Jin Liqun, President of AIIB, speaks on AIIB, India, Belt & Road, Coal Financing, Bretton Woods, etc.

China-India border clash was the "first severe test of the nature of AIIB as a multilateral institution"

Update: after publishing and sending the newsletter via email, a few corrections were made. So the version here on the Substack page may be a little bit different from the emailed version. Sincere apologies for the errors.


Below is a speech by Jin Liqun, President of the Asian Infrastructure Investment Bank (AIIB) and once China’s vice finance minister, at 中国国际金融30人论坛第三届研讨会 the 3rd symposium of the China International Finance 30 Forum, on May 16, 2021.

The speech is available on some Chinese websites, including on Tencent News and the public WeChat blog - based on which this translation is produced - of Shanghai Development Research Foundation, which, according to reports in 2020, was the organizer of the forum’s first symposium in Beijing. A version of the speech was also published on Financial News 金融时报, a newspaper under China’s central bank, on June 7.

To date, there appears to be no English coverage of the speech, which your Pekingnologist finds would be newsworthy and informative. As usual, this newsletter is long, but it will be worth your time.

Again, please keep in mind this is a personal newsletter running personal writing and translations, so the buck stops with your Pekingnologist - not his day-job employer. The translation is neither authorized nor approved by Jin or anybody else, all highlights are made by this newsletter, and errors may well exist.


Some highlights to entice you to read the whole thing:

1) The first severe test of the nature of AIIB as a multilateral institution was When there was a conflict on the border between China and India, the AIIB still offered loans to India, as scheduled long before the conflict. When the Sino-Indian border conflict occurred, the management of AIIB adhered to international standards, and the international response was very positive. 

2) Not long ago, I held a video conference with a German think tank, which surprised the Germans - India accounts for 25% of the total loans of AIIB and is the No.1 borrower. I said, what's so surprising about this? Isn't this (AIIB) an international institution? 

We can't talk about international standards and best practices at ordinary times but when we encounter practical problems we lost our thinking and resorted to something else. Once you break your promise, it is very difficult to restore your reputation.

The borrowing countries are not required to cooperate with Chinese-funded institutions - the principle of mutual consent always holds at AIIB. The AIIB has cooperated with Silk Road Fund and is also negotiating with some Chinese-funded enterprises, but all of them are based on the needs of the borrowing countries themselves.

3) We just want to establish an international multilateral institution in the true sense, adhere to best practices and be apolitical. Bilateral contradictions among member States should not be dragged into multilateral institutions. 

4) Under Jin’s leadership, the AIIB has steered clear of coal financing. A senior Chinese official recently said Some countries want our country to help build coal-fired power plants, but coal-fired power plants have reputation problems, so China feels very entangled.

To which Jin replied that if China can clearly declare that the Belt and Road Initiative will not engage in coal power and only support clean energy, it will greatly enhance the reputation of the BRI.

5) If the existing governance structure and operation mode of international multilateral institutions are not reformed, it will be difficult to adapt to the requirements of the new era. Hence, new bodies like the AIIB are needed.

Every single provision in the Washington Consensus does not seem to make a big mistake, but putting them together for implementation is a huge risk for developing countries. The Washington Consensus appears to represent the truth, but it is not applicable to many countries. 

6) China has grown a lot. Does it mean that China can naturally play a leading role in the international economic order and that we have a lot of power? In fact, not so much.

7) It is always correct that we should be modest and prudent.

We are already a big country, it is very important for us to have the demeanor and bearing of a big country in our relations with developed countries and many developing countries.

8) Jin also answered three main problems that make the United States very worried. First, will the AIIB initiated by China invade the territory of the World Bank? Second, will the AIIB be dedicated to cooperating with Chinese-funded institutions to promote Chinese-funded institutions to go global? Third, is the AIIB a tool to promote China's Belt and Road Initiative, or is it simply a bank of the BRI?

These are just a few examples - more in the full speech below.



At present, the international economic order we live in is the Bretton Woods system established after World War II. The process of establishing the Bretton Woods system gives us a lot of thoughts, one of which is the repetition of history.


