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June 29, 2015 02:00 AM

What does the Asian Infrastructure Investment Bank mean for the plastics industry?

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    Nina Ying Sun

    Can the China-led Asian Infrastructure Investment Bank (AIIB) help the plastics industry digest its overcapacity — and also benefit Western countries?

    A total of 57 nations, including host country China and prominent founding members like the United Kingdom, Germany, Australia and South Korea, attended the June 29 signing ceremony in Beijing.

    The new international financial institution is tasked with funding energy, transport and infrastructure projects in Asia. This region will need $8 trillion to $10 trillion for infrastructure in the next decade, according to statistics cited by various reports.

    AIIB will start with $50 billion of authorized capital, and eventually to expand to $100 billion.

    Chinese officials have stated on different occasions that AIIB is designed to complement the World Bank and the Asian Development Bank. The U.S. and Japan, both dominant leaders of WB and ADB, oppose the AIIB.

    Aside from international politics, China is really hoping AIIB can help it reduce the pressure from its domestic manufacturing industry's severe overcapacity, especially at a time when both export and domestic markets are cooling down.

    AIIB will help Chinese manufacturers to shift some of their overcapacity to supply projects in other Asian countries and improve China's industry structure, according to a column by Hu Bengang, China's State Council Counselor. It also will strengthen supplies and lower the price of commodities — including plastics and rubber — he added, in turn lowering production costs for manufacturers.

    Justin Yifu Lin, former chief economist and senior vice president of the World Bank, also wrote that it is a smart idea to tap into China's nearly $4 trillion in foreign currency reserves, which current yield low returns. And AIIB will certainly be welcomed by Asian countries that need money to fund infrastructure projects.

    Chinese manufacturers have a strong position in construction materials, Lin said in his column. And the investment will also help Chinese products to grow global market share.

    Construction, energy and transport — especially high-speed rail — also are expected to generate sizable demand for high-performance plastics products.

    Western countries like Germany, Italy and France are also looking to leverage the opportunity for their advanced technologies and manufacturing products.

    Riccardo Monti, president of the Italian Institute for Foreign Trade (ICE), told Chinese media that Italy's expertise in machinery manufacturing and infrastructure construction is one of the reasons it decided to join AIIB.

    Monti said his group helps small- and mid-sized Italian exporters grow, and he sees possibilities for wide cooperation between Italian and Chinese companies.

    China is AIIB's largest shareholder with about a 30 percent stake, followed by India and Russia.

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