Japanese head of ADB makes light of China-led rival AIIB

The Japanese head of the Asian Development Bank has poured cold water on China's move to establish a rival, saying the Asian Infrastructure Investment Bank was years away from parity in resources or potential impact.

Takehiko Nakao, the latest in a long line of Japanese finance ministry officials to head the ADB, has in recent weeks joined other development bank presidents in welcoming the establishment of the AIIB and offering to work together with it on projects.

At a time when all agree there is a significant shortfall in infrastructure investment around the world, the consensus view expressed in public is that any new pools of money are to be welcomed.

However, in an interview with the Financial Times, Mr Nakao stressed what was likely to be the relatively low lending capacity of the AIIB early on and the fact that China was already a major player in the world of infrastructure financing via banks such as the China Development Bank.

"I'm not trying to belittle the initiative," he said. "I think it is understandable."

But the ADB, he said, had almost $100bn in loans outstanding in Asia, twice the initial capital proposed for the AIIB. The ADB's total authorised capital stands at more than $150bn.

"It's a huge amount of money. I'm not boasting that we are bigger. But we have a history and a certain lending capacity and expertise and diversified staff. We can continue to play a role," he said.

"I don't think there will be major change to the world of development finance [because of the creation of the AIIB], although there can be interpretations as to the symbolic meaning of this."

Mr Nakao said it was understandable that many European governments had joined the AIIB as they by and large had little historical commitment to the Asia-Pacific region, particularly compared with the ADB's two biggest shareholders.

"The US and Japan have invested a lot in the ADB and the World Bank in these decades after Bretton Woods in 1944 and the start of the ADB in 1966 to ensure the prosperity and stability of the Asia-Pacific region," he said. "It is in a sense understandable that the stance of the US and Japan are different from the stance of European countries. They are Asia-Pacific countries."

The US and Japan have so far declined to become founding members of the AIIB, although other major western economies such as the UK and France have joined, as have other regional rivals such as India.

The US and Japan remain publicly sceptical of the AIIB, stressing the need for it to establish environmental and social standards, or safeguards, that live up to those now employed by institutions such as the ADB and the World Bank.

After a meeting with his US counterpart last week, Taro Aso, the Japanese finance minister, said they had agreed to allow the ADB to explore doing joint projects with the AIIB. But Mr Aso also stressed that they both felt the new bank needed to demonstrate the "highest standards of fairness and governance".

The AIIB is still a long way from becoming reality and starting to lend. A charter must be negotiated and governance questions such as how its shareholdings will be divided and decisions made still remain unanswered.

Although more than 50 countries have now signed up as founding members, it also remains very much a Chinese project, something Mr Nakao seized on.

When the ADB was founded at a meeting in Thailand in 1966 it was the result of years of "very broad discussions" involving "many countries", he said. "It was not just founded by Japan."

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