At the end of the Second World War, there was no suspense in the defeat of fascism, and the anti-fascist countries had begun to consider how to establish a new system after the war to prevent the war from happening again. On July 1, 1944, when the Bretton Woods Conference was held, the focus of the world economy shifted from Britain to the United States. Today, more than 70 years later, the shift of the economic center of gravity to a certain extent reappears. In my opinion, it took only 20 years from the end of the First World War to the outbreak of the Second World War. One of the important reasons is that all countries adopted the policy of "beggar-thy-neighbor". When the United States demanded repayment from Britain and France, Britain and France claimed compensation from Germany, with a huge amount of compensation. Germany couldn't bear it and launched a war again. At the end of the Second World War, major countries were thinking about how to prevent such a thing from happening again.


Looking back more than 70 years later, we should think about how to prevent the cold war from turning into a hot war, how to prevent the new cold war from turning into a new hot war. If we can't get through this important historical juncture peacefully, all countries will face disaster. A correct understanding of the establishment of the international economic order and its operation in the past 70 years and drawing lessons from it are crucial to guide our next strategy. How did countries design this post-war system? Why design such a system? To this day, which part of this system remains effective and which part has failed? A clear analysis of these problems is very important to guide China to play a greater role in the international political and economic system in the 21st century, especially in finance.


After the end of World War II, China was also a victorious country. As the fourth largest country, it participated in the Bretton Woods Conference. However, the discussion of the whole Bretton Woods Conference was basically between Britain and the United States, and other countries actually only attended. Many countries today were still colonies at that time, so they could not attend this conference. At that time, China was able to attend this conference and ranked fourth among the Bretton Woods institutions, which was very precious. However, China had no power, mainly because Britain and the United States were the dominant players. At that time, the focus of the world economy and finance was shifting from London to New York. To a great extent, the Second World War gave birth to a new America. Although America's national strength at that time was unmatched, as a new force, the United States had both the impulse of strong performance and the will to unite everyone, especially European countries. The United States was quite reasonable in many aspects. The Second World War brought many opportunities to the United States, which firmly grasped these historical opportunities.


When designing the international economic system, John Maynard Keynes of Britain and Harry Dexter White of the United States competed. In terms of reputation, White was only an unknown middle-level cadre in the U.S. Treasury. The focus of their contest is which country's interests should the international economic system safeguard? What deserves our consideration today is that one side represents the interests of Britain, the other represents the interests of the United States, and at the same time, both sides were trying to represent the interests of the whole world. Under that historical condition, it was not easy to have such political foresight. Today, politicians in some countries have greatly regressed, considering only their own interests and not the interests of other countries. If you don't consider other people's interests - only consider your own interests - your own interests will eventually be lost. It is impossible for any country to conduct international negotiations without considering its own national interests, but it is worth considering from what angle the country should consider its own national interests.


Finally, the opinion of Harry Dexter White of the U.S. prevailed - the international economic system needed free trade and free flow of capital. At that time, European countries needed the United States to provide food, capital, and all kinds of machinery and equipment. The United States learned the lessons after the First World War and decided to help European countries rebuild. At the same time, it did not require European countries to repay the debts of the United States immediately. This period of history is worth studying in a deeper sense. At that time, the idea was to set up an international monetary fund, which could help some countries with macroeconomic problems. However, in order to attract these countries to join the International Monetary Fund, an International Bank for Reconstruction and Development, namely the world bank, was established (which is different from the World Bank today, because later the World Bank had more components), so as to provide funds for many countries to rebuild. Therefore, the articles of agreement said if a country were to become a member of the World Bank, it must also be a member of the International Monetary Fund beforehand. The establishment of the World Bank is actually a "bait": as long as a country is willing to accept macro-regulation, it can obtain loans. Seventy years later, we established the AIIB, and its members must be members of the World Bank or the Asian Development Bank, because their (World Bank?) members are also members of the International Monetary Fund. However, the reason why ADB members can also participate is we took into consideration of some special circumstances, so as to establish a basis in the articles of agreement to facilitate individual non-sovereign economies to join the AIIB.


