealand – and is capitalised at USD 100 billion.

Since Xi Jinping, state chairman of the People’s Republic of China (PRC), first proposed AIIB in 2013, questions have frequently been raised about the level of influence that the PRC party-state can or will exert over the organisation.

In addition to hosting the bank, the PRC holds 26.6 percent of AIIB’s voting rights, giving it an effective veto over decisions that require a 75 percent supermajority.

New Zealand has a unique position within AIIB. It is a founding member and was the first developed Western country to join negotiations to establish the bank.

While New Zealand holds only 0.48 percent of AIIB’s shares, making it the bank’s 33rd largest shareholder, its decision to become involved at an early stage allowed it to play a role in shaping the rules that govern the institution and to provide feedback to other countries that were considering doing the same.

Climate change is a major issue for AIIB and a prominent factor in its investment decisions.

The bank was established a month after the December 2015 adoption of the Paris Agreement, and it has made significant commitments to help countries mitigate and adapt to the impacts of climate change. This has included a pledge to have climate financing account for 50 percent of its annual financing approvals by 2025; it reached 56 percent in 2022. By the second quarter of 2023, AIIB had approved a cumulative USD 11.75 billion in climate finance.

Some of the countries that are most susceptible to the risks of climate change are in the Pacific. While AIIB’s engagement with the region has so far been limited, it is growing.

The bank counts Cook Islands, Fiji, Samoa, Tonga and Vanuatu as members and has recently admitted Solomon Islands to the ranks of prospective members – economies that will become full members once they have completed the membership processes and made a capital deposit.

It has also provided Cook Islands and Fiji with loans. AIIB is exploring how it can partner with regional stakeholders to support Pacific Island countries further as they contend with rising sea levels and more frequent extreme weather events.

Geopolitical issues have complicated AIIB’s operations.

Following Russia’s (the bank’s third-largest shareholder) invasion of Ukraine in February 2022, AIIB froze lending to Russia and Belarus (a launch point for the invasion).

The bank treated the matter as an operational issue – it faced losing access to key capital markets if it continued lending to Russia – and refrained from condemning the actions of the two countries in an attempt to maintain its political neutrality.

AIIB’s relatively short existence has also coincided with a period in which China’s relationships with the United States and several other countries, including AIIB members India, Australia and Canada, have deteriorated.

The bank has endeavoured to remove geopolitical tensions from its operations by evaluating projects on their economic, environmental and social merits.

These efforts were apparent in its decision, in 2017, to approve a project in India while tensions between India – the bank’s largest borrower – and China – its largest shareholder – were heightened due to a border dispute between the two countries.

The bank has, however, struggled at times to eliminate geopolitical considerations from its decision-making processes.

Taiwan’s attempts to become a member provide one such example.

The island’s application to join AIIB in 2015 was rejected, and in 2016, it abandoned its efforts to become a member after the bank declared that it could only join if the application was lodged through the PRC Ministry of Finance.

Following the roundtable, President Jin was interviewed by the Foundation’s Asia Media Centre for their Asia Insight podcast. The episode can be listened to here.

The Foundation's Track II programme supports informal diplomacy with thinktanks in Asia on issues and challenges facing the region.