Background: The New "Asian Infrastructure Investment Bank"

Published: March 27, 2015; 14:00 · (FriedlNews)

The Asian Infrastructure Investment Bank (AIIB) is regarded by some as a rival for the IMF, the World Bank and the Asian Development Bank (ADB), which are regarded as dominated by developed countries like the United States. AIIB is an international financial institution proposed by the government of China. The purpose of the multilateral development bank is to provide finance to infrastructure projects in the Asia region. Austria recently said, that it is "positive" and that it "now checks for a potential engagement".

Austria is going to support the new Asian Infrastructure Investment Bank / Picture: © The Book Archive

The first news reports about the AIIB appeared in October 2013.

The Chinese government has been frustrated with what it regards as the slow pace of reforms and governance, and wants greater input in global established institutions like the IMF, World Bank and Asian Development Bank which it claims are dominated by American, European and Japanese interests.

The Asian Development Bank Institute published a report in 2010 which said that the region requires $8 trillion to be invested from 2010 to 2020 in infrastructure for the region to continue economic development.

In a 2014 editorial, The Guardian newspaper wrote that that the new bank could allow Chinese capital to finance these projects and allow it a greater role to play in the economic development of the region commensurate with its growing economic and political clout.

In June 2014 China proposed doubling the registered capital of the bank from $50 billion to $100 billion and invited India to participate in the founding of the bank.

On October 24, 2014, a signing ceremony held in Beijing formally recognized the establishment of the bank. 21 countries signed the bill, which included: China, India, Thailand, Malaysia, Singapore, the Philippines, Pakistan, Bangladesh, Brunei, Cambodia, Kazakhstan, Kuwait, Laos, Myanmar, Mongolia, Nepal, Oman, Qatar, Sri Lanka, Uzbekistan, and Vietnam.

U.S. pressure allegedly kept Australia and South Korea from signing up as founding members, despite the fact that they had formerly expressed an interest in it.

Indonesia's joining was slightly delayed due to their new presidential administration not being able to review the membership in time.

Negotiations for the bank’s articles of agreement will follow, and are expected to be completed by the end of 2015.

Hong Kong's Financial Secretary John Tsang announced in his budget speech in February 2015 that the territory would join the AIIB.

In early March 2015, the United Kingdom's Chancellor of the Exchequer, George Osborne, announced that Britain had agreed to lend money to the Chinese-led Asian Infrastructure Investment Bank, becoming the first major Western country to do so.

The announcement was criticised by the Obama Administration in the United States. A US government official told the Financial Times, "We are wary about a trend toward constant accommodation of China, which is not the best way to engage a rising power."

This official further stated that the British decision was taken after "no consultation with the US."

In response to the US criticism, the UK claimed that the subject had been discussed between the UK Chancellor George Osborne and the US Treasury Secretary Jack Lew for several months preceding the decision. It was further stated that joining the bank as a founding member will allow Britain to influence the development of the institution. By encouraging Chinese investments in the next generations of nuclear power plants, Osborne announced that "the City of London would become the base for the first clearing house for the yuan outside Asia."

Following the criticism, the White House National Security Council, in a statement to The Guardian newspaper in London, declared, "Our position on the AIIB remains clear and consistent. The United States and many major global economies all agree there is a pressing need to enhance infrastructure investment around the world. We believe any new multilateral institution should incorporate the high standards of the World Bank and the regional development banks. Based on many discussions, we have concerns about whether the AIIB will meet these high standards, particularly related to governance, and environmental and social safeguards … The international community has a stake in seeing the AIIB complement the existing architecture, and to work effectively alongside the World Bank and Asian Development Bank."

Three other European nations - Germany, France, and Italy - soon followed Britain's decision to join the AIIB.

German Finance Minister Wolfgang Schäuble stated, "We want to contribute our long-standing experience with international financial institutions to the creation of the new bank by setting high standards and helping the bank to get a high international reputation."

Membership/Founding members

Until today there are 33 members. Bangladesh, Brunei, Cambodia, China, India, Indonesia, Jordan, Kazakhstan, Kuwait, Laos, Malaysia, Maldives, Mongolia, Myanmar, Nepal, Oman, Pakistan, Philippines, Qatar, Saudi Arabia, Singapore, Sri Lanka, Tajikistan, Thailand, Uzbekistan, Vietnam.   

Non-regional members are France, Germany, Italy, Luxembourg, New Zealand, Switzerland, United Kingdom.

Australia, Hong Kong, South Korea, and Taiwan are under consideration of joining the AIIB. Japan and the United States have remained sceptical about the negotiation.

Countries invited

The initial $50 billion was mostly provided by China, but India, Pakistan, Singapore and Vietnam were also signatories. There are a total of 27 signatories. Japan, South Korea and Australia were not in attendance, but China’s Ministry of Finance said "any country that signs and ratifies the articles can still officially become a 'founding' member" though they must first be accepted by the existing members.

Reception

The president of the World Bank, Jim Yong Kim, has said that the need for infrastructure in developing countries is great so that the activities of new organizations would be welcome. The president of ADB, Takehiko Nakao, said that there were "huge infrastructure financing needs" in Asia and that the establishment of the AIIB is an understandable step. He said that when AIIB is established, ADB will be willing to consider appropriate collaboration and, at the same time, urged that AIIB adopt international best practices in such areas as procurement and social safeguards on lending arrangements.

The United Kingdom has signed up to be a founding member of the bank ahead of a deadline at the end of March 2015.

The United States has not signed up. Its officials have expressed concerns about whether the AIIB would have high standards of governance, and whether it would have environmental and social safeguards. The United States is reported to have used diplomatic pressure to try and prevent key allies, such as Australia, from joining the bank, and expressed disappointment when others, such as Britain, joined.