A BALANCING ACT

AIIB Puts All Russia, Belarus Projects On Hold, Review

     The China-backed Asian Infrastructure Investment Bank (AIIB) announced that it has put on hold and is reviewing all activities relating to Russia and Belarus in the wake of the current conflict in Ukraine. These sanctions will prevent Russia from accessing its hundreds of billions of dollars of reserves worldwide and cut short its state revenue from oil and natural gas. The move comes amid sweeping sanctions and other financial measures aimed at Russia from a number of countries over its invasion of Ukraine.

          China’s Xi launched the AIIB in 2016 as an alternative to the World Bank and International Monetary Fund, financial institutions perceived to be dominated by Western interests. China is the AIIB’s biggest shareholder, with 31 percent of the bank’s $20bn paid-in capital. The multilateral development bank, which has 105 members worldwide, did not elaborate on the reason for its decision, but extended “its thoughts and sympathy to everyone affected”. China is the AIIB’s largest shareholder with a 26.5% voting share. India is the second-largest, with 7.5%, followed by Russia, which has a 5.97% voting share. Ukraine is not a member of it.  Belarus is also a member of the bank, which is headed by China’s Jin Liqun. Former Reserve Bank of India (RBI) Governor Urjit Patel is a Vice President of the bank.

       China and Russia have become increasingly close in recent years, often aligning in opposition to perceived interference by the United States and its allies. Last month, Chinese President Xi Jinping and Russian President Vladimir Putin declared that the friendship between their countries has “no limits” and no “forbidden” areas of cooperation. Beijing has declined to condemn Moscow’s invasion of Ukraine, abstaining from a United Nations resolution calling on Putin to withdraw his forces, and expressed its opposition to “all illegal unilateral sanctions”. Chinese customs authorities last month lifted import restrictions on Russian wheat, an industry worth some $7.9bn annually, fuelling speculation the Chinese market could emerge as a key economic lifeline for the beleaguered Russian economy, which is facing unprecedented international isolation. The two sides have also ramped up cooperation in energy, including the signing last month of a 30-year contract for Russia to supply gas to China via a new pipeline. Despite deepening ties, Beijing is widely viewed as reluctant to openly violate sanctions, which could put it at risk of being cut off from Western export markets and the US dollar-centric international financial system. China’s trade with Russia came to $146.9bn in 2021, about one-tenth of its combined trade with the US and European Union.

        Beijing has expressed growing concerns about the violence and the safety of its nationals in Ukraine. It has at the same time reiterated its backing of Russia’s broader “security concerns” and blamed NATO and the U.S. for fuelling tensions. The AIIB’s move is seen “symbolic” as the bank has been financing just two projects in Russia to the tune of $800m and none in Belarus, which is supporting the Russian war effort. Even though most of the cross-border lending from China to Russia may take place with policy banks, this is still another example that China may not unconditionally support Russia as it would be weighing its own benefits and costs from any geopolitical move. The retreat of the AIIB shows the pressure of global financial sanctions on Russia has become more apparent in supranational organisations.