At that time, Keynes, who represented Britain, proposed setting the Bretton Woods institutions in London, but the United States disagreed. Keynes proposed the institutions to be located in New York, but the United States still disagreed. Finally, they were decided to locate in Washington, D.C., across the street from the White House: the White House is on 16th Street, the World Bank is on 18th Street, and the International Monetary Fund is on 19th Street.


Then, the United States demanded that the shares of the World Bank be set up according to the rule of "one dollar, one vote", which was different from the one country, one vote rule of the United Nations, the establishment of which was in consultation at that time. Under the "one dollar, one vote" rule, the United States has achieved three goals: to become the largest shareholder, to have Americans become the President of the World Bank, and for the institution to be headquartered in Washington, DC. After the establishment of the World Bank, the largest shareholder of all newly established international multilateral institutions could no longer achieve these three points at the same time, with the exception of AIIB. Naturally, the International Monetary Fund could not be directly controlled by the United States at the same time, so it was handed over to Europe. Because the mission of the World Bank at that time was to help reconstruction, although it did not have the macro-regulatory influence of the International Monetary Fund, its role and influence in reconstruction were actually very big.


In the 21st century, China initiated the establishment of the Asian Infrastructure Investment Bank (AIIB), which is the only developing country capable of undertaking this task. China needed to play a greater role. Through hard work, China achieved three major goals: China is the largest shareholder, a Chinese citizen becomes the President of the AIIB, and its headquarters is in Beijing.


In the 1960s, when ADB was founded, we were still in the Cultural Revolution, when Taiwan and Hong Kong joined. Japan certainly wanted to set its headquarters in Tokyo. First of all, the United States initially disagreed with the establishment of ADB, and finally reached a compromise. The United States supported the establishment of ADB, provided that the United States and Japan were on an equal footing, but Japan symbolically had one more share. Because this is the Asian Development Bank, a Japanese citizen become the President, but the headquarters could not be located in Tokyo. At that time, Manila, Philippines, was a rather developed capital in Asia, and (another candidate city was) Tehran, Iran. Finally, Philippine President Ferdinand Marcos worked hard to get votes for Manila in the Philippines as the headquarters of ADB. Iran quit in anger and didn't participate in ADB. Later, due to political reasons, Iran couldn't join anymore. Just like the Soviet Union did not participate in the International Monetary Fund or the World Bank in anger, it took many years to join eventually. Therefore, we should be calm, rational, and take a long-term view on any international occasion - it is difficult to achieve great things with rage.

历史的重复不是简单的重复,历史可能以一种新的形式在重复,有的时候甚至都看不出历史在重复。丘吉尔说:“我从历史中知道,人们从来不知道吸取历史教训”(I have learnt from history that people never learn from history)。其实,我们人类犯的错误是在一遍又一遍重复前人犯过的错误,要想犯一个原创错误,是很不容易的。读《资治通鉴》二到三百页,人该犯的错误,很早就已经犯完了,以后不过是重复犯哪些错误而已。 

The repetition of history is not a simple repetition. History may be repeated in a new form, and sometimes the repetition could not be seen. Winston Churchill said, "I have learnt from history that people never learn from history". In fact, the mistakes made by human beings are repeated over and over again. It is not easy to make an original mistake. After reading two or three hundred pages of "Zizhi Tongjian" (Comprehensive Mirror in Aid of Governance, a pioneering reference work in Chinese historiography by Sima Qian), (you realize that) mankind has already made all the mistakes they could make, and they later merely repeat the mistakes their ancestors have already made.


The three pillars of the post-war international economic order are the International Monetary Fund, the World Bank, and the General Agreement on Tariffs and Trade, which later evolved into the World Trade Organization. These three economic pillars play a considerable role, because they all follow the principle of international cooperation, are established and operated according to the principle of multilateralism, and solve major problems through consultation. China joined the international economic system only after the reform and opening-up. Although we were more than 30 years late, we played a very positive role after joining, benefited a lot, and played an increasingly important role. China has repeatedly stated that we have no intention of overthrowing the existing international economic order, and we are also beneficiaries.


