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Economics, Multilateral Investment Strategies, Premium POM

AIIB to Start Lending by Mid-2016

By JC Collins

The Asian Infrastructure Investment Bank will hold its inaugurating ceremony on January 16th in Beijing.  These opening board meetings of the China-led development bank will establish the management team of the bank and name a president.

Founding members of the bank include the BRICS members, ASEAN members, and EU countries such as Germany, France, Italy, and staunch American ally, the United Kingdom.  The founding members of the AIIB total 57, with more members welcome in the future.

The implementation of this bank, and the diverse founding members list, amounts to a drastic shifting in America’s hegemonic monetary positioning in the world. Alliances are shifting, which is semi-isolating US interests across a broad spectrum of socioeconomic and geopolitical fronts.

The idea that Europe and North America could be severed from one another on these fronts may appear impossible at this point in time, but the likelihood of a reduction in relations, or a more long distance relationship between the two regions, could very well become a reality in the years to come.

The initial lending of the AIIB is set at $100 billion.  It is estimated that over the next ten years Asian countries will require $8 trillion of infrastructure investment.  This amount only takes into consideration the current level of growth in the region.

The BRICS Development Bank will work alongside the AIIB, as well as the Asian Development Bank, which is heavily influenced by the US and Japan, to fund these massive infrastructure investment projects.  This will include roads, railways, bridges, airports, port facilities, canal projects, and vast industrial growth as trade between the AEC members accelerates.

The AIIB is set to make the first loans by mid-2016.  This time frame aligns with the POM analysis that commodities will begin another boom cycle at the mid-point of the year.

In the post The Coming Commodities Boom, the following was written:

“…what is interesting is how the collapse in oil prices has benefited the emerging economies.  When we consider that the emerging countries, such as China, India, Malaysia, Indonesia, etc.., will carry the brunt of any Fed interest rate increase, it becomes somewhat intriguing that it is the emerging countries themselves which will benefit the most from the low oil prices.”

“This benefit will be largely visible in Asian economies, which are the same economies which carried the weight of USD inflation now for decades, such as Vietnam. The benefits will be most realized through an increase in spending on much needed infrastructure development.  The establishment of the BRICS Development Bank and the Asian Infrastructure Investment Bank (AIIB) will be used to fund these massive infrastructure projects while oil prices remain low.”

“China, who has built up a large strategic oil reserve, will further benefit from low oil prices by making up for slowing industrial growth and falling exports.  As I’ve stated many times before, China is switching from an exporting model to a consumer based model.  The low price of oil, which will support the expansion of infrastructure projects in the emerging countries, will support this adjustment, which will in turn lead to the further adjustments on trade deficits and surpluses between nations.”

“These infrastructure projects will use vast amounts of commodities, like copper and iron/ore, and eventually will soak up the large crude reserves which have built up over the last few years.  An increase in the other commodities will begin before oil, and will likely begin in the first part of 2016, as the AIIB and BRICS Development Bank begin funding the projects.”

Based on the recent announcements from the AIIB on the first scheduled loans beginning by mid-2016, the expected target for most commodities to turn is established.  The time to invest in commodities (non-oil) is now while they are low.  Some bottoms may not yet be found, like in copper, but the stable increases which will occur over the coming years will make up for any marginal losses that may be realized between now and June or July.

These loans, and those of the BRICS Development Bank, will be denominated in Chinese renminbi.  Which was the purpose of having the RMB included in the SDR composition.  The expansion of renminbi liquidity will be the answer to the current market volatility which has taken place as a new balance between West and East is established.    – JC