Ever since the China-led development bank began drawing members from the world over, observers have wondered if it would become another tool of Chinese geoconomic expansionism. Early signs suggest not.
With a capitalization of $100 billion and a membership of 57 countries, the China-led Asian Infrastructure Investment Bank (AIIB) was barely a blip on the radar of global development before early 2015. The circumstances through which the bank drew widespread press coverage the world over in the spring of 2015 help shed light on the fundamental question underlying its broader role in the world of development finance.
As Western European countries, including the United Kingdom, Germany, France, Italy, and Spain, all rushed to sign up for the AIIB as founding members, the United States, somewhat unusually and publicly, protested. Washington's concerns were at the time couched in language expressing concern that the AIIB would not adhere to the governance and environmental standards that institutions like the U.S.-led World Bank or the Japan-led Asian Development Bank (ADB) adhered to.
Underlying those concerns, however, there was a palpable sense of concern that the AIIB was nothing more than a Chinese scheme to expand its geo - economic influence across the Asia in parallel with other strategic plans such as the One Belt, One Road initiative. As country after country signed up for a spot at the table as a founder of the AIIB, the United States and Japan notably held out.
Finally, in January 2016, the bank opened its doors, shortly after its Articles of Agreement (a virtual constitution describing the bank's mission and governing principles) were agreed to in December 2015 by the founding members. Much like the other big development banks, power within the AIIB's governance structure is determined by the number of shares held. Unsurprisingly, as the progenitor of the institution, China holds 30.34 percent of all shares, giving it a voting power of 26.06 percent.
That second number is critical because the AIIB's voting rules require three-quarters support for any funding proposal, effectively granting Beijing a veto within the organization. Politically, this veto is constrained somewhat – were Beijing to be the sole dissenter among the AIIB's 57 members, the bank's subservience to its geo-
economic ambitions would become plainly obvious.
After China, other significant shareholders include India, with 8.52 percent of shares and 7.51 percent of the vote; Russia, with 6.66 percent of shares and 5.93 percent of the vote; and Germany, with 4.57 percent of shares and 4.15 percent of the vote. The list goes on with South Korea, Australia, France, Indonesia, and Brazil respec-
tively taking the next spots in terms of the percentage of shares held.
A lot about the AIIB's voting structure and, indeed, raison d'etre stems from the West's inability to sufficiently reform existing global governance forums, including the World Bank and the International Monetary Fund, to accommodate Chinese preferences commensurate with Beijing's rising status on the world stage. Unable to get its foot in door at the existing inheritors of the Bretton Woods system, Beijing has seen a need to set up its own alternatives like the AIIB.
The grand geoeconomic concerns underlying U.S. and Japanese hesitations about the AIIB, however, simply haven't panned out. The AIIB's first president, Jin Liqun, a former Chinese vice minister of finance, dismisses any such concerns, noting in a recent interview that existing "skepticism must always be forgiven, you know, because there is no hope of a cure." Jin points to the AIIB's intention to appoint "a Japanese national in a senior position in the bank," soon, suggesting that the initiative was far from a global governance Trojan Horse set up by Zhongnanhai to upend the global order.
The best indicator of the AIIB's intentions is seen in its inaugural financing decisions, which were made earlier this spring. The AIIB, in partnership with the ADB and the United Kingdom's Department for InternationalDevelopment (DFID), will finance the construction of a 64 kilometer stretch of highway in Pakistan.
Moreover, the AIIB will partner with the World Bank, the European Bank for Reconstruction and Development (ERBD), will finance projects in Central Asian states, including an expressway connecting Dushanbe, the capital of Tajikistan, to the Uzbek-Tajik border, and a peripheral ring road for the Kazakh city of Almaty. The initial projects are moderate in scope and suggest a degree of risk averse thinking by the AIIB as it gets its feet wet in the field of international development financing.
Certain analysts have seized on the fact that Pakistan is one of the recipients of the bank's inaugural financing disbursement as a sign that China may be steering the institution toward states within its geopolitical orbit. Setting aside the fact that the project in question is hardly of tectonic geopolitical significance, Pakistan has a genuine need for infrastructure financing that the AIIB is stepping up to fulfill.
Ultimately, the AIIB is China's answer to a simple and universal problem: there simply isn't close to enough financing available for the infrastructure needs of Asia's many developing states. Concerns about Beijing's geoeconomic influence aside, the AIIB has shown with its initial projects that it isn't just another tentacle to complement China's One Belt, One Road initiative, despite the obvious synergies between the AIIB's infrastructure development mission and China's own diplomatic interests across Asia.
The AIIB's value proposition in the 21st century is decisively positive sum and complementary to existing institutions. Even Washington and Tokyo, after their initial reactions of hesitation at the bank's activities, have revised their outlook, welcoming the AIIB into the world of development financing. Its operations and financing decisions aside, the AIIB will remain an important point through the 21st century for the important question of what kind of power China seeks to become.
In 2011, China overtook Japan as the world's second largest economy and estimates suggest the country is on course to emerge as the top global economy at some point this century (likely before 2050). Amid concerns that China is pursuing a revisionist approach to global affairs in the East and South China Seas and obstructing international efforts to constrain rogue states like North Korea, the AIIB provides a useful counterpoint, suggesting that China is also capable of making positive sum contributions to global governance.
For Washington, the AIIB, nevertheless, represents an external competitor to the institutions underlying the liberal international order. No doubt, the United States will be eager to see the AIIB continue to remain complementary instead of competitive. The AIIB's 56 non-China members will also assist in that endeavor, checking Beijing's ability to exercise a politically risky veto. Regional development financing organizations like the AIIB could stand to make an important difference in the 21st century, helping states flexibly undertake ambitious infrastructure projects, creating the necessary backbones for domestic and regional prosperity alike.
The AIIB's inaugural financing projects demonstrate a new international development bank with robust capitalization and risk assessment. As the bank matures and continues to invest in countless additional infrastructure projects around the Asia- Pacific, we'll learn more about its capabilities. For now, the region should be glad to have the AIIB plugging infrastructure financing shortfalls across Asia.