Infrastructure spending in Indonesia has fallen from between 5 percent and 6 percent of gross domestic product in the 1990s to only between 2 percent and 3 percent over most of the last decade, and the Philippines typically spends less than 2 percent. The Asian Development Bank (ADB) believes that at least $800 billion must be spent annually on regional infrastructure by 2020 in order to ensure continued growth and development.

Typically, most major project funding in the region comes from the ADB, the International Monetary Fund (IMF) or the World Bank. But it is often the case that loans from those multilateral banks often come with strings attached, such as political or economic reform targets which must be met in order to release various funding tranches. While you can safely argue that the requested reforms are for the borrower’s own good, it is easy to understand why many nations are simply choosing not to get tangled in those strings.

Another challenge the major multilateral banks have faced in the region is that, in addition to the conditions typically put on loans, they are all essentially headed by developed Western nations. The ADB is headed by a Japanese finance official, Americans run the World Bank, and the IMF is a largely European affair. Considering the experience Southeast Asia had with colonialism well into the 1960s, its little surprise that they would view those foreigners with an air of suspicion, particularly when the money those foreigners offer typically gives them at least implied governmental powers.

That scenario has created an opportunity for China, which has been working to project their growing military power across the region as a form of persuasion in Southeast Asia.

Currently holding an estimated $4 trillion of currency reserves, China is eager to put that money to work and has already been investing heavily in infrastructure projects around the world. Whether it is road and water networks in Africa or mines in South America, the Chinese have accumulated a wide ranging portfolio of global assets. Comparatively speaking though, China has invested relatively little in its own backyard. That’s largely because of the fact that just as smaller Asian nations fear a resurgence of Western colonialism, China’s own aspirations are no secret.

The help blunt those concerns, China has proposed the creation of a new lender called the Asian Infrastructure Investment Bank (AIIB), which it would seed with startup capital of $50 billion. While China would be the fund’s primary investor – at least initially – it has said that it doesn’t necessarily have to be the lead decision maker in the organization, though it has pointedly excluded the US, Europe and Japan from the project. China has said its primary concern is that the organization has a clear Asian-led identity and doesn’t interfere in the internal matters of other countries.

While China might not head the organization – though it seems extremely likely that it will – the country is certain to expect a certain quid pro quo to keep the cash spigots open, even if it is only supportive votes in the United Nations. And while China isn’t a member of the Association of Southeast Asian Nations, it would certainly like to use the AIIB to foster relations with member nations to ensure its interests are represented there.

Considering that Asia needs to spend about $8 trillion on infrastructure over the next decade to maintain growth and many countries in the region clearly recognize that need, the AIIB is certain to be an attractive proposal. Since the AIIB will be tailor-made to address specific infrastructure needs, unlike the other major multilateral banks that also deal with poverty reduction projects, it is almost certainly going to get off the ground.

It would also probably be a good thing if China takes a backseat in administering the fund, though it will still serve Chinese purposes. Even a cursory look at China’s major international investments over the years reveals that it quite often prioritizes strategic investments rather than those that would produce real economic returns. With other nations essentially steering the investment process, the fund could ultimately become a largely self-sustaining entity while still buying plenty of goodwill for China since it will likely be providing most of the funding. At the same time, nothing will keep China from continuing to make purely strategic investments, such as the $25 billion or so it is spending to help develop roads, power grids and industrial projects in Pakistan.

For Western investors, the key here will be to keep an eye on the sorts of projects that AIIB invests in and to grab onto their coattails. With the dire need for infrastructure spending and China still being flush with cash, the Asian infrastructure story will have legs for years to come.

Portfolio Updates

AutoNavi Holdings (NSDQ: AMAP) has reported that its total first quarter net revenues fell from $34.3 million last year to $23.1 million this year. The decline was largely attributable to the fact that BMW shifted some of its newer model cars to another map data provider for their in-dash GPS units and the shift toward including AutoNavi data in more mid-priced automobiles resulting in lower average selling prices. As a result, earnings per share swung to a net loss of $0.84 in the first quarter compared to a net gain of $0.12 in the year-ago period.

The shares haven’t budged on the news though as the buyout offer from Alibaba has been unaffected. AutoNavi was caught up in Alibaba’s $1.132 billion spending spree ahead of its much-anticipated US initial public offering and appears key to Alibaba’s mobile device strategy.

With AutoNavi Holding’s buyout secure, I continue to rate the company a hold as we wait for the deal to close.