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Why Japan Dominates Leadership of Asian Development Bank

Photographer | Collection | Getty Images

The Asian Development Bank (ADB) has been important to Japan the way the World Bank has been to the United States and the International Monetary Fund to the European Union. Since its establishment in 1966, all eight presidents of the ADB have been from Japan and seven of them served at the country's Finance Ministry.

The monopoly looks set to continue, with Takehiko Nakao, Japan's vice finance minister, on course to succeed former president Haruhiko Kuroda, who resigned to become central bank governor in March. The 57-year-old still needs to go through voting by 67 member states of the ADB by April 24, but he is the only candidate for the job.

(Read More: BOJ's Kuroda Faces Big Test Pitching His Plan to Split Board)

One seemingly odd twist in the run-up to the election, however, was that China, the third largest shareholder in the bank – and a country that surpassed Japan as the world's second largest economy in 2010 – forfeited its chance to come up with a nominee.

Xie Xuren, who stepped down as China's finance minister in March to chair the National Social Security Fund, has clearly opposed the idea of sending a Chinese candidate to run for ADB president. He was less straightforward with why he held the opinion though.

But a source close to the ministry said the reason was probably financial. China has borrowed heavily from the ADB. Its loans from the bank approached $26 billion in 2011, second only to India. Meanwhile, it has committed US$ 10.5 billion and paid in only $523 million to the bank.

(Read More: Will Japan's Central Bank Deliver or Disappoint?)

Reversing the flow of capital to become a net creditor is important if China wants to gain high moral ground in a race for ADB president, the source said. Not to mention the practical necessity that it needs to pump up its capital commitment to the bank in order to increase its voting rights, he added.

The Ministry of Foreign Affairs has concern as well. It was against sending a Chinese nominee to compete with Nakao because the relationship between China and Japan was at a particularly sensitive moment, the source said, referring to the conflict between the countries over territorial claims to a group of islands in the East China Sea.

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Some financial and economic experts contend, however, that China should nevertheless take a shot at the election.

(Read More: Bankers Fear Chinese Push to Head ADB)

Choosing leaders for a multi-lateral organization is a game between major stake-holding countries, said Tang Min, vice chairman of non-profit You Change China Social Entrepreneur Foundation, who worked at the ADB's representative office to China.

Tang advocates that China assert its rights more aggressively in the bank, otherwise, people will regard it as customary that the president be from Japan.

Proponents for a Chinese nominee also argue that greater participation in the bank's management would facilitate economic cooperation with Japan rather than deepen existing frictions. It may also help China cast its image as a rising power willing to shoulder more international responsibilities, they say.

Moreover, they note that China has plenty of financial resources from its $3 trillion in foreign exchange reserves to make a significant contribution to the ADB and its subsidiary, the Asian Development Fund.

Indeed, China has recently committed to funding a BRICS development bank, the brainchild of leaders from Brazil, Russia, India, China and South Africa, when they met in Durban last month.

(Read More: Watch Out, World Bank: Here Comes the BRICS Bank)

But challenging Japan's dominance of ADB's top management will not be easy. The United States and Japan are the largest shareholders of the bank. By the end of 2011, each country's contribution made up 15.65 percent of the bank's total equities, and they each held 12.82 percent of voting rights.

In comparison, China's capital contribution and its voting rights were much smaller, at 6.46 and 5.47 percent.

A nominee needs to gain at least half of all votes to become the ADB president. Masahiro Kawai, dean of the Asian Development Bank Institute, a Tokyo-based think tank founded by the ADB, said Japan would be able to maintain its grip over the ADB president post because the United States was not interested in the job while other countries lacked voting support.

For the moment, it seems that the monopoly of Japan over the ADB president post may not change any time soon. Even Tang acknowledged this. But it was still worth an attempt, he said, because trying and failing was better than giving up.

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