AIIB and NDB: tools of China's rise and dangers of the new financial order. Italian Economy and Finance Minister Giorgetti's warning

China's growing financial projection, through instruments such as the Asian Infrastructure Investment Bank (AIIB) and the New Development Bank (NDB), is redefining the global development order. However, this expansion is not without risks: as Minister Giorgetti denounced, “China's dominant share of multilateral development bank procurement must be addressed through policies aimed at increasing local content and rebalancing the allocation of contracts between donor and shareholder countries.” Behind the offer of “no strings attached” loans lies a geopolitical agenda that breeds dependency, fuels unsustainable debt-as the cases of Sri Lanka and Myanmar show-and risks fragmenting international governance standards, undermining the sovereignty of recipient countries in favor of Beijing's aggressive economic and strategic expansion

The global financial architecture is undergoing a profound reorganization, with China emerging as a central player in the landscape of international development. Traditionally dominated by Western-led institutions such as the International Monetary Fund (IMF) and the World Bank, global finance is now contending with the growing influence of Beijing-led entities, including the Asian Infrastructure Investment Bank (AIIB) and the New Development Bank (NDB). This shift is not merely the addition of new financial operators; it signals a broader rebalancing of influence in the international order, raising fundamental questions about financing criteria, development priorities, and the direction of infrastructure and energy expansion in emerging economies.

Credit Extrema Ratio

China's initiative in this area is the result of a well-defined and persistent strategy. The AIIB, operational since 2016 and headquartered in Beijing, has already reached over 100 member countries. The NDB, founded by the BRICS nations (Brazil, Russia, India, China, and South Africa) in 2014, has consistently expanded its loan portfolio and membership base. These institutions focus their investments on large-scale infrastructure projects, renewable energy, climate resilience, and digital connectivity—sectors where developing nations have urgent needs for support.

The peculiarity of these banks lies not only in their financial strength but also in their operational philosophy. Unlike the IMF or the World Bank, which often condition their loans on structural reforms or fiscal conditionalities, China-led institutions tend to offer financing with fewer strings attached. This seemingly more flexible approach has proven particularly attractive to countries grappling with political transitions, economic instability, or urgent development needs. A striking example is the financing of renewable energy in Southeast Asia: while traditional MDBs can face lengthy procedural delays and extensive policy requirements, the AIIB positions itself as an agile co-financing partner, readily aligning with national development plans. For many in the Global South, this represents not only an economic advantage but also a signal of a new model of development cooperation, founded on partnership rather than paternalism.

However, as Italian Minister of Economy and Finance, Giancarlo Giorgetti, appropriately highlighted during a G20 session in Durban focused on Africa, China's rise raises significant concerns. "We believe that China's dominant share in the procurement of multilateral development banks must be addressed through policies aimed at increasing local content and rebalancing contract allocation among donor and shareholder countries," Giorgetti stated. This observation is not merely a technical note but a clear warning sign about the risks related to transparency, competition, and the long-term impact on the economies of beneficiary countries. China's expansion, while presenting opportunities, is indeed part of a broader logic of economic and strategic projection that requires careful analysis of potential disadvantages.

China's Procurement Dominance: An Affront to Local Content

One of the most serious concerns, as raised by Minister Giorgetti, regards the undeniable dominance of Chinese companies in procurement for projects financed by multilateral development banks.

According to analyses by Kishan Miah in "China's Influence on Global Development Finance: Disrupting Traditional Institutions", between 2010 and 2020, Chinese firms secured the largest share of contracts by value for World Bank projects, accounting for approximately 20% of all contracts awarded. Even more alarming is the fact that nearly half of these contracts, won by Chinese firms for World Bank-funded work, were for projects outside of China.

This trend severely jeopardizes the capacity of beneficiary countries to develop their own industrial capabilities and generate domestic employment. While nations like India and Brazil tend to secure most of their contracts for work performed domestically, as observed by Bert Hofman and P. S. Srinivas in "China's Changing Role in Multilateral Development Banks", the prevalence of Chinese companies suggests a troubling vicious cycle: a significant portion of funds, even if channeled through multilateral institutions, may flow back to China rather than fully stimulating local economies. This model risks entrenching a "dependency" on Chinese suppliers and labor, stifling the growth of indigenous skills and capacities in developing countries. The lack of robust "local content" in procurement undermines long-term development goals and fosters economic integration that, ultimately, primarily benefits the creditor.

"Silent Conditionality" and the Shadow of Looming Debt: Hidden Failures

While China-led institutions are celebrated for being "less conditional" than traditional MDBs—offering loans seemingly without the stringent structural reforms or fiscal conditionalities typical of the IMF or World Bank—this apparent freedom is not without pitfalls. The supposed absence of explicit conditionalities, as many critics warn, does not imply complete immunity from influence. On the contrary, conditions might manifest in more subtle and insidious forms.