However, this international economic system was established more than 70 years ago, and the situation at that time was very different from that now. The economic strength among countries in the world has changed, forming a new pattern, and their demands are no longer the same. Since entering the 21st century, the reform of international economic order has become a topic, and many countries have raised challenges: Is it necessary to reform? Can we reform it? How should we reform it? Who will make the reforms? All these problems deserve our consideration.


First, can we not reform some operating principles of the existing international institutions? The answer is an absolute no. The current international economic system was formulated by the United States, Britain, and western developed countries, and followed the rules they advocated. Now, the total GDP of developing countries has surpassed that of developed countries. In terms of finance, industrial base, and high technology, the achievements of developing countries are remarkable. The system established 70 years ago is definitely no longer fully applicable today. 


The following question is how to reform it. Looking at developed countries first, they may not have the motivation to reform it. The question is who will benefit from the reform? This problem is really complicated. Just like the reform of the United Nations, many countries believe that the United Nations should be reformed and the Security Council should be reformed, but the members of the Security Council have not reached an agreement on how to make reforms. In international financial institutions and multilateral development institutions, I think we should keep one thing, that is, the rule of "one dollar, one vote" cannot be changed. Changing it is not good for developing countries, because developing countries used to have few dollars, but now they have more dollars - why change this rule (now)? The rule of "one dollar, one vote" cannot be changed into "one country, one vote." The United Nations can have "one country, one vote" because it also has a Security Council, which in fact does not implement "one country, one vote". There is no real "one country, one vote" rule in the world. The problem now is that under the condition that the one dollar, one vote rule remains unchanged, developed countries will also have concerns: the GDP of developing countries is getting bigger and bigger, and the GDP of developed countries is relatively smaller, so they will have less power in the future. It's like protecting the interests of minority shareholders when we manage a company it is not feasible to ignore the interests of minority shareholders, depriving them of their power, and finally leaving only major shareholders in the company (to dominate it). This is a problem that has not been solved well up to now. To reshape the Bretton Woods institutions involves solving such fundamental contradictions.


Today, seventy years later, the control of international financial institutions by developed countries dominated by the United States and European countries has not been fundamentally changed. In the International Monetary Fund, the United States is still a major shareholder, and it certainly has great influence. The managing director of the International Monetary Fund has always been a European, so Europe also has a greater say. In the ADB, the largest shareholders are Japan and the United States. However, as an international multilateral institution in Asia, the Japanese have always taken up the post of its presidency, and the United States has a permanent vice-president position, which is basically accepted by all ADB members. Other countries should recommend suitable candidates to compete for the post of vice president. I was the first person in China to compete for the vice president of ADB. When I went to compete for the vice president of ADB in 2003, Sino-Japanese relations were not good. At that time, the president of ADB was very friendly to China and knew me better. He believed that I would not make trouble for him. My government strongly recommended me, so Japan finally agreed. Since then, Chinese people have always had a vice president in ADB, and China's role in ADB has also increased.


Third, if the governance structure and operation mode of international multilateral institutions are not reformed, it will be difficult to adapt to the requirements of the new era. The power in international institutions has always been controlled by developed countries, and the institutions kept intervening in the policies of member countries, regardless of their subjective wishes, which may not necessarily meet the needs of developing countries and may even seriously affect developing countries in formulating their own development strategies. For example, every single provision in the Washington Consensus does not seem to make a big mistake, but putting them together for implementation is a huge risk for developing countries. Therefore, the Washington Consensus appears to represent the truth, but it is not applicable to many countries. However, if a country does not accept the policy guidance and requirements of the International Monetary Fund or the World Bank, it is impossible to get their financial support, which is obviously unfair. 


Another one is the problem of double standards. The Asian financial crisis in 1997 and 1998 brought down Suharto in Indonesia. Under the pressure of the International Monetary Fund, Indonesia was forced to close 17 commercial banks. There is a classic photo, in which International Monetary Fund Managing Director Michel Camdessus stood with his arms folded and looked down at President Suharto signing the agreement with the International Monetary Fund. This photo has been widely spread, showing the world a gesture that the International Monetary Fund is bossing the recipient countries around. However, in 2008-2009, the US subprime mortgage crisis broke out, and Europe and other regions were seriously affected. Instead of closing the troubled banks in Europe, the International Fund gave money to bail them out. The approach is completely different, and many people have questioned it. The International Monetary Fund said that they have reconsidered the policy, so they have adopted different approaches. 

