Japan’s LDP to advise Abe not to join AIIB yet

TOKYO — Japan should not join the China-led Asian Infrastructure Investment Bank (AIIB) until governance concerns are addressed, a panel of ruling party lawmakers will advise Prime Minister Shinzo Abe this week, according to a person with direct knowledge of the issue.

The Liberal Democratic Party’s (LDP) AIIB panel will discuss their draft recommendation tomorrow and submit a final report to Mr Abe before Japanese Finance Minister Taro Aso meets his Chinese counterpart in Beijing on Saturday, the person said to Bloomberg, asking not to be named because the plan is not yet public.

The recommendation will express concerns over the governance of the AIIB and the possibility that China will be able to exert a strong influence over areas of investment, the person said.

The panel does not favour joining the infrastructure bank, but will propose that Tokyo keeps its options open so the government can use it as a diplomatic card in talks with Beijing.

The new US$100 billion (S$135 billion) lender being established by China will boost Beijing’s presence in the region’s infrastructure business.

Japan, which along with the United States chose not to join other nations in setting up the AIIB, still plans to increase infrastructure spending in the region.

Mr Abe announced last month that Tokyo would inject US$110 billion into the Asian Development Bank (ADB) headed by his country, to fund infrastructure projects in Asia over the next five years.

A total of 57 countries have joined the AIIB as its prospective founding members, bringing together nations as diverse as Iran, Israel and Britain. Singapore and all other Association of Southeast Asia Nations (ASEAN) member states are also among the 57.

The AIIB last week set an ambitious target to become operational by the end of the year after a three-day meeting of prospective founding member nations in Singapore agreed on a charter for the bank.

China is likely to hold a 25 to 30 per cent stake in the new multilateral lender while India will be the second-biggest shareholder, said delegates after the meeting ended.

The AIIB said the meeting in Singapore finalised the articles of agreement, which are expected to be ready for signing by the end of next month, and that the bank would start operations by the end of the year.

It gave no details of the charter, including whether Beijing will have veto power over lending or other special status, or how environmental and other standards on lending will be enforced. Clauses in the charter are likely to include the purposes and functions of the bank, as well as its governance structure and conduct of operations.

The US and Japan have stayed out of the institution, seen as a rival to the US-dominated World Bank and the ADB, citing concerns about transparency and governance.

Finance ministers and central bank chiefs of the Group of Seven major industrial nations last Friday urged the AIIB to adopt high management and lending standards such as those put in place by existing international financial institutions such as the World Bank, after a three-day meeting in Dresden.

“This is more about politics than economics, as Japan has the ADB and doesn’t really need to join,” said Mr Hiromichi Shirakawa, chief Japan economist at Credit Suisse Group AG.

“Japan is likely to continue to follow the US,” he said, adding that Japan could lose out on some investment projects in Asia if the AIIB gains influence. AGENCIES