Asian Infrastructure Investment Bank: Role and Implications for Emerging Asian Economies

China has proposed the Asian Infrastructure Investment Bank (AIIB), initiating a key turning point in the international finance system. Unfortunately, its design at present is quite problematic, for several reasons: it limits participation by Western countries, effectively locking in China as the undisputed leader; the lack of a Board of Directors in residence; the potential for a conflict of interest if the AIIB will fund projects within China; the potential of China to use AIIB for political purposes; the relationship the AIIB will have with already-existing international financial institutions; and the potential for a weakening of “best practices” in order to compete against the other international finance institutions. For these reasons, it was the right decision for Japan not to join as a charter member in order to negotiate the MOU; nevertheless, Japan should maintain the option of joining the AIIB in order to have leverage over the architecture of the AIIB.

The Asian Development Bank (ADB) is a well-known financial institution operating in the Asia-Pacific region since 1966. The rise of this multilateral organization was sponsored mainly by Japan, for which, no doubt, it is still an important instrument of external policy. However, nowadays the ADB constitutes 67 members (48 regional and 19 non-regional), including PR China. With an impressive budget (ca. $20 billion) and focus areas ranging from social development to information technologies, the ADB is an important source of development funding. The Asian Infrastructure Investment Bank (AIIB) is a rather new initiative, only opening up for business in January 2016. Based in Beijing, it is a multilateral organization comprising 57 founding members (37 regional members and 20 nonregional partners), excluding Japan and the United States. The creation of the AIIB is a reaction to the fiasco of the transformation of global financial institutions like the International Monetary Fund and the World Bank Group. China’s intentions in initiating the AIIB are clearly something other than altruism. It might be seen as part of a win-win economic cooperation strategy that could benefit both regional and national development processes. Like the ADB, the AIIB focuses on the development of infrastructure and other productive sectors in the Asia-Pacific region. The question is, should we anticipate strong rivalry between these two institutions, as political realism would suggest, or will the ADB and the AIIB find a way to offer their best to the Asia- Pacific countries without any major conflict?

The article examines to what extent China and Japan compete in infrastructure investment in Southeast Asia. At the state level, China pursues more geo-economic goals whereas Japan seeks more mercantilist objectives, which mitigates their competition to a substantial extent. At the institutional level, the China-led Asian Infrastructure Investment Bank (AIIB) and the Japan-led Asian Development Bank (ADB) compete for potentially valuable infrastructure projects in Southeast Asia from the supply-side perspective. It is necessary and sensible for the AIIB to cooperate with other multilateral development banks (MDBs), including the ADB. That the AIIB keeps a low profile, other MDBs accommodate the AIIB’s preference, and the non-condition principle catalyses the cooperation between the AIIB and other MDBs. Therefore, there is no need to be alarmed by the competition in infrastructure investment in Southeast Asia between China and Japan because there are still possibilities for China-led AIIB and Japan-led ADB to cooperate at the institutional level.

The Asian Infrastructure Investment Bank (AIIB) is the latest addition to an existing block of international financial institutions with the objective of providing infrastructural developmental funding to member nations. Incumbent players including the International Monetary Fund (IMF), the World Bank and the Asian Development Bank (ADB) are all dominated by countries such as the United States for the Western countries in the IMF and World Bank and Japan for the Asian Development Bank (ADB) in the APAC region. The genesis of the Asian Infrastructure Investment Bank (AIIB) has been met with mixed reactions by different audiences across the globe, due to the founding nation’s (People’s Republic of China) international perception in the zeitgeist. Are the optimism premature or such skepticism unfounded and bias?To assess the pros and cons of a new international financial institution led by China (short for People’s Republic of China), we first look at the overall macro landscape in this environment. The United States has been leading the pact in the IMF and the World Bank, being a dominant member in both institutions since inception. The IMF was created as a result of the signing of the Bretton Woods Conference in 1944, and officially came into existence in 1945 with 29 member nations. Armed with the mission of restructuring the international payment system, member nations contribute funds to a pool through a quota system from which countries with payment imbalances can borrow. The IMF is headquartered in Washington DC, signifying The United States’ prominence in this organization. Currently, the IMF has 188 member countries on their roster. The World Bank is the international financing arm of the United Nations, as part of the United Nations Development Group, provides loans to developing countries for capital programs and trades facilitation. The World Bank and the IMF share the same origin in the sense they both originated as a result of the Bretton Woods Conference and they are both headquartered in Washington DC. The United States is the most powerful member for the World Bank, just as in the IMF. On the other end of the global geo-political spectrum, the Asian Development Bank (ADB) was established in 1966 as a regional development bank with headquarter in the Philippines, to facilitate economic development in Asia. Closely modeled after the World Bank, with admitted members of the United Nations Economic and Social Commission for APAC, the ADB maintains strong and close ties with the United States with Japan leading the pact in the APAC region.Given the fact that all incumbent international financial institutions having an uneven distribution of influence, specifically referring to the United States and allies monopolizing the landscape, shaping policies that are geo-politically favoring the dominant members and neglecting a representation of influences that are not of your status quo, would it make sense for China to step up in today’s global platform and exert appropriate level of assertion in the APAC region? For lack of better terms, the global trade structure is currently run by the United States in the Americas and big part of Europe, the United States and the United Kingdoms in the greater Europe and the Middle East, last but not least, the United States and Japan in the Far East. How equitable this dynamic can present and how sustainable this model will be, given the ever-changing eco-political circumstances in the world?

