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China’s Asian Infrastructure Bank needs borrowers...badly

By Stewart Taggart - posted Thursday, 4 February 2016


By all accounts, the agreement has gone well. More lights now stay on for longer in the Philippines. Meanwhile,State Grid has used the contract as a showcase to win subsequent investments in South Australia, Italy, Brazil and elsewhere.

Happily, legitimate worries about State Grid being used as a stalking horse for progressive political Chinese domination of the Philippines have proved unfounded. Two things show this.

First, the Philippines has continued to be vocal in opposing Chinese encroachment in disputed areas the South China Sea. The Philippines is still pursuing a UN tribunal judgement over China's Nine-Dotted Line - a decision which is expected in coming months.

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Separately, the Philippines last year sent home State Grid technicians and replaced them with Philippine workers. This after largely unsubstantiated concerns were aired of a security virus in the Philippine grid of unstated, but clearly inferential, origin.

Instead of responding with strident, threatening language, State Grid quietly accepted the expulsions with little more than a call for "procedural fairness".

This indicates that as State Grid and other Chinese infrastructure companies realize that as they expand internationally, they no longer occupy the home turf where capricious actions are the unchallengeable privilege of the home team.

Therefore, the devil's bargain for China of gaining a solution to its "bicycle problem" of maintaining domestic employment through export infrastructure may be a realization in China that it must play by other countries' rules as part of its "Going Out" export strategy.

Given this, AIIB borrowers may now enjoy being able to apply a few pages from China's own successful playbook.

These can include limiting Chinese companies like State Grid and CNOOC to minority stakes with majority owner domestic joint venture partners, requiring transfer of leading edge intellectual property and requiring local staffing.

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All of these are common features of Build-Operate-Transfer infrastructure projects, which already are staples of Chinese domestic projects that have involved foreign partners.

In coming years, China can be an infrastructure engine for a greening global economy using capital China is now ideally-suited to provide through the AIIB.

Done right, it can be a rising tide that lifts all ships. It can bind China into a positive web of mutually beneficial, trusting relationships.

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About the Author

Stewart Taggart is principal of Grenatec, a non-profit research organizing studying the viability of a Pan-Asian Energy Infrastructure. A former journalist, he is co-founder of the DESERTEC Foundation, which advocates a similar network to bring North African solar energy to Europe.

Other articles by this Author

All articles by Stewart Taggart

Creative Commons LicenseThis work is licensed under a Creative Commons License.

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