Asian Infrastructure Investment Bank Bill

Order for Second Reading read.

3.51 pm

The Senior Minister of State for Finance (Mrs Josephine Teo): Mdm Speaker, I beg to move, "That the Bill be now read a Second time."

Mdm Speaker, I would first like to outline why Singapore has become a signatory to the Articles of Agreement for the establishment of the Asian Infrastructure Investment Bank, or "AIIB".

The AIIB seeks to drive infrastructure development and regional connectivity in Asia through financing support for its members. Working in partnership with other international financial institutions such as the World Bank Group and Asian Development Bank, the AIIB will play an important role in addressing development challenges. The AIIB is a timely initiative, given that the scale of infrastructure needs in Asia is significant.

More importantly, the creation of the AIIB signifies an additional milestone in, and a strengthening of, the existing international financial architecture. It is critical for Singapore, as an international financial centre, to remain plugged into the network of international financial institutions. We have thus decided to participate early and pro-actively in the negotiations for the AIIB Articles of Agreement, working with other countries to ensure that the AIIB will have good governance and high standards.

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As a member of this region, Singapore welcomes new initiatives that will promote greater infrastructure investment. Better infrastructure and connectivity will facilitate regional economic development, and in turn provide positive spinoffs for the Singapore economy. It also creates opportunities for Singapore companies seeking to tap Asia's growth. For example, Singapore-based companies will have the opportunity to participate in the AIIB's projects in the transport, water, logistics and urban development sectors, to name a few.

Being a member of the AIIB reinforces our ties with countries in Asia and beyond. The AIIB enjoys good support around the world. A total of 50 countries have signed the AIIB Articles of Agreement, with another seven countries expected to sign by the end of this year. All ASEAN countries have joined as prospective founding members of the AIIB. Other prospective founding members include major economies from Asia, Oceania, the Middle East, Latin America and Europe.

We are confident that the AIIB will enjoy the legitimacy and credibility of a multilateral institution of high standing.

Let me now move on to explain our capital subscription amount to the AIIB.

The AIIB will be established with an initial authorised capital of US$100 billion. Of this, regional members will subscribe to US$75 billion, while non-regional members will subscribe to the other US$25 billion. There are 57 prospective founding members to the AIIB, of which 30 are regional countries and 27 are non-regional countries.

Singapore plans to subscribe to US$250 million or 0.25% of the AIIB's total authorised capital of US$100 billion. This is an appropriate level of contribution to the AIIB, taking into account our current subscriptions to the World Bank and the Asian Development Bank. Amongst ASEAN countries, Singapore will be ranked sixth in terms of the size of our capital subscription to the AIIB.

Singapore's capital subscription of US$250 million will give us 0.48% of the total voting share in the AIIB. Of the US$250 million, 20% or US$50 million is to be paid-in, over five equal annual instalments. The remaining 80% or US$200 million of callable capital will not be paid in, except when decided by AIIB members in extraordinary circumstances. This is similar to the practice in other international financial institutions. To date, institutions such as the World Bank and the Asian Development Bank have not drawn on their callable capital.

The full capital subscription of US$250 million will be set aside from the surpluses built up in this term of Government.

Mdm Speaker, it is necessary that appropriate legislation be enacted to enable Singapore to ratify the AIIB Articles of Agreement and become a member of the Bank. To this end, the AIIB Bill enables Singapore to deposit an Instrument of Ratification stating that the Government has accepted the Agreement in accordance with Singapore's laws and that the Government will carry out its obligations under the Agreement.

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Clause 4 of the Bill authorises the Singapore Government to subscribe to US$250 million of the initial authorised capital of the Bank. It also provides for Singapore to subscribe to future capital increases, provided that our total subscription does not exceed twice the initial subscription amount, except with Parliamentary approval. This is similar to the approach that we took for the ADB Act. Singapore's subscription to the Bank will be charged to the Consolidated Fund, similar to our capital subscriptions to the World Bank and Asian Development Bank.

