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Tuesday 11 August 2020

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Meet Jin Liqun, IFRS Foundation Trustee and first President of the Asian Infrastructure Investment Bank (AIIB)

 17 February 2016

Jin Liqun and Ian King

Jin Liqun (left) and Ian King

Recently, in celebration of the first anniversary of the Investors in Financial Reporting programme, the IFRS® Foundation and CFA Institute hosted an investor event entitled 'Asia and the Balance of Power in the Global Economy'. Held in London, it featured a Q&A session with Jin Liqun, who has been a Trustee of the IFRS Foundation since 2011 and is the recently elected President of the Asian Infrastructure Investment Bank, and Ian King, business presenter for Sky News.

In this article, finance journalist Liz Fisher captures the highlights of the wide-ranging discussion, which covered the value of the Chinese currency, the structure and scale of debt in China, the potential for co-operation between development banks and the private sector, along with the potential impact of the work of the AIIB on capital markets.

The establishment of the Asian Infrastructure Investment Bank (the AIIB) has been one of the most significant events in international finance in recent years. The speed with which it has been built, the large membership and the high quality of its policies are signs of serious intent. The idea of a multilateral development bank (MDB) based in Asia, which would promote interconnectivity and economic integration in the region in co-operation with existing development banks, was first announced by Chinese President Xi Jinping in October 2013. Just over two years later, in January 2016, the AIIB's Board of Governors held its inaugural meeting.

The balance of the global economy has changed since Bretton Woods and even since the Asian Development Bank (ADB) was founded in 1966. The AIIB will co-operate with the World Bank and other MDBs, not compete with them. As the AIIB’s first President, Mr Jin has the challenging task of getting the AIIB up and running, living up to its mandate of a new bank for the 21st century.

Lean, clean and green

The idea from the outset was that the AIIB would do things differently. It calls itself a development bank 'conceived for the 21st century', which will be built on the experience of existing international development banks and the private sector. The motivation for setting up the AIIB is to meet the funding demands for infrastructure in Asia, including energy, transport, water, sanitation, agriculture and communications. The need for good infrastructure is particularly critical in Asia. Realistically, MDBs are the institutions that have the resources and long-term mind-set to fund such huge projects.

The mantra of the AIIB is to be 'lean, clean and green'—with a small, efficient management team and highly-skilled staff, no tolerance for corruption and built on respect for the environment. It has capital of USD 100 billion to invest (about 40 per cent that of the World Bank) and 57 founding members including Australia, Germany and the UK.

Co-operation with private investors

Some observers have questioned the record of existing development banks in enabling private investment in infrastructure projects, particularly in emerging markets. The nature of such investments, including the underlying currency, politics, and time to maturity, often discourages or prevents private capital from flowing to what are often viewed as highly profitable projects. Mr Jin urged investors not to be so quick to judge. Citing the success of China which benefited greatly from World Bank, ADB and other MDB contributions, he argued that these banks have been strong contributors to economic growth, financing and stability in many parts of the world. It is important first to be fair and acknowledge the contributions made by all of these institutions.

Of course, Mr Jin also recognised that there is room for improvement. He acknowledged that the long gestation period of many infrastructure projects, combined with local policies, often makes it hard for private investors to get involved. Consequently, although its design has benefited from the experience of the existing development banks, the AIIB wants to 'do different things and do things differently'. The new President believes that by combining the strong features of (and leveraging his own experience with) MDBs and private sector companies, a new operating modality is expected to better serve the client members and all the other shareholders. This will facilitate and enable co-operation with private investors, which can help mitigate many of the current risks. The AIIB and private sector investors could work out co-financing arrangements that meet their respective needs. Co-operation and working together is certainly the key. This is what the AIIB is all about.

21st century governance

Good governance and an effective principles-based corporate culture are high on the agenda for the AIIB's first President—the AIIB’s intention has been described as 'to embody 21st century governance'. But what does this mean in practice?

The answer lies with accountability and responsibility. The AIIB is built on the belief that both accountability and responsibility should be clearly delineated. The AIIB’s non-resident Board structure clearly defines responsibilities and accountabilities, allowing the Board to set the strategy and establish policy while the management is responsible for daily operations. In this structure, both Board and management are accountable for their decisions and actions. This emphasis on accountability extends throughout the organisation—employees at the AIIB are on three-year contracts, which are not renewed if their performance drops.

A common accounting language

The AIIB uses the US dollar as its currency and English as its 'mother tongue'. IFRS Standards are its accounting language and Mr Jin would like to see IFRS Standards used more widely: 'I thought it was a wonderful idea for China to move forward on adoption of IFRS Standards, because it works in China’s interest. Chinese companies are operating throughout the world and you can’t do that with domestic standards.'

Some of the participants at the event wondered if China’s willingness to move towards IFRS Standards could eventually persuade the US to do the same. Time will tell, was the reply. Circumstances may not be right at present, but that is not to say that they will never be right. Time will also tell if the AIIB can be what it wants to be and deliver what it promises; but, as Mr Jin says, with the continuing strong support of its shareholders, the AIIB will put forth all efforts to realise these goals.