Last week saw the official signing ceremony in Beijing of the Asian Infrastructure Investment Bank, a China-led international financial institution that will eventually rival the World Bank and Asian Development Bank. The new lender will bankroll the building of roads, railways, power plants and telecoms networks around the region.
The bank is a key part of President Xi Jinping’s efforts to boost China’s influence, called “peripheral diplomacy”, and redress an imbalance – China’s poor levels of representation on international bodies such as the World Bank and ADB.
The World Bank, the IMF and the ADB are dominated too much by the US, Japan and Europe for Chinese tastes, and China, despite being the world's second-largest economy, has only limited voting rights in these existing banks. The AIIB will provide funds to improve infrastructure in Asia, mainly to countries close to China.
There are 57 founding members and 50 of them attended a ceremony in the Great Hall of the People, with Australia, a key US ally, leading the signing.
"This is an important step toward the establishment of the AIIB. I express my gratitude for your co-operation," Chinese finance minister Lou Jiwei told the delegates attending the ceremony.
The multilateral institution has attracted many prominent US allies including Britain, Germany, Australia and South Korea, as well as most Asian nations and countries from the Middle East and South America. The most prominent countries not to join are Japan and the United States.
After each of the countries finishes domestic procedures for approval, the AIIB will likely start operations this year. The institution should facilitate Chinese investment in infrastructure overseas. Beijing has been looking for new vehicles to invest its vast foreign exchange reserves.
It wasn't all plain sailing. Seven countries refrained from signing the accord, including the Philippines, which has clashed with China over territorial claims in the South China Sea. Denmark, Kuwait, Malaysia, Poland, South Africa and Thailand also did not sign the accord, but a finance ministry official said some of these countries would sign by the end of the year.
China will be the biggest stakeholder in the investment bank with a 30 per cent share and will have the largest share of the voting rights. Beijing will have veto power over key bank decisions, which require at least 75 per cent support from members. The bank's second-biggest shareholder will be India, followed by Russia, Germany and South Korea.
China has said it will provide most, even all, of the initial $50 billion (€45 billion) in capital, eventually rising to $100 billion. This is small compared to other institutions – the World Bank’s capital is about $220 billion, while the Asian Development Bank has $175 billion capital, but is still a significant amount.
Gu Bin, an academic at Beijing Foreign Studies University, wrote in the South China Morning Post how the AIIB "signals Beijing's readiness to act as a responsible stakeholder in the international community".
“Since the end of the second world war, the US-led Bretton Woods institutions have dominated the international economic world,” he wrote. “The system has largely become bureaucratic, inefficient and has disappointed the developing world by failing to meet its commitment to it.”