A concrete risk is the potential lack of rigorous transparency or environmental and social impact assessments, elements that could favor less sustainable projects or, worse, increase the risk of corruption. This approach, while potentially accelerating project approval, could inevitably compromise their quality and long-term impacts on beneficiary countries. A striking example of failure, often associated with this lack of stringent conditionality, is the case of projects like the Myitsone Dam in Myanmar, suspended due to massive public protests related to devastating environmental impacts and doubts about economic sustainability. Similarly, the Port of Hambantota in Sri Lanka has become a symbol of "debt diplomacy": incapable of repaying Chinese loans for its construction, Sri Lanka was forced to lease control of the port for 99 years to a Chinese state-owned company, a clear case of loss of sovereignty and economic vulnerability. These are not isolated incidents but recurring patterns where promises of rapid development collide with the reality of unsustainable burdens and strategic compromises.

Furthermore, China's growing position as the largest bilateral lender to developing countries, largely through the Belt and Road Initiative (BRI), has escalated alarms regarding debt sustainability. Between 2008 and 2021, China provided approximately $240 billion in bailouts to 22 nations, many of which were indebted specifically due to the BRI. This figure, though lower than bailouts offered by the United States or the IMF, suggests a worrying mechanism: the Chinese model, initially seemingly advantageous, can lead to significant financial vulnerabilities for recipient nations, potentially trapping them in long-term economic dependence. Concerns about "debt diplomacy" are no longer merely theoretical; they materialize in situations where countries struggle to repay Chinese loans, risking the cession of strategic assets or facing political pressure, as frequently highlighted by international observers.

The Geopolitical Agenda Beneath the Economic Mask: A Systemic Danger

China's engagement in development finance is not an act of pure economic benevolence but is part of a much broader vision of economic and, undeniably, geopolitical expansion. Initiatives like the BRI are openly presented as tools to reshape the global financial system and extend Beijing's geopolitical influence.

The creation of the AIIB and NDB was partly fueled by China's palpable frustration with the slow pace of change in existing MDBs, especially regarding its shareholding. These new institutions offer China the ability to shape institutional governance in a way it considers more aligned with its strategic needs. However, the AIIB's voting structure, where China holds approximately 26.6% of the shares and effectively a veto power over crucial decisions, underscores its dominant position and its ability to steer policies. Even in the NDB, although the structure is formally based on equal voting power among founding members, China's disproportionate economic strength (whose GDP, for example, was $14.7 trillion in 2020, compared to South Africa's $330 billion, despite having the same voting share) grants it significant influence.

This influence is further reinforced by the aggressive promotion of the Renminbi (RMB)'s internationalization, also carried out through the NDB's local currency loans. The goal of reducing dependence on the US dollar has significant implications for global financial stability and the balance of economic power, signaling a deliberate attempt to undermine Western monetary supremacy. The NDB, in fact, has set a goal of offering 30% of its loans in local currencies, a move that, while reducing exchange rate risk for borrowers, also serves to strengthen the RMB's influence in global trade and investment. This is a clear example of how financial assistance intertwines with strategic monetary and geopolitical objectives.

Divergent Standards and the Peril of Global Fragmentation: Governance Without Cohesion

Another critical and often underestimated element is the potential divergence of norms and standards within the global financial architecture. Traditional MDBs adhere to Western-driven principles of governance, transparency, and accountability, while China-led initiatives may emphasize alternative criteria, such as non-interference in domestic affairs and respect for sovereignty. The NDB, for example, has chosen to avoid pushing for and supporting structural reforms in member countries, focusing less on analytical work to support such reforms.

This difference in approach could generate friction and make it more difficult to align global policies and practices, potentially weakening efforts to maintain a coherent and unified international financial system. While this competition may push existing institutions to reform and become more responsive, as is happening with the World Bank and the IMF, the risk is that a fragmentation of standards will emerge, with uncertain consequences for global governance and for the protection of the interests of the most vulnerable countries. A babel of norms can, ultimately, complicate international coordination in the face of global crises, undermining the capacity for a united response and strengthening the trend towards a multipolar but less cohesive world.

Conclusions: Balancing Opportunities and the Urgent Need for Vigilance

China's rise in the development finance landscape is undoubtedly a catalyst for transformation in the global economic order. While institutions like the AIIB and NDB offer opportunities to fill financing gaps and promote a development model more aligned with the priorities of the Global South, the concerns expressed by figures like Minister Giorgetti cannot and must not be ignored. The risks related to dependency on Chinese procurement, the potential "debt trap," and broader geopolitical implications, suggest that this transformation is not without pitfalls. The evidence of failed or problematic projects, coupled with Beijing's clear strategy to strengthen its global influence, demands critical reflection.

It is fundamental that the international community maintains a constructive but profoundly critical dialogue, promoting transparency and sustainability in all financing models. The Global South, through its interaction with these new financial institutions, is asserting its agency and reshaping global finance on its own terms, but the collective responsibility is to ensure that this process leads to a more equitable and sustainable system for all, and not simply to a repositioning of power without a substantial improvement in governance practices. Vigilance is essential, as the future of the global financial architecture will depend on the ability to balance opportunities with a careful management of the risks arising from this new, bold projection of power.