Asian Infrastructure Investment Bank: Governance Innovation and Prospects

Abstract

ON 29 JUNE 2015, THE LEADERS OF CHINA AND REPRESENTATIVES OF FIFTY-SIX nations gathered in Beijing to sign Memorandum of Understanding for creation of Asian Infrastructure Investment Bank (AIIB). According to its Articles of Agreement, purpose of bank is: first, to foster sustainable economic development, create wealth and improve infrastructure connectivity in Asia by investing in infrastructure and other productive sectors; and, second, promote regional cooperation and partnership in addressing development challenges by working in close collaboration with other multilateral and bilateral development institutions. The creation of this new bank is latest in a wave of new global initiatives that China has promoted, alongside Group of 20 Leaders Summits (G-20); internationalization of renminbi (China's national currency); New Development Bank (NDB) of BRICS grouping (Brazil, Russia, India, China, and South Africa); and Silk Road Economic Belt and Twenty-first Century Maritime Silk Road (One Belt & One Road). The AIIB will be headquartered in Beijing, with an initial capital stock of $100 billion. China is contributing largest share for new bank, by a large measure ($29.8 billion). According to its fifty-seven founding members, AIIB grew from recognition of importance of infrastructure to development of Asia, and need for significant additional long-term financing for infrastructure and development in region and beyond region. (1) The other motivation is that China and many developing countries have grown frustrated with what they perceive as often slow and overly bureaucratic ways of traditional lenders and their slow pace of representational and operational reform. (2) The fact that it has been a quarter-century since last major multilateral development bank was created (the European Bank for Reconstruction and Development, founded in 1991), (3) and that new bank is championed by China (and not by traditional Western powers or Japan), signals a shift in balance of world economic power. The lack of precedence of People's Republic sitting at center of table, setting agenda, defining priorities, and rethinking rules means that rules could emerge in AIIB-funded projects that differ from those of liberal international economic order. That a number of allies of United States, including Australia, South Korea, Britain, Germany, and France, decided to join AIIB, even though United States had discouraged them, suggests that geopolitical calculations among followers are also shifting. (4) Thus, People's Daily, official newspaper of Chinese Communist Party, observed wryly that the expanding Asian Infrastructure Investment Bank shows China's growing global influence. AIIB is attracting international attention. (5) The points above suggest that creation of AIIB is an important development in global governance and reflects key shifts in balance of world economic power. It further suggests that China has made transition to global leadership, including building new multilateral organizations, after decades where it mainly learned established norms. (6) In this essay, I examine whether and how AIIB represents innovation in global governance. I further provide a critical appraisal of prospects for new China-backed multilateral bank. My main findings are that AIIB reflects both continuities and innovations in global governance. So far, most of innovations are in governance structures of bank and its overarching legal frameworks. What is significant about AIIB's governance innovations is that they are aimed at unlocking creative potential for new bank to make breakthroughs in decisionmaking, management, and staffing, and, most importantly, in lending practices and business models of bank. …