The genesis of AIIB and the role of China in promoting the global economy

Fourth, external balance is another issue that China seeks to improve through the establishment of the AIIB. Economics dictionaries define “external balance” as a situation in which the money a country brings in from exports is roughly equal to the money it spends on imports. Hence, external balance occurs when the current account is neither excessively positive nor excessively negative”. External balance also covers capital movement. In the light of the above definition, when we assess China’s external balance, it is closely uneven. Conventionally, China carries huge trade surpluses over the years. In 2014, the Chinese trade surplus was more than USD 382.4 billion. Many countries stress China to improve its trade balance through the capital investment from its side. With the creation of AIIB, on one hand, demand of many countries will be honored and on the other hand, China will be able to improve its external balance via its outbound investment.

Fifth, over capacity of construction material is another issue that China aspires to tackle through the establishment of the AIIB. Overcapacity in the iron and steel industry is probably "beyond imagination," said Li XinChuang, executive vice-secretary general of the China Iron & Steel Association (CISA). According to some rough estimates, China had nearly 300 million tones of surplus steel output capacity in 2013. The amount was equivalent to nearly twice the annual output of the entire European Union. Not only traditional industries such as iron and steel and cement suffer from over capacity, but some emerging industries for instance wind power equipment, poly- crystalline silicon and aluminum have the tendency of over production.

Development economics experts consider, over capacity of construction material is one of the major drivers pushing the series of international and regional infrastructure development initiatives introduced by the Chinese government. The BRICS, BRICS Bank, "One Belt and One Road project” should be viewed with the same perspective.

Sixth, in terms of money supply, today, the Chinese currency is one of the top five world major currencies. Despite of its growing importance, the RMB is not an international reserve currency. Analysts believe China would leverage the AIIB to internationalize its currency. After the establishment of the Bank, the Chinese companies (crammed with capital and resources) will have a larger share in infrastructure development. Consequently, use of Chinese currency will be the most viable option for the investors.

The Asian Infrastructure Investment Bank is not only significant to China. It means much more for Asia and the world in general. To some estimates, the creation of AIIB will generate approximately 180 million jobs across the Asia. New job creation has empirical links to poverty alleviation. As is well known, Asia remains one of poorer regions of the world. Official figures confirm, alone in China, over 150 million people live below the poverty line. The situation in India is even worse, according to Oxfam reports, half of the Indian population earn less than $ 1.25 dollar a day. Likewise, Pakistan, Bangladesh, Philippines and other poor Asian countries suffer from severe poverty. The proposed AIIB will provide new financial support to the developing Asia and help promote a global economy.

The writer is a foreign expert professor at Jinan University, Guangzhou, China.