(Creator: AGUS LOLONG | Credit: AFP via Getty Images Copyright: 2007 AFP)


After the financial crisis in 2008-2009, the Independent Evaluation Office of the International Monetary Fund prepared a report to evaluate the performance of the International Monetary Fund before the financial crisis. As an independent consultant, I participated in the deliberation of this document. In early 2008, the Chinese policy was to rein in both growth and inflation thinking that the economy was overheating, so it was necessary to suppress growth and inflation, but six months later, the four-trillion yuan stimulus was launched. Why? Because in the World Economic Outlook published in 2007, the International Monetary Fund predicted the global economy very positively and did not predict the subprime mortgage crisis in the United States and the possible global financial risks. The forecast of the International Monetary Fund is very influential. Once a rosy economic outlook is released, many countries are misled. The research reports of the International Monetary Fund and the World Bank are of great guiding significance and influence. It definitely will not work if the management mode and policy orientation in these institutions remain unchanged.


Fourthly, under the condition that the whole system is difficult to change, regional and local mechanisms and systems are constantly being established as a supplement to the whole system. Why did Japan decide to set up an ADB in the early 1960s? Because the World Bank may not be able to meet the requirements of regional countries. In fact, Japan was also inspired by the development of multilateral institutions in other regions, such as the establishment of the Inter-American Development Bank in 1959 and the African Development Bank in 1964. In 1990, after the drastic changes in the Soviet Union and Eastern Europe, European countries initiated the establishment of the European Bank for Reconstruction and Development (EBRD), aiming to support Russia and Eastern European countries in their transition to a market economy. In 1997-98, after the Asian financial crisis, ASEAN, China, Japan, and South Korea signed a Chiang Mai Agreement on currency swap in the region. In 2008-09, the U.S. subprime mortgage crisis triggered the European financial crisis, which led Europe to decide to set up the European Stability Fund and the subsequent European Stability Mechanism. It seems that in problems that the two global institutions, International Monetary Fund and World Bank, find difficult to solve, and as a supplement to the Bretton Woods institutions, various countries and regions have successively introduced various institutions or mechanisms to try to cope with difficulties and challenges and meet different needs.


To sum up, it is necessary to promote the reform of the international financial system. Now, China can finally exert its influence. There are two events that need attention. After the establishment of the AIIB, China's position in the International Monetary Fund has also risen; Second, in 2015, RMB entered the basket and became the fifth currency in the SDR currency basket of the International Monetary Fund,  in addition to the US dollar, euro, Japanese yen, and British pound. As we all know, the promotion of China's status and voting rights in the IMF and the entry of RMB into the basket all met great obstacles. But as the preparation for the AIIB was progressing smoothly and its establishment was soon to be avoidable, those problems were gradually solved. Why? All these problems deserve people's consideration.


Americans had a lot of speculations, questions, and worries about us at that time. There were three main problems that make the United States very worried. First, will the AIIB initiated by China invade the territory of the World Bank? Second, will the AIIB be dedicated to cooperating with Chinese-funded institutions to promote Chinese-funded institutions to go global? Third, is the AIIB a tool to promote China's Belt and Road Initiative, or is it simply a bank of the BRI?


For these three issues, I made necessary explanations and clarifications on many occasions. First, from the very beginning, AIIB has devoted itself to developing cooperation with multilateral financial institutions and development banks such as the World Bank, ADB, and EBRD, and will never invade the territory of the World Bank. In fact, the cooperation between them is very harmonious and effective. For example, when the World Bank's loan to a country reaches the upper limit and can lender no more, our AIIB will supplement the funds, and the World Bank will continue to play a leading role and the AIIB will cooperate. I said, the World Bank is the conductor (of an orchestra), no matter how much the AIIB funds, just give it a place, it can play the violin, the clarinet, or the oboe - let's perform a symphony together, the AIIB won't fight with the World Bank. Second, the AIIB is willing to cooperate with Chinese-funded enterprises. However, the projects that the two cooperate with must depend on the needs of the borrowing countries, and the borrowing countries are not required to cooperate with Chinese-funded institutions - the principle of mutual consent always holds. The AIIB has cooperated with Silk Road Fund and is also negotiating with some Chinese-funded enterprises, but all of them are based on the needs of the borrowing countries themselves. Third, the BRI has something in common with us (AIIB), which is to promote infrastructure construction and strengthen interconnection, but there are differences between them, otherwise, there would be no need for two initiatives. The BRI is a platform for international cooperation, and cooperation is carried out according to the principle of "extensive consultation, joint contribution, and shared benefits" put forward by the Chinese leadership. The AIIB is an international multilateral cooperation organization with its own governance structure and operation mechanism, which are different (from the BRI).


