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Thursday, 18 July 2019

AIIB: China’s own development bank?

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The Asian Infrastructure Investment Bank is quickly taking shape after countries from the UK to Myanmar applied to join as founding members ahead of a March 31 deadline. The new, China-led bank now has a staff of 35 and has launched its own website, but several questions remain unanswered.

Who is on board?

As of April 15, 57 countries had applied to be founding members of the AIIB, according to its website. The notable holdouts are the US and Japan, the two biggest shareholders of the ADB. Other countries can still join as voting members, but will have less of a say in the AIIB’s constitution.

How big will it be?

Founder members will initially pay up to one-fifth of the AIIB’S US$50bn authorised capital, which will eventually be raised to US$100bn. That compares with total capital of US$153.1bn for the ADB as at the end of December 2014, comprising US$7.7bn of paid-in capital and callable capital of US$145.4bn.

What is China’s role?

China will have the biggest stake in the bank, according to Jin Liqun, secretary general of the interim secretariat establishing the AIIB. It is also widely expected to host the institution, which already lists an address in Beijing’s financial district, although other countries, including Indonesia, have expressed an interest in housing the bank’s headquarters. Chinese officials have said that China will not have veto power over the AIIB, unlike the World Bank where Washington has a limited veto.

How will it be run?

The AIIB says it will be “lean, clean and green”, with a small and efficient management team, strong governance and environmental standards, again according to its website. In practice, a board of governors will run the bank, much like existing multilateral institutions. Progress has been swift: the chief negotiators have met three times, in China, India and Kazakhstan, and articles of association are expected to be ready for signing come June. China expects the bank will be fully established by the end of 2015.

How is it different?

The finer points of the AIIB’s framework have yet to be agreed, but the biggest difference from other established institutions appears to be the shareholding structure. China has proposed that economic size determine the shareholdings, but with the condition that Asian nations own three quarters of the AIIB, sources told Reuters in April. That effectively means China, now the world’s second largest economy, is guaranteed to be the biggest voting member.

That approach contrasts with the structure of Manila-based ADB, where 36.5% of the capital stock and 34.9% of voting rights are in the hands of non-Asian shareholders. Japan (15.7%) and the US (15.6%) have the largest stakes in the ADB, with China next at 6.5%. Staffing levels are roughly in proportion, with 151 of the ADB’s 1,074 international staff hailing from Japan and 146 from the US. China, with 62, trails India and Australia.

It is also possible that the AIIB will use a currency other than the US dollar, although analysts say there is only a slim chance that the member nations will agree to use the renminbi or a currency basket as an alternative.

Why all the fuss?

China’s success in building support for an alternative multilateral is a big diplomatic victory for Beijing and one that is all the more impressive given the US’s vocal opposition. Washington tried and failed to stop its allies from signing up, so the presence of the UK, South Korea and Australia among the list of prospective founding members underlines China’s growing clout in global politics.

It is also clear that China has gone its own way after years of frustration in its efforts to reform the existing multilateral framework. It has argued for reforms of the ADB’s shareholder structure, but has been consistently rebuffed, unable to increase its modest say in the bank’s operations, despite a rapidly growing economy.

The US says it is concerned about the AIIB’s governance standards, but its entrenched opposition suggests Washington is worried about something far more significant.

Indeed, some observers have pointed to the creation of the AIIB as a challenge to the Bretton Woods institutions that were born after the Second World War – in particular, the World Bank and the IMF – and, thus,to the US dollar’s dominance as the world’s reserve currency.

The AIIB’s website, of course, says nothing of the sort.

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To purchase printed copies or a PDF of this report, please email gloria.balbastro@thomsonreuters.com .

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