Stronger joint co-operation needed to toughen economic rules in Asia

Stronger joint co-operation needed to toughen economic rules in Asia
Chinese President Xi Jinping (fourth from right) with guests at the Asian Infrastructure Investment Bank launch ceremony at the Great Hall of the People in Beijing in October last year. The AIIB is envisioned as a multi-lateral lender that could finance billions of dollars’ worth of infrastructure projects across Asia.

During Tuesday's summit meeting between Prime Minister Shinzo Abe and US President Barack Obama, it was Abe who broached the subject of the China-led Asian Infrastructure Investment Bank (AIIB), sources said.

He pressed for strict governance and environmental standards, they said.

Later, Obama brought up the AIIB at a joint press conference after the meeting.

"You've got to have some transparency in terms of how the thing is going to operate. Because if not, a number of things can happen. Number one, money could end up flowing that is misused, or it doesn't have high accounting standards, and we don't know what happens to money that is going into projects," he said.

These are thought to be Obama's first public remarks on the AIIB, and showed that concerns about the bank are shared at the highest levels of the Japanese and US governments.

Yet the concerns do not end at financing that could lead to environmental hazards and corruption.

If China uses the AIIB to advance its own national interests, it could reap additional benefits in terms of security.

China's Silk Road Economic Belt initiative is aimed at building a new economic network in Asia.

In addition to the AIIB, another pillar of the project is the Silk Road Fund, which is financed solely by China.

The fund's first investment was announced April 20 - a hydropower project in northeast Pakistan with an outlay of $1.65 billion (about ¥200 billion).

Observers said China has a close relationship with Pakistan and aims to keep India, another major power, in check.

The planned site's location has been linked to border disputes between India and Pakistan. The Japanese government has previously declined to provide aid to Pakistan for the project.

"I heard that 10,000 elite Pakistani troops will provide security for the construction site," a source involved in global finance said.

A senior Finance Ministry official said, "This project wouldn't be approved by boards of directors at institutions like the World Bank."

The post-World War II global financial system was built under US leadership - with Japanese support - to prevent corruption and create free markets.

The Trans-Pacific Partnership free trade pact is a proactive tool that could help to check China's rising power.

In Wednesday's address to the US Congress, Abe said the TPP "goes far beyond just economic benefits. It is also about our security. Long-term, its strategic value is awesome. We should never forget that."

As the TPP is designed to spread high standards of trade and investment throughout the Asia-Pacific region, China would eventually be forced to conform to its rules if the accord comes into effect.

While Abe and Obama said their countries would work together so the TPP could be concluded quickly, difficult issues remain. For Japan, these include expanding rice imports and the timing for eliminating US tariffs on automobile parts.

An advance bilateral agreement would go a long way in helping to create global economic rules for the new era.

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