In the beginning, some countries and politicians in the world had great doubts about us. They also realized that the establishment of the AIIB was by no means simply for infrastructure, and they were worried about the impact on the existing international economic system. Over the past five years, many things have gradually become clear, and they have gained a better understanding of the nature of the AIIB as an international multilateral institution. Our operating environment is not as difficult as originally thought. Of course, we have to be careful and strictly abide by the management principles of international multilateral institutions. China's important role in the international economic order cannot be solved by setting up an AIIB alone. We can only do a little bit of work. The influence of the United States is by no means produced because it is the controller of the World Bank. Having the World Bank is only a catalyst at most. The most important thing is how much a role a country can play in the international financial field, which is the key.


The internationalization of RMB ultimately depends on China's comprehensive economic strength. Some people have a misunderstanding. China is now the second economy in the world; China’s science and technology are quite developed, it is leading in high-tech fields, especially information technology; Together, the assets of the country’s four major commercial banks are enormous; the combined assets of China Development Bank and Export-Import Bank of China all over the world exceed the combined assets of all multilateral international development institutions in the world; and so on. Does it mean that China can naturally play a leading role in the international economic order and that we have a lot of power? In fact, not so much.


Therefore, in the next step, what role we play in the international financial field requires the central bank to play an active role. With the growth of China's foreign trade and foreign investment, it shall gradually promote the international settlement in RMB, further strengthen the reform of the RMB’s exchange rate mechanism, and expand the free convertibility under capital accounts. The internationalization of RMB also needs the comprehensive development of commercial banks, insurance companies, securities firms, bond markets, and stock markets, and needs the joint efforts of the entire financial system in China. 


At present, the total proportion of foreign investors in China's stock market and the bond market is about 5%, and foreigners account for about 2% of our bank assets; in contrast, foreign investors account for 35% of the US stock market, 41% of the bond market and 13% of the bank assets, so they are highly open. In the South Korean stock market, foreign capital accounts for 33%, and in the Indian stock market, foreign capital accounts for 16%, which is also more than ours. Adding up China's stock market and bond market, investment in securities accounts for 1% of the world's total. Under these circumstances, it is immature that China could play a very important role in the international financial field. Then the key step, I think, is to open up the financial sector at a higher level. Opening up will naturally enhance China's power to speak and influence and certainly, bring greater risks. Then, how to further open up under the premise of controlling risks requires wisdom. This is not something that can be achieved simply based on the GDP.


However, we have favorable conditions. First, China's economy is large, so it is not easy to be subverted, and there is room for maneuver because of its large size. Second, our management and emergency response capabilities have been improving compared with before. In many cases, the risk is an expectation, which is not actual risk, so it is necessary to control the expectation of risk. In fact, sometimes, there is not such a big risk, but it may feel very risky; Sometimes, the risk is really great, but it feels not big, so correct judgment is crucial. With the development of the economy and the improvement of management, our tolerance for economic cycle fluctuation should be improved. Without a certain tolerance, the more anxious we are to adjust (to perceived fluctuations), the greater the fluctuation. This is true of economic growth rate, inflation, and exchange rate. 


