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The Asian Infrastructure Investment Bank’s Implications on Global Project Finance

Over the past couple months China has made massive strides in the chartering of the Asian Infrastructure Investment Bank (AIIB), and with 50 countries signing up to join the bank in June, the AIIB seems near functional.1 Developed by China as a counter to the Western dominated World Bank and IMF, the stated objective of the AIIB is to “focus on the development of infrastructure and other productive sectors in Asia, including energy and power, transportation and telecommunications,…water supply and sanitation, etc.”2 China is hoping to use the AIIB as the engine through which it will launch its infrastructure development strategy in Asia, and this is sure to create many opportunities for American law firms engaged in project finance.3

 

The Asian Development Bank (ADB) estimates that a total of $8 trillion will be spent on infrastructure projects in Asia between 2010 and 2020.4 While the “ADB invests in a wide range of projects such as public health and education, the newly-established AIIB will apply all of its $100 billion exclusively to infrastructure.”5 The capital deployed by the AIIB will be used to fund China’s broader “One Belt, One Road” development strategy which will see much needed development projects throughout Asia and Europe.6The AIIB, coupled with the “One Belt, One Road” plan, will have two major implications for the field of project finance.

 

First, the AIIB creates a new source of capital for development projects.7 With a sole focus on infrastructure development, this capital will also bring with it a form of regional market expertise in infrastructure investment.8 Second, the AIIB and China’s development strategy creates a framework for other investors to join. The scale of development that is required in Asia to fill the gap in infrastructure needs central organization, and China seems both able and willing to take the lead.9 This comes as good news for many institutional investors as they have previously commented that what is lacking is a “pipeline of well-structured…projects in which to invest or lend their funds.”10 With the additional capital and structure the AIIB offers for infrastructure investment projects, there is a likelihood that we will see American law firms expand their project finance practices as well.

 

American law firms are extremely active in global project finance deals, and these recent developments present opportunities for American firms to expand their presence in Asia. Besides the anticipated increase in deal volume due to the AIIB coming online, the AIIB is said to improve another issue American firms face when conducting business in Asia. Officials suggest that there will be increased “transparency and accountability”11 in the way AIIB projects are conducted, and this will also go to increase American appetites for the increased project finance opportunities in the Asian markets.

 


  1. Duncan Hewitt, Fifty Countries Sign Up To China-Led Asian Infrastructure Investment Bank, In Diplomatic Victory For Beijing, International Business Times, Jun. 29, 2015, http://www.ibtimes.com/fifty-countries-sign-china-led-asian-infrastructure-investment-bank-diplomatic-1987459. 

  2. About Us, Asian Infrastructure Investment Bank, http://aiib.org/html/aboutus/AIIB/ (last visited Sept. 24, 2015 

  3. Li Zhang & Xuanwu Jin, China is moving to form a New Silk Road Fund and an Asian Infrastructure Investment Bank that will finance power and other infrastructure projects along six corridors in Asia; part of a “One Belt, One Road” development strategy, Chadbourne & Parke’s Project. Fin. NewsWire, July 2015, http://www.chadbourne.com/China-Launches-a-Multilateral-Infrastructure-Bank-07-09-2015_projectfinance/. 

  4. The Asian Infrastructure Investment Bank: The infrastructure Gap, The Economist, Mar. 21, 2015, http://www.economist.com/news/asia/21646740-development-finance-helps-china-win-friends-and-influence-american-allies-infrastructure-gap. 

  5. Li Zhang & Xuanwu Jin, China is moving to form a New Silk Road Fund and an Asian Infrastructure Investment Bank that will finance power and other infrastructure projects along six corridors in Asia; part of a “One Belt, One Road” development strategy, CHADBOURNE & PARKE’S PROJECT. FIN. NEWSWIRE, July 2015, http://www.chadbourne.com/China-Launches-a-Multilateral-Infrastructure-Bank-07-092015_projectfinance/. 

  6. Id. 

  7. Id. 

  8. The Asian Infrastructure Investment Bank: The infrastructure Gap, THE ECONOMIST, Mar. 21, 2015,

     

    http://www.economist.com/news/asia/21646740-development-finance-helps-china-win-friends-and-influence-american-allies-infrastructure-gap. 

  9. See Simon Denyer, China Launches Development Bank for Asia, Calls it First Step in “Epic Journey,” The Washington Post, Jun. 29, 2015, https://www.washingtonpost.com/world/china-launches-infrastructure-bank-first-step-in-an-epic-journey/2015/06/29/e7d8bd7a-ca11-46fa-9bad-15ba856f958c_story.html. 

  10. Ashurst Singapore, Asian Infrastructure Investment Bank: Added Momentum for Asian Infastructure?, May 2015, https://www.ashurst.com/doc.aspx?id_Content=11968. 

  11. David R. Sands, China celebrates Asian Infrastructure Investment Bank Charter Signing with U.S. Allies, The Washington Times, June 28, 2015, http://www.washingtontimes.com/news/2015/jun/28/china-celebrates-asian-infrastructure-investment-b/?page=all. 

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Jesse Kalashyan