The Belt and Road Initiative (BRI) and the Asian Infrastructure Investment Bank (AIIB) have raised concerns among critics about their potential negative impact on global environmental governance. These China-led initiatives may lower the environmental and social safeguard standards of their infrastructure investments abroad to outcompete other international financial institutions (IFIs) like the Asian Development Bank (ADB) and the World Bank. This could trigger a race to the bottom in the global infrastructure investment market. The study found that while the BRI may have a significant influence on the norms and standards of development finance, the AIIB has only had limited impact. The market has become more concentrated rather than intensified competition. The ADB's standards have not been affected, but the World Bank may have been negatively impacted and reduced its project-level environmental safeguards. The negative impact extends beyond BRI countries to other countries. The most concerning finding relates to the substantial global investments in coal power projects under the BRI. To improve global sustainability, China and developed countries must collaborate to provide cleaner and more affordable infrastructure investment to developing countries.

Yesterday was the deadline to join the Asian Infrastructure Investment Bank (AIIB) as a founding member. Once again Canada is on the sidelines as Asia and most of the rest of the world moves forward while Canada watches. When Chinese President Xi Jinping announced plans for the AIIB at the APEC summit in Indonesia in 2013 and launched the initiative in Beijing at the China-hosted APEC summit a year later, who would have predicted that such an idea would cause an international furor. The new Bank has garnered significant headlines for two reasons. One is American opposition to the China-led Bank; and two is that some see it as a rival to the World Bank and other multilateral banks. The official U.S. position is that the AIIB is a rival to these institutions and that the funds would be better channeled through the World Bank and the Asia Development Bank. We argue that the AIIB is a welcome Chinese initiative, in line with American calls for China to become a ‘responsible stakeholder’ in the international system. The AIIB will become a multilateral development bank that finances programs addressing huge infrastructure deficits in the Asian region. Myanmar, Cambodia, Laos, the smaller and newer members of the ten-country Association of Southeast Asian Nations (ASEAN), for example, are emerging from years of economic and political isolation to join the region’s economy. Connecting them to each other and their larger neighbours, including China and India, requires major investments to create modern transportation corridors and other infrastructure, including electronic connectivity. Infrastructure development is also integral to a shared vision of integration of the region’s economies to be an engine of global growth. We also argue that The AIIB reflects a world where the majority of global GDP will soon be produced in Asia, and where the infrastructure needs in the region are enormous. Canada has much to offer in terms of skills and expertise in building infrastructure. For Canada it is important to look west, as well as south and east in this century. Failure to join the AIIB would be another failure to make inroads in Asia.

The Asian Infrastructure Investment Bank (AIIB) must break from World Bank and Asian Development Bank (ADB) practices to close Asia’s $8.3 trillion infrastructure gap during 2016-2020. Otherwise, AIIB’s stand-alone 2020 investment capacity, projected at $250 billion, will fall far short of the needs. AIIB should invest innovatively to develop infrastructure finance as an asset class and quickly organize concessional financing. AIIB should focus on mobilizing new money from institutional investors by mitigating risks and facilitating the pricing of illiquid long-term infrastructure assets. In particular, AIIB should split its investments between new projects and purchases of existing infrastructure financing, including bank loans (switched then into bonds) and equity to establish Asian infrastructure bond and equity funds. AIIB’s direct investments in new infrastructure projects should emphasize equity, subordinated debt, and guarantees rather than senior debt. AIIB could catalyze new money by addressing legal/regulatory/tax issues and providing political comfort. In addition, AIIB should quickly organize concessional financing and consider easing graduation thresholds based on GDP per capita to avoid too-early member exits from concessional finance.