For example, what is our foreign exchange reserve now? Three trillion dollars? It's actually wrong. The part settled in RMB should be counted as foreign exchange reserves. For example, if our trade with Russia or Iran is settled in RMB, we will avoid using US dollars, and more Southeast Asian countries will settle their trade with us in RMB in the future. Why isn't this part - the amount settled in RMB - a foreign exchange reserve? Seventy central banks in the world have RMB in their foreign exchange reserves, so why don't we count it ourselves? However, not all RMB is a foreign exchange reserve, and only the part of RMB that actively participates in international trade settlement is a reserve, which should be added (in the counting of foreign reserves). In 2017, a large amount of foreign exchange flowed out. At that time, there was a slogan called "safeguard three trillion dollars." Why should we safeguard three trillion yuan? Why was it three trillion, instead of two trillion? In fact, once RMB flows out to a certain extent, under the condition of floating exchange rate, there will be room for profit for inflows. As long as the market is open, foreign exchange will flow in. The strict control of outflow makes it impossible for the companies that have signed investment agreements abroad to fulfill their promises, which is harmful to companies, countries, (our) overall image, the spirit of contract, and credibility. Only under extreme circumstances, such as the Asian financial crisis in 1997, it should be necessary to temporarily close the foreign exchange market. In my opinion, under the condition of opening up the financial market, it is necessary to have considerable psychological tolerance in macro operation, otherwise, the actual effect will be counterproductive.


Therefore, there is a problem in the tolerance for inflation or deflation; if a certain degree of fluctuation cannot be tolerated, the fluctuation will be even greater. Our macroeconomic regulation and intervention should be gentle, steady, and moderate to manage the deviation from normality. Surfing can only be done when there are winds, you can't surf in the swimming pool, but people do get drown in the swimming pool. Therefore, the risk is an expectation in many cases, and we should make the correct judgment on it.


Now let's talk about the governance structure and operational philosophy of AIIB. First of all, AIIB adheres to multilateralism, but its shareholding structure is different from other multilateral institutions. Equity distribution is based on GDP, and the equity structure is naturally that Asian developing countries become major shareholders, while developed countries and other regions act as minority shareholders. The regional equity allocation is 75% in Asia and 25% in non-Asia. However, there are South Korea, Singapore, Australia, and New Zealand from Asia in AIIB now, but Japan has not yet entered, and that 75% of Asia is not all developing countries. Similarly, the non-Asia members are not mainly made up by developed countries in Europe, but also developing countries in Latin America and Africa.


Secondly, the AIIB is widely representative. From the very beginning, China sincerely invited the United States, Japan, and other developed countries to join. If only some small borrowing countries joined in, the rating problem aside, it would be difficult to support the high-standard image of the AIIB. Our current membership covers all continents, all continents with sovereign States, except Antarctica, which has no sovereign state, and all others. In terms of GDP, China is the largest shareholder, with 30% of the shares and 26.06% of voting rights. According to the principles widely adopted in international institutions, everyone shares a few free voting rights, and the voting rights of small countries are higher than their shares, while those of big countries are lower than their shares. At that time, in order to encourage everyone to join, we also included Founding Member Votes, the two of which (together with free voting rights) add up to 15% of all votes. Therefore, the voting rights of big countries are lower than their shares, while the voting rights of small countries are higher than their shares, which is conducive to enhancing the voice of small countries. China’s vote is 26.06%. 

According to the articles of agreement, adopting ordinary issues requires a simple majority which is 50%. On major issues, such as recruiting new members and electing the President, it requires a supermajority, that is, more than two-thirds of the members and more than three-quarters of the votes which are 75%. The AIIB tries its best not to decide major issues by votes and instead strives to reach consensus so as to uphold unity and the principle and spirit of broad consultations.


Certainly, China has the actual veto power, which is calculated based on a GDP-based formula and is not deliberately or forcibly demanded by China. Other members, especially India and European countries, were not without worries about this. However, the combined votes of European countries and other developed countries can also exceed 75% [this doesn’t appear to make sense, but this is what the available Chinese version says, could be a mistake, more likely 25%?] and they also have veto power as a collective. Therefore, they think that this is a good balance and solves their worries.


The establishment of the AIIB taught us deeply how important it is to make the rules of the game. We used to play the rules of the game made by others. Sometimes, the rules of the game will be changed, but it is not easy to change them in international organizations. This time, China and other developing countries in Asia worked together to formulate the rules of the game and invited other developed countries such as Europe to participate. The whole process, the equal consultation, embodies a new type of cooperative relationship between countries at different levels and stages of development. This is a pioneering work.