The Bill also gives legal effect to the provisions in the AIIB's Articles of Agreement relating to the status, immunities, privileges and exemptions of the AIIB and its officers. These are on par with those that Singapore has accorded to other international financial institutions such as the International Monetary Fund, the World Bank and the Asian Development Bank. Mdm Speaker, I beg to move.

Question proposed.

3.58 pm

Mrs Lina Chiam (Non-Constituency Member): Mam Speaker, Article 47 of this Bill on the Asian Infrastructure Investment Bank provides immunity from search, requisition, confiscation, expropriation or any other form of taking or foreclosure by executive or legislative action.

In Parliament this year and last year, we have debated and have passed the Monetary Authority Singapore (Amendment) Act and the Accounting Corporate Regulatory Authority (ACRA) Act. These two Acts serve to clamp down money laundering and anti- terrorism funding.

My concern is whether it is appropriate for the Singapore Government to grant such extensive immunity given the risk of fraudulent activities in financial institutions. Furthermore, this is a relatively new organisation compared to other international organisations.

The Bill further seeks our approval a waiver of tax. I understand this is also applied to other international organisations such as the IFC and the World Bank. Are we trying to set a precedent for all future international organisations dealing with money?

The proposing Ministry owes Parliament a clearer explanation as to why we need to accord this organisation the same level of privilege. Do they provide employment for Singaporeans, or do they create a stronger financial ecosystem? Specifically, what additional benefits can this Chinese originated entity provide for Singaporeans?

I have concerns that national funds parked in a Chinese entity will become too tightly linked to an economic network. The Chinese economy has grown for decades with the use of loose credit.

In public, the concerns cited by America about China has been a lack of clarity about the banks' governance and lack of track record and may fail to live up to the environmental, labour and procurement quality standards. To what extent will national funds be committed in this multilateral development bank and will the Parliament have powers to check on this creature later on?

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Mdm Speaker, the Asian Infrastructure Investment Bank may boost our country's stand as a capital banking hub in Asia and of course, our GDP growth but we need to access whether it should come at the expense of our values as a nation. Mdm Speaker, I support this timely initiative Bill. Thank you.

4.01pm

Mr Thomas Chua Kee Seng (Nominated Member): Madam, in Mandarin, please. ( In Mandarin ) : [Please refer to Vernacular Speech.] Mdm Speaker, having understood the background, objectives and the scope of services of the Asian Infrastructure Investment Bank (AIIB), I support the Asian Infrastructure Investment Bank Bill.

Currently, Asia is the most dynamic region in the global economy, demonstrating the greatest potential; it is also stepping up in infrastructural development. However, many countries in Asia are still developing economies. Investing in infrastructural development projects would require much more financial support, technology and management expertise. The Asian Infrastructure Investment Bank proposed by China will leverage on international financial resources to bring new impetus to the development of the Asian region.

Singapore is one of the original founding member countries of the AIIB. In the past 50 years, we have accumulated a great deal of experience in urban infrastructural development, such as energy, utilities, waste management, public housing, and transportation. We have also developed sustainable development solutions in water management. The Singapore International Water Week, CleanEnviro Summit Singapore and World Cities Summit hosted in Singapore have also attracted industry players, government officials, and experts from every part of the world,. These are Singapore's strengths in participating in projects of the AIIB. Our businesses look forward to leveraging on the AIIB to participate in more sizeable multi-national and regional infrastructural development projects.

How then can Singapore enterprises participate in Asian infrastructural investment projects? I think we can make reference to the Asian Development Bank. The Asian Development Bank was established in 1966, with Singapore as one of its founding members. From 1967 till now, Singapore-based companies have obtained US$1.35 billion in project funding. Amongst these, funding for 2,384 projects was disbursed to contractors and suppliers, while funding for 311 projects went to Singapore consulting firms. As of 31 December 2014, Singapore has contributed US$523 million to the Asian Development Bank in terms of capital subscription and funding, and in turn received US$1.35 billion worth of contracts. When Singapore first joined the Asian Development Bank, it was still a young and developing nation, trying to find its feet. Now, Singapore has already achieved developed nation status; having accumulated even more practical operational experience, and cooperated in regional and international projects, local enterprises will be equipped with competitive advantage.