Yesterday was the deadline to join the Asian Infrastructure Investment Bank (AIIB) as a founding member. Once again Canada is on the sidelines as Asia and most of the rest of the world moves forward while Canada watches. When Chinese President Xi Jinping announced plans for the AIIB at the APEC summit in Indonesia in 2013 and launched the initiative in Beijing at the China-hosted APEC summit a year later, who would have predicted that such an idea would cause an international furor. The new Bank has garnered significant headlines for two reasons. One is American opposition to the China-led Bank; and two is that some see it as a rival to the World Bank and other multilateral banks. The official U.S. position is that the AIIB is a rival to these institutions and that the funds would be better channeled through the World Bank and the Asia Development Bank. We argue that the AIIB is a welcome Chinese initiative, in line with American calls for China to become a ‘responsible stakeholder’ in the international system. The AIIB will become a multilateral development bank that finances programs addressing huge infrastructure deficits in the Asian region. Myanmar, Cambodia, Laos, the smaller and newer members of the ten-country Association of Southeast Asian Nations (ASEAN), for example, are emerging from years of economic and political isolation to join the region’s economy. Connecting them to each other and their larger neighbours, including China and India, requires major investments to create modern transportation corridors and other infrastructure, including electronic connectivity. Infrastructure development is also integral to a shared vision of integration of the region’s economies to be an engine of global growth. We also argue that The AIIB reflects a world where the majority of global GDP will soon be produced in Asia, and where the infrastructure needs in the region are enormous. Canada has much to offer in terms of skills and expertise in building infrastructure. For Canada it is important to look west, as well as south and east in this century. Failure to join the AIIB would be another failure to make inroads in Asia.

The Asian Infrastructure Investment Bank (AIIB) opened for business in 2016, as a $100 billion multilateral development bank (MDB) that finances public and private infrastructure projects for Asia. AIIB’s founders, led by China, span Asia, Europe and the Middle East—now a global footprint. A Comparative Guide to the Asian Infrastructure Investment Bank examines AIIB through the lens of its Charter, focusing on its mandate, investment operations, membership, finance, governance, and institutional set-up. Separate chapters explain how each element matters for MDBs generally, then analyze the related AIIB text, and compare the provisions and practice of its predecessors. These chapters expound upon the reasons behind AIIB’s legal provisions and offer detailed analyses of the similarities and differences with the Charters of the World Bank and regional MDBs (principally, the African Development Bank, Asian Development Bank, European Bank for Reconstruction and Development, and the Inter-American Development Bank). Introductory and highlights chapters tell how AIIB was founded and summarize its key features. A chapter on Transitions recounts AIIB’s path from agreement to establishment. Relevant themes from MDB histories are outlined as a guide to AIIB’s future, in a chapter on Reflections. Throughout, text and tables record AIIB’s governance and decisions through December 2017. This book takes apart the AIIB Charter for the general reader and for the specialist—from the perspective of the lawyer who put it together. It’s an inside look at how this new international organization went from concept to reality, and an up-to-date comparative legal guide to MDBs.

The Asian Infrastructure Investment Bank (AIIB) is often seen as a challenger to established Multilateral Development Banks (MDBs) like the World Bank (WB) and the Asian Development Bank (ADB), which support the US-led liberal international order. However, project-level data reveals that the AIIB cooperates with these MDBs far more than previously recognized. Approximately half of its portfolio involves collaboration. Why does the AIIB choose to partner in some projects but not others? We argue that new international organizations have both functional and legitimacy-driven incentives to cooperate. Specifically, we hypothesize that the AIIB is more likely to collaborate in contexts where it (1) lacks operational experience, (2) corruption risks are high, (3) China’s legitimacy is limited, and (4) China has no established development presence. Using original data on AIIB projects (2016–2023), we find that AIIB-WB cooperation is less pronounced in countries with pre-existing Belt and Road Initiative (BRI) ties to China. In contrast, AIIB-ADB cooperation increases with corruption levels and is more common in BRI-affiliated countries. Our findings contribute to better understanding how newly created institutions navigate the complexities of power transitions in the international political economy.

Does the Asian Infrastructure Investment Bank (AIIB), formed through China's initiative, contest the liberal script on development finance led by existing