Our business focuses on Asian countries, but we should also take into account the needs of developing countries outside the region. The AIIB’s loan business needs to be extended to other regions, because Asia is not isolated, and interconnection is not limited to Asia itself. Our bank is different from the World Bank. Any member can borrow money from this bank, and there is no distinction between a donor country and a recipient country. Of course, European countries won't borrow it, but we just want to establish an international multilateral institution in the true sense, adhere to best practices and be apolitical. Bilateral contradictions among member States should not be dragged into multilateral institutions. When there was a conflict on the border between China and India, the AIIB still offered loans to India. Some people in China couldn't figure it out: why we are fighting here and you (AIIB) are offering loans to India? I told our companies and banks about this, and they all understand it very well. Our enterprises can't get in even if they want to go in, why shouldn’t the AIIB make the loans? Besides, the funds are not given to India for nothing, India has to repay the principal and interest. Some others thought, why do you have to provide loans to India at that time? How did I know you would be fighting at this time? We have long already arranged the schedule. And we went to the Board of Directors according to the progress of the project, at which time, the two sides (China and India) engaged in fighting - how could we (AIIB) change it? I couldn’t change it. When the Sino-Indian border conflict occurred, the management of AIIB still adhered to international standards, and the international response was very positive. This is the first severe test of the nature of AIIB as a multilateral institution.


Not long ago, I held a video conference with a German think tank, which surprised the Germans. India accounts for 25% of the total loans of AIIB and is the No.1 borrower. I said, what's so surprising about this? Isn't this an international institution? We can't talk about international standards and best practices at ordinary times but when we encounter practical problems we lost our thinking and resorted to something else. Once you break your promise, it is very difficult to restore your reputation.


We are now talking about protecting the environment, coping with climate change, and sustainable development. On this issue, in the "Energy Sector Strategy" approved by the Board of Directors in 2017, we did not exclude coal-fired power but set some harsh conditions for financing coal-fired power plant projects. In fact, in the past five years, we have never financed coal-fired power projects or coal-related projects. In September last year (2020), at an international conference for Anhui (a Chinese province) businesspeople, I said that the AIIB would not do coal-fired power projects or projects related to coal burning, which caused great effects. The reputation of the AIIB was greatly enhanced internationally, especially in European countries. Recently, I attended a roundtable in Boao (Hainan), where there were foreigners. Vice Minister Qian Keming of the Ministry of Commerce mentioned BRI projects in his speech, and he said that there was a rather tangled problem, that is, exporting coal technology. Some countries want our country to help build coal-fired power plants, but coal-fired power plants have reputation problems, so China feels very entangled. In my speech, I introduced that the AIIB does not engage in coal power, our funds are limited, the AIIB should play a guiding role - supporting renewable energy and sustainable development. At the meeting, I said that if China can clearly declare that the Belt and Road Initiative will not engage in coal power and only support clean energy, it will greatly enhance the reputation of the BRI.


After the reform and opening up, for a long time in China, we were more like students and learned more (from others). Now we can also be teachers and give lessons to others. However, there is still a certain distance to catch up with developed countries in all directions. Therefore, it is always correct that we should be modest and prudent.


Finally, I will talk about a troublesome thing, and return to what I said just now, that is, the economic center of gravity and international influence are gradually transferred from the United States to China, or maybe divided equally. After 1990, the United States became the dominant power and is used to be No.1 where no one could challenge it. Now that China is rising, the United States can't stand it, and troubles will continue. China and the United States still need cooperation. I feel that with China's growing national strength, the United States will eventually have to accept the reality of China's rise. Of course, this is a painful process for the United States. Our leader made an important statement: Big countries should behave in a manner befitting their status (or a big country should look like a big country). Although there was no name-calling, the meaning is clear. This sentence is a warning to some country/countries. My understanding is that this is also a warning to ourselves. Because we are already a big country, it is very important for us to have the demeanor and bearing of a big country in our relations with developed countries and many developing countries.