Asian Infrastructure Investment Bank Draws Broad Interest as Initial Application Deadline Passes
The new Asian Infrastructure Investment Bank has drawn over 40 requests from countries interested in becoming prospective founding members, Chinese officials confirmed this week, following the close of the initial application deadline this Tuesday.
Plans for the launch of this bank were first announced in October 2013 by Chinese President Xi Jinping and Premier Li Keqiang; a year later, Beijing signed a memorandum of understanding with 20 other Asian countries for establishing the bank.
The multilateral development institution will be headquartered in Beijing, with China envisioning an end-2015 establishment date, according to the AIIB website.
The bank describes itself as pursuing a “lean, clean, and green” mode of operations, one that will also feature “strong policies” in areas such as governance and accountability, as well as in financial, social, environmental, and procurement frameworks.
The focus on the bank, officials say, will be on developing infrastructure and other productive sectors within the Asian continent, in areas ranging from energy and power to environmental protection, telecommunications, rural investment, and agriculture.
The AIIB would initially be capitalised to the tune of US$50 billion, with authorised capital currently set at US$100 billion, according to Chinese state-run news agency Xinhua.
To date, prospective members include countries ranging from France, Germany, Italy, Luxembourg, Switzerland, and the UK in Europe to South Korea and Australia on the Pacific side. The most recent applicants also include Russia, Norway, Israel, and Taiwan.
Japan, for the moment, has not applied to join, though Tokyo officials have reportedly not ruled out the possibility of joining later on if the AIIB meets certain governance standards.
The exact number of prospective funding members will be confirmed on 15 April, said Chinese Foreign Ministry Spokesperson Hua Chunying at a Wednesday press conference. At the time, 30 countries had passed the multilateral review procedures, Hua told reporters, while noting that more recent applications were still being examined.
US officials had initially criticised decisions by many of its major partners in applying to join the bank, citing questions on how exactly the AIIB will address in practice its own governance and transparency, as well as labour and environmental issues.
Despite the flurry of applications from various countries, the US has so far not expressed a public interest in joining the bank, either now or in the near-term. However, comments this week by top Washington officials have shown an apparent shift in tone regarding the country’s overall position on the AIIB.
“We have made clear to China that the United States stands ready to welcome new additions to the international development architecture, including the Asian Infrastructure Investment Bank,” said US Treasury Secretary Jack Lew on Tuesday in San Francisco, California, following several days of meetings in Beijing.
However, this welcome is conditional on such new additions “complement[ing] existing international financial institutions and that they share the international community’s strong commitment to genuine multilateral decision making and ever-improving lending standards and safeguards.”
Governance, implementation questions
One of the main questions posed by both observers of the process, as well as prospective founding members themselves, is how the proposed AIIB will operate in practice.
Part of the push to join before the 31 March deadline was for interested countries to have the chance to participate in the upcoming negotiations on the bank’s Articles of Agreement, and thus have a say in its setup, which will be the next stage to complete in the overall establishment process.
Those countries that then sign and ratify these articles will formally become founding members.
For their part, Germany, France, and Italy, said in a statement announcing their application that they aim to work with their international partners “to establish an institution that follows the best standards and practices in terms of governance, safeguards, debt and procurement policies.”
A joint statement by Australian Prime Minister Tony Abbott, Foreign Affairs Minister Julie Bishop, and Treasurer Joe Hockey, similarly noted that while “good progress has been made on the Bank’s design, governance, and transparency over the past few months… we still have issues that we will address through ongoing consultations.”
One of these issues, they said, would be ensuring that “no one country control[s] the bank,” a concern that other prospective found members have also raised.
Where the proposed bank will fit in the broader system of international financial institutions is another open question.
International Monetary Fund (IMF) Managing Director Christine Lagarde and World Bank President Jim Yong Kim have both said in recent months that they welcome the potential opportunities for increased Chinese participation in international investment initiatives and in addressing infrastructure gaps in the developing world, including through the AIIB.
However, the rush of countries to join the China-led organization has also reignited longstanding questions over the current structure of the Bretton Woods institutions, particularly in light of the US Congress’ continued failure in approving IMF quota reforms, which are geared toward shifting more power to developing and emerging market countries.
Though the Obama Administration was involved in negotiating such reforms, which were agreed in 2010, they have advanced little within the US legislative branch.
The IMF’s policy-setting body, known formally as the International Monetary and Financial Committee (IMFC), warned last year that if US lawmakers did not act before end-2014, the panel would push for the Fund to “develop options for next steps” – a subject that is likely to emerge at the Spring Meetings of the IMF and World Bank later this month. (See Bridges Weekly, 17 April 2014)
The difficulty in advancing such reforms in organisations such as the IMF and World Bank that reflect the changing economic order have been widely acknowledged as a potential reason behind China’s decision to start the AIIB, as well as the separate launch last year of a development bank backed by the BRICS countries – Brazil, Russia, India, China, and South Africa. (See Bridges Weekly, 17 July 2014)
“Simply put, it is not in China’s interest to turn its back on the norms developed over the last 70 years that have been critical to China’s and America’s long-term economic prosperity. And this week’s conversations in Beijing confirmed that this is a shared view,” Lew said on Tuesday, reiterating past calls for US lawmakers to sign off on the IMF quota reforms.
In a recent address to the China Development Forum in Beijing on 21-23 March, Jin Liqun - AIIB’s Secretary General of the Multilateral Interim Secretariat – said that the AIIB is meant to complement, not replace, the World Bank and Asian Development Bank, and aims to improve the existing international finance regime, according to comments reported in the Financial Times.
As a premier shareholder of the bank, China will not dominate the decision-making, the AIIB official said, adding that the bank’s decision making will be mainly based on consensus rather than voting.
Furthermore, he added, AIIB will have zero tolerance for corruption, and aims to establish an open, transparent and inclusive international institution with the most advanced governance of the 21st century.
ICTSD reporting; “21 Asian countries sign MOU on establishing Asian Infrastructure Investment Bank,” XINHUA, 24 October 2014; “Lew Criticizes European Backing of China-Led Development Bank,” WALL STREET JOURNAL, 17 March 2015; “South Korea Says It Will Join China-Led Investment Bank,” WALL STREET JOURNAL, 26 March 2015; “Taiwan, Norway seek to join China-backed AIIB, Japan still cautious,” REUTERS, 31 March 2015.