LDN - Business

ADB chief seeks to cooperate, not compete, with China-led OBOR, AIIB

[May 04, 2017] By Tetsushi Kajimoto

YOKOHAMA, Japan (Reuters) - The Japanese-led Asian Development Bank is willing to cooperate, rather than compete, with China's development finance and infrastructure plans under its "One Belt, One Road" initiative, the bank's head said on Thursday.

ADB President Takehiko Nakao's comments were made at the start of the bank's four-day annual meeting in Yokohama, eastern Japan, where China's rising influence is expected to be among key topics of discussion.

His public comments align with those of policymakers seeking to dispel the view Japan and China are competing for influence through development finance. However, Nakao warned creditors about the costs of projects in economies that are targeted by China's high-profile OBOR initiatives.

"It's a good idea to connect countries and to promote activities in this region," Nakao told reporters on Thursday, when asked about how the ADB should deal with the OBOR.

"We can cooperate because we have similar ideas," he said at a news conference kicking off the annual meeting. He added that he discussed areas of cooperation with Chinese Finance Minister Xiao Jie, who will be in Tokyo for a meeting with his counterparts from Japan, South Korea and Southeast Asian nations on Friday.

Bank of Japan Governor Haruhiko Kuroda, who before Nakao headed the ADB, said there was ample room for AIIB to cooperate with other development banks like the ADB and the World Bank.

"There are huge infrastructure needs so it's great to have more institutions keen to support this," he told reporters on Thursday, adding that he did not think the AIIB would conflict with the roles played by the ADB and the World Bank. [T9N1HJ00Y]

MORE COMPETITION?

The ADB is coming off a record year for lending and is the region's major financier for development, but its meeting could quickly fade as attention turns to the OBOR summit on May 14-15.

Many OBOR projects are supported by China's state-owned banks and its fledgling regional lender, the Asia Infrastructure Investment Bank (AIIB), which could become a potential rival of the Manila-based ADB but for now is much smaller.

Nakao said the vast need of infrastructure finance in Asia meant that the ADB and the AIIB could cooperate and complement each other, instead of considering each other as rivals.

"Because we have different objectives and different kind of ideas about management, I think we can complement each other," he said. "There are many things in common so we can cooperate."

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Bank of Japan Governor Haruhiko Kuroda speaks to media at the Asian Development Bank (ADB)'s annual general meeting in Yokohama, south of Tokyo, Japan May 4, 2017. REUTERS/Issei Kato

The ADB and the AIIB have agreed to co-finance three projects - two last year and one this year, Nakao said.

The two lenders have discussed how they can use local currencies for financing instead of dollars, how they can enhance expertise by their staff and how they can secure environmental and social safeguards, Nakao said.

The ADB was established as a Japanese initiative in 1966 to offer development assistance in Asia. All of the ADB heads up until now have been Japanese, including Nakao.

The AIIB is viewed by some as a challenger to both the Western-dominated World Bank and the ADB, which is primarily funded by Japan and the United States.

Partly to differentiate itself, the ADB has broadened its activities beyond infrastructure such as financing of steps for poverty reduction, healthcare and education.

The growing prominence of China in Asian development finance, reflected by the creation of AIIB, has alarmed Japan's government, enough to promote "quality" infrastructure finance as its key initiative in aiding developing Asian economies.

However, he warned the ADB needed to pay attention to the "economic feasibility" of some OBOR-linked projects, particularly in sparsely-populated Central Asian nations.

And despite signs of co-operation, some analysts say China's muscle-flexing is making business harder for Japanese companies.

"Both China and Japan are active in development financing and infrastructure financing in the region. We've seen some competition in the region over projects," said Fitch Ratings director Mervyn Tang.

"For a while, Japan really was the core financier. When you bring in a competitor, it means the likelihood of competition for pricing ... There's more a danger of overpaying for a project or getting lower returns for a project."

(Additional reporting by Leika Kihara; Editing by Jacqueline Wong and Sam Holmes)

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