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Thus, we hope that the Ministry of Trade and Industry and the Ministry of Finance would learn from the experience of the Asian Development Bank, and identify even more business opportunities in the international arena. In the area of infrastructural development, government-linked companies are in the forefront, and have a very credible track record. In bidding for AIIB projects, they have a higher success rate compared to the SMEs. We hope that government-linked companies would also lead the way to open up opportunities for local SMEs with good credentials and with the high potential to participate in AIIB projects. Joining hands to compete for international projects and promote common growth would also increase national cohesion.

At a lunch dialogue organized by the SCCCI for trade association members, some member companies had raised similar concerns. They can see many business opportunities arising from regional infrastructural projects, but as the scale and size of the projects are rather large, they are probably beyond the reach of any single company. If there is government support, and if government-linked companies are willing to take the lead, the success rate of local enterprises in bidding for the projects would be substantially higher.

Singapore's future is irrevocably linked to its value in the region and in Asia. Asia is already the engine of growth in the global economy. China started the AIIB to promote infrastructural development projects within the Asian region, including the

"One Belt One Road" infrastructural projects initiated by the founding members of AIIB. From the business angle, the AIIB and the "One Belt One Road" are salient initiatives now as well as in the future, and businessmen are all looking forward to being a part of it.

Recently, some business owners have reflected their concern on the inadequate communication between government and the business community with regard to the ASEAN Economic Community. I hope that after the AIIB projects get off the ground, the government could increase its communication with businesses; on the other hand, businesses should also make greater effort to clinch the projects.

4.07 pm

Mr Ong Teng Koon (Sembawang): Mdm Speaker, I note with interest the bill before the House today on Singapore's participation in the new Asian Infrastructure Investment Bank (AIIB). As you know, the proposed AIIB is an initiative spearheaded by China, to form an international development bank with a specific focus on financing infrastructure projects in the Asia-Pacific.

I wish to first express my broad support for Singapore's engagement in this new multilateral project. In economic terms, the AIIB is a timely venture. While the Asia-Pacific has been growing tremendously over the last 20 years, there are still a lot of infrastructure investments needed in many parts of Asia.

The demand for such financing – both to develop basic infrastructure within countries, as well as to deepen linkages across countries in the region – remains massive. A recent ADB report cited the need for up to 8 trillion dollars of investment in infrastructure in Asia over the years 2010 through 2020. The AIIB can help to fulfil this demand. Through our proposed participation, Singapore can play its role in fostering the development and integration, in raising living standards for millions of people as well as in promoting greater economic integration for Asia as a whole.

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In this case, what is good for Asia as a whole will also be good for Singapore. If properly executed and coordinated, such investments in infrastructure would provide a boost to industrial productivity and hence economic growth in the region. Singapore also stands to benefit directly. From my own perspective from the financial sector, I know that investment banks or commercial banks cover Indo-China out of their Singapore offices. So, when demand for financial services grows in Indo-China, Singapore will benefit more than other competing financial hubs.

There is a second strategic reason that argues in favour of our participation in the AIIB.

Amidst concerns about the geopolitical uncertainties that a newly assertive China may bring, it is important to recognise that closer economic integration in Asia will be pivotal for advancing and preserving political stability in the region. The AIIB can be a platform that makes such closer, tighter economic integration possible. By bringing together key regional players as joint economic stakeholders, the AIIB can bring into focus the common interest that all nations have in avoiding conflict and preserving regional peace. The goal of releasing the full economic potential of Asia can then take centre-stage. To draw a parallel, the experience of our continual engagement with Myanmar over the long term provides an example of how the objective of economic development and cooperation can be a positive force towards fostering political stability.

The economic and political reasons I have highlighted are important enough that Singapore – despite our small size – should take an active interest in the AIIB initiative. I am therefore heartened by the fact that we were among the first countries to express our interest in being a founding member of the AIIB.

Yet as many Members of this House will know, while the response to the AIIB has been largely positive – with 57 countries, including the United Kingdom, Germany and Australia, signing on as founding members – the initiative has also been met with reservation – with the United States and Japan being notable by their absence. Why has this been the case? One natural concern is that the AIIB will become a competitor to other international financial institutions, especially the Asian Development Bank. More importantly, there are also concerns that the AIIB will come to be seen as a vehicle for advancing the national interests of its largest shareholders, specifically China.

It is, of course, much too early to pass such judgement on the AIIB. But as a founding member with a seat at the table, I would urge that we be cognizant of such potential criticism, and instead work towards ensuring that the AIIB achieves its vision of becoming of a modern and truly participatory international development bank. Our proposed commitment of $250 million will represent only a quarter of a percent of the total capital stock of $100 billion of the AIIB, so we will always look like small players in the big picture of things. But I would submit that there are nevertheless unique opportunities for Singapore to play a responsible role, even in these early stages where the institutional structures of the AIIB are being laid out.

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Our expertise in nation-building can be useful for providing key inputs in the technical feasibility of proposed infrastructure projects that are put before the AIIB for consideration. This is important not just from the perspective of cost-benefit analysis, but also for ensuring that infrastructure projects that are financed take the long view to be environmentally safe and sustainable, and are not just pushed forward for the sake of quick growth at all costs.

Similarly, our credibility in forging clean and efficient institutions will be valuable, and may give us a say in how the corporate governance structures of the AIIB are formulated. Our hard-earned reputation as an honest broker on the international stage can also be leveraged, to help ensure that the portfolio of projects that the AIIB finances will be truly diversified and representative, and not be seen as advancing the narrow interests of one or two dominant shareholders.

These are early days, of course, in the formation of the AIIB. But I would urge that the Ministry give thought to how our views and interests can be most effectively articulated as the founding member countries discuss the shape of this new institution. This is to ensure that the directions the AIIB takes will indeed be to the broad benefit of all of Asia, while also being consistent with Singapore's own national interests.

In sum, I support our participation in the proposed Asian Infrastructure Investment Bank (AIIB). The ambition and scale of this project has the potential to promote economic development and closer trade ties across Asia for many years to come. Singapore and Singaporean companies need to be alive to the opportunities that this may bring. At the same time, our participation in this project sends an important signal of Singapore's willingness to be a constructive global citizen, and is another step towards safeguarding our relevance as a small country that holds its own in the international arena.

As with any significant multilateral initiative, the devil will be in the details. There, I urge that due diligence and effort be exercised to ensure that the ultimate shape the AIIB takes will be truly participatory and motivated by shared economic interests, and that the AIIB will indeed mature to be an institution that is in its own stated aims, "lean, clean, and green". With that, Mdm Speaker, I support the Bill.

4.15 pm

Mrs Josephine Teo Mrs Josephine Teo: Mdm Speaker, let me first thank Mrs Lina Chiam, Mr Thomas Chua and Mr Ong Teng Koon for their support of the Bill. They have made good points which I agree with. As a small, open economy, Singapore's economic prospects are tied closely to those of the region and the world, and in particular, infrastructure development plays a critical role in unlocking Asia's economic potential by strengthening the region's facilities and improving regional connectivity -- all of which will benefit Singapore as a hub for trade and businesses.

International financial institutions like the World Bank, the Asian Development Bank, and the AIIB, complement the financial and knowledge resources of governments and the private sector. In particular, they bring a high level of expertise in project design and structuring, which individual governments may not have, particularly those that are still dealing with developing economies. By working with governments, these international institutions also help to reduce risks in large scale infrastructure projects, help to make them bankable, and draw in private sector financing. The AIIB will better position Asia to meet its infrastructure and connectivity needs thereby promoting greater regional integration.

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As Mr Thomas Chua and Mr Ong Teng Koon have pointed out, Singapore-based companies and financial institutions stand to benefit from partnerships with the AIIB and its member countries, especially given Singapore's expertise in infrastructure development, as well as urban governance and planning.

Mr Thomas Chua also made a good point that Singapore companies, both Temasek-linked companies and SMEs, should work together to bid for projects at the AIIB and other international financial institutions. The Government supports such partnerships. For example, we introduced the Partnerships for Capability Transformation initiative which promotes collaborative projects between large organisations and local SMEs to facilitate knowledge-transfer, capability-building and the co-creation of innovative solutions.

More importantly, we will continue to support our SMEs' internationalisation efforts to expand their reach and build scale. To this end, in Budget 2015, the Government made several enhancements to the internationalisation programmes available to Singapore companies. For example, we raised the support level for SMEs under IE Singapore's grant schemes from 50% to 70% for three years. We also setup Clifford Capital to provide financing and catalyse more business opportunities for Singapore-based companies venturing into cross-border infrastructure projects. SMEs can tap these initiatives as they look for project opportunities in the region and beyond.

Related to this, Mr Thomas Chua highlighted the need to improve communications between the Government and the business community on opportunities in the region. We agree with that.

The Government currently works with the World Bank and the Asian Development Bank to establish platforms that connect stakeholders involved in Asian infrastructure projects to share experiences and business opportunities in this sector. We will do the same with the AIIB. For example, IE Singapore organises the Asia Singapore Infrastructure Round Table for Government officials and businesses to discuss to the development and financing of specific infrastructure projects. Since its inauguration in 2013, the Round Table has attracted more than 600 industry practitioners with over US$6,000,000 worth of projects discussed.

Let me now move on to the point highlighted by Mr Ong Teng Koon, that despite our relatively small shareholding in the AIIB, Singapore should play a constructive role in shaping the AIIB to be an open, inclusive and modern institution.

I agree with Mr Ong's views, and indeed that is the stance that Singapore has been taking. From the onset, the Government has taken a proactive approach in shaping the development of the AIIB, by contributing our ideas and contributing our experiences. We have participated actively in the negotiations, and worked with other prospective founding members to establish a strong governance structure and high-operating standards for the AIIB. Discussions on the bank's operational and financial policies are still underway and we will continue our efforts to ensure that the AIIB is established as a well-respected institution of high standards that complements existing multi-lateral development banks. I think this is also a concern which Mrs Lina Chiam voiced. In fact, the AIIB has the advantage of building on the experiences of the Asian Development Bank and the World Bank to establish itself as a strong institution.

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Let me wrap up by addressing some of the concerns raised by Mrs Lina Chiam regarding immunities and privileges. On this point, I should remind Members and emphasise that while Singapore was one of the first countries to give its support as a founding member, there are by now 57 countries that have come on board the AIIB. Fifty of these have already signed the articles of agreement. These countries include Australia and the United Kingdom. So, we are in good company, and in fact in Singapore, we set a rather high bar for international organisations operating here and also it is not every day that a new international organisation like the AIIB is set up. We take, for example, the World Bank - was set up in 1944; the Asian Development Bank (ADB) was set up in 1966. We are in 2015. So, the concern that we will suddenly be flooded with all these international organisations in Singapore, all enjoying privileges and immunities, is not a major concern at all.

In any case, I should point out that whatever privileges and immunities that we could grant to the AIIB would not be more than what other international organisations, like the World Bank or the ADB, currently enjoy in Singapore. So, I would like to reassure Mrs Chiam on that point.

Mdm Speaker, on that note let me now conclude. The AIIB is an important addition to the international financial architecture, and it is going to be a key international financial institution in our region. Joining the AIIB is both a natural step as well as a critical move for Singapore as an international financial centre and a business hub for the region. The AIIB Bill provides for Singapore to ratify the AIIB Articles of Agreement and to become a member of the Bank. Mdm Speaker, I beg to move.

Question put, and agreed to.

Bill accordingly read a Second time and committed to a Committee of the whole House.

The House immediately resolved itself into a Committee on the Bill. – [ Mrs Josephine Teo ].

Bill considered in Committee; reported without amendment; read a Third time and passed.

Mdm Speaker: Order. I propose to take a break now. I suspend the Sitting and will take the Chair at 4.40 pm.

Sitting accordingly suspended

at 4.20pm until 4.40pm.

Sitting resumed at 4.40 pm.

[Mdm Speaker in the Chair]: ****

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