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Fully Invested: India Remains the China-led AIIB’s Biggest Borrower

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Fully Invested: India Remains the China-led AIIB’s Biggest Borrower

The case of AIIB shows that India wants to keep its economic engagement with China separate from their political tussles.

Fully Invested: India Remains the China-led AIIB’s Biggest Borrower
Credit: Narendra Modi via Facebook

On July 12 this year, the Asian Infrastructure Investment Bank (AIIB) approved yet another project for India: the L&T Green Infrastructure On-Lending Facility. With this project, India remains the top borrower from the China-led and China-created multilateral development bank. A total of 10 projects have been now approved by the AIIB for India and two more are under consideration.

This appears perplexing given rather strained political relations between the two Asian powers. It looks as if New Delhi, while increasingly perceiving China as its biggest threat – or at least one on par with Pakistan – is at the same time keen to borrow from a bank that has come to symbolize for some China’s growing financial engagement across Eurasia.

AIIB: Lending Money, Borrowing Ideas

As with a few other Chinese initiatives, it is easy to overemphasize the budding AIIB’s significance, however. Some observers stubbornly perceive the AIIB as a crucial part of the Belt and Road Initiative (whatever that means), a rather strange conclusion given that AIIB projects are often not showcased as elements of BRI (India is the best example here). In truth, however, part of AIIB’s importance probably lies in it being an international body, and in the learning capacity it has. Many of its projects are undertaken together with the World Bank, thanks to which the AIIB can observe the bank’s norms (“observe” in both meanings). It may therefore be a framework to lend money and borrow ideas.

Its financial prowess is still very limited, however. The projects the AIIB involves itself in are usually modest to moderate by the standard of international banking, with China-led bank’s financial support often ranging from $100 to 400 million. This is not a financial heavyweight compared to, say, the scale of loans given by other multilateral development banks.

More importantly, the four-year-old AIIB is just starting its projects. These are, therefore declared loans and we shall see how much of this will actually come through.

The Biggest Borrower, the Biggest Market

And yet with all these caveats it must be admitted that the total sum of what the AIIB may lend to India is a formidable amount. While the scale of the bank’s financial involvement in the tenth project for India has not been announced at the time of writing, the loans announced for the previous nine projects already add up to around $2 billion. Eight announced loans have an aggregate value of $1.989 billion, while the loan for the ninth one, the India Infrastructure Fund, is vaguely defined as reaching up to $150 million. The AIIB is also considering borrowing an additional $100 million for another one: the National Investment and Infrastructure Fund.

The planned scale of India’s borrowing from the AIIB is already out of proportion to its share-holding position in the bank. The country with the biggest vote share in the institution is China (26.65 percent), followed by India (7.65 percent), Russia (6.06 percent; the country has not been given a single project as of yet), Germany (4.2 percent), and South Korea (3.54 percent). Birds in the bushes also tweeted years ago that the Indian representatives within the bank have grown to occupy highly influential positions, one that perhaps exceeds India’s financial standing in the structure.

And yet all of this perhaps makes sense, especially from the perspective of Chinese economy. India may be the second shareholder of the bank, but it is also one of the biggest prospective markets for transport infrastructure development among AIIB’s Asian members. The institution, after all, has “Asian” and “infrastructure” in its name for good reasons. Of the 10 AIIB-approved projects, six are to fund building transport infrastructure in India. Of the remainder, two are energy infrastructure projects and two may be termed “green infrastructure” projects. AIIB loans for such projects could arguably pave the way for some of the major Chinese companies to involve themselves, giving these firms experience and their first outposts in India’s highly-promising infrastructure market.


The larger geopolitical context seems to be lightyears away from this economic perspective. Over the past few years, while New Delhi has been gradually receiving new projects from the AIIB, Indian and Chinese troops faced each other off at Doklam on the border with Bhutan, Maldives and Sri Lanka saw political crises in which the influences of India and China visibly clashed, New Delhi supported Vietnam while China’s financial engagement in Pakistan grew immensely, and so on. India also refused to take part in Beijing’s trademark international event, the Belt and Road Forum for International Cooperation, but at the same time hosted the AIIB summit in Mumbai (right before the start of the Doklam stand-off). Moreover, India’s trade with China remains of high volume (and with a mammoth imbalance in Beijing’s favor) and New Delhi has not really tried to administratively interfere in this. Moreover, some other investments by Chinese companies in India were apparently not halted.

With the size of both countries, when analyzing their ties, it would often appear wise not to try to search for too general conclusions and broad strategies. But if this maze of these confusing facts can lead a bewildered observer into any summarizing points, they should probably look like this:

First, New Delhi does not want to link its political tussles with Beijing with their economic relations, partially because it simply perceives certain aspects as beneficial, and partially because it lacks the economic clout to do otherwise (for example, in terms of money it needs to borrow). Thus, India does not want to hold Chinese or AIIB investments ransom to their political tensions.

Second, the AIIB is perhaps a special case for India in the sense that it is an international organization and thus dealing with it is in many ways different from borrowing directly from a Chinese state bank.

Third, at least parts of the infrastructure market may perhaps be an area of mutual benefit. India’s needs in this regard are immense, and the Indian companies will not match the scale of these challenges with their capital, experience and technology, and Chinese companies may have a lot to offer in all three regards. It also goes without saying that India and China will not cooperate in sensitive areas, such as building infrastructure on the territories of dispute between them.

Fourth, aside from the Doklam crisis, it needs to be stressed that most of Modi’s engagement with China in last years was not really provocative. New Delhi has deliberately put some of the sabers in the scabbards, lest they rattle too loudly. Modi’s conciliatory ‘Wuhan spirit’ policy towards Beijing has actually been criticized by many in India as pointless and too soft. Their political conflicts were mostly proxified wars of influence in third countries, and thus India did not create an impression it wants to face China directly. While this may change in the long run, it also means that the economic cooperation within the AIIB is not that incoherent with New Delhi’s “moderately aggressive” geopolitical position toward Beijing.