Pacific Money

How the AIIB Grows China’s Interests in the Middle East

Recent Features

Pacific Money | Economy

How the AIIB Grows China’s Interests in the Middle East

The multilateral bank’s institutional features help entice regional players — and advance Chinese interests in the region.

How the AIIB Grows China’s Interests in the Middle East
Credit: Wikimedia Commons/ Max12Max

The Board of Governors of the Asian Infrastructure Investment Bank (AIIB) recently announced that its sixth Annual Meeting will be held in Dubai, the United Arab Emirates (UAE) on October 27-28, 2021. This is the first time AIIB will hold its Annual Meeting in the Middle East, and it will take place in parallel with the Dubai World Expo.

In the past years, the AIIB’s foothold in the Middle East has been growing through funding a number of projects in the region, including Oman’s biggest solar power project, which is the first renewable energy financing for AIIB in the region.

Although the AIIB’s activities in the Middle East have been widely reported, what is less discussed is how the AIIB, particularly its institutional configurations, have helped Chinese political and economic interests in the Middle East. These configurations include facilitating the participation of the regional countries in the policymaking process of the bank and giving material funding to the Middle Eastern states.

These frameworks are designed to bolster legitimacy for Chinese interests among the countries of the Middle East.

Incorporating the Middle Eastern Countries into AIIB’s Policymaking Process

The first of these frameworks is the incorporation of the Middle Eastern countries into the policymaking process of the AIIB. If we revisit Robert Cox’s conception on how institutions help a hegemon to co-opt lesser powers and to assimilate opposite interests, the AIIB in the Middle East represents such a move.

This is made possible by a number of institutional elements of the AIIB, particularly its self-declared “Asian” focus. The AIIB’s regional nature tries to ensure that Asian countries are the dominant voices of the institutions.

The AIIB’s Article of Agreement (AoA) stipulates that the voting rights of the Bank are divided into two fundamental parts: Asian countries and regions, which have 70-75 percent of the votes, and countries outside Asia, which have 25-30 percent. The voting rights of individual states consist of three parts: the state’s share of capital, basic voting rights, and 600 votes for every Prospective Founding Member (PFM). To be more specific, the share of capital is calculated according to the weighted average of GDP (60 percent market exchange rate and 40 percent purchasing power parity). The basic voting rights constitute 12 percent of the total voting rights and are divided evenly among all the member states. Together, the basic voting rights and PFM votes constitute 15 percent of the total voting rights. As an outcome of this complex formula, Asian countries, with the exception of China, have a combined 30 percent vote share in the Bank.

As iterated in the AoA, the Middle Eastern states are included as regional Asian members. This regional member status means that the Middle Eastern countries have greater decision-making powers than the non-regional member countries and are able to hold the majority of the Bank’s capital stock. This allocation provides the Middle Eastern countries with a larger influence in the AIIB than non-Asian member countries that have only 20 percent votes.

This large voting share is further complemented by the fact that some of the Middle Eastern countries such as Saudi Arabia, Qatar, the UAE, and Oman are among the founding members of the AIIB, along with 54 other countries. As founding members, these countries are given additional privileges that are not available to countries that became members of the AIIB at a later point, including the chance to be elected as directors and deputy directors of the Board. As stated in the AoA, the Board of Directors are representatives elected by the Board of Governors and appointed to handle the everyday operations of the AIIB, such as grants and loans.

The Board incorporates 12 different nations from Asia, Europe, Oceania, and South America. It differs from the IMF and the World Bank, which have resident directors who are based in and operate out of Washington, D.C.; the Board of Directors in the AIIB comprises non-resident directors who live and operate in their respective home countries. With their status as founding members, this means that the Middle Eastern countries are given the right to appoint individuals from their countries to be directors and deputy directors. In addition, since the electoral districts are based on region, founding members are allowed to hold the position alternately or permanently. This differs from non-founding members, who can only get positions by way of elections.

For example, Mohammed Aljadaan, Saudi Arabia’s minister of finance, has been appointed as one of the directors in the AIIB’s Board of Directors. Meanwhile, Sultan Al Jaber, the UAE’s minister of industry and advanced technology, and Wissam Rabadi from Jordan, have been selected to the Board as well.

These individuals are given the authority not only to represent the interests and voices of their countries, but also to approve the Bank’s strategy, annual plan, and budget to formulate policies; to take decisions out the Bank’s operations; to establish an oversight mechanism; and to supervise the Bank’s management and operations.

These settings in the AIIB’s institutional structure can be regarded as a strategy to attract the regional countries into the policymaking process of the AIIB and to integrate their interests into mainstream policy dialogue.

Focusing on Providing Loans to Less Developed Countries

Another institutional element of the AIIB that helps advance Chinese interests in the Middle East is the main objective of the bank, which is to provide loans for infrastructure projects to less developed countries.

Article 1 of the AIIB’s AoA states that the main purpose of the Bank is to: “improve infrastructure connectivity in Asia by investing in infrastructure and other productive sectors” and by “mobili[zing] much needed resources from inside and outside Asia.

In the Middle East, the AIIB’s focus on infrastructure loans has been turned into concrete efforts in recent years. It has, for example, approved two major loans for construction projects in Oman: one for the development of the port of Duqm and the other for the building of a rail connection.

The strategy of providing material incentives has been further supported by the AIIB’s principle that politics should not be taken into account when determining whether a development project is worth pursuing. Deviating from existing Western principles that attach guidelines and loan conditions, which are frequently a source of criticism from developing countries, including Middle Eastern countries, the AIIB is committed to not placing any conditions on loans and to taking into greater consideration the actual conditions and needs of the developing nations, putting an emphasis on the efficiency, simplicity, and transparency of lending procedures.

Although such efforts have ignited criticisms from the United States and its allies, who claim that China is allowing non-democratic regimes to remain and indirectly providing them support through loans and funding, they appeal to the Middle East. A Dubai-based online weekly, AMEinfo, for example, has reiterated that the “promise of no-strings-attached infrastructure financing” is one of the reasons why the Middle Eastern countries joined and supported the AIIB.

Whilst it is true that the infrastructure projects under the AIIB are carried out on the basis of Chinese economic interests, the AIIB’s focus on infrastructure projects could be considered as an attempt to provide material incentives for the Middle Eastern countries to allure them not only to support and participate in the initiative, but also to attract them into accepting Chinese growing interests.

Dr. Muhammad Zulfikar Rakhmat is a senior lecturer at Universitas Islam Indonesia whose research focuses on China-Indonesia-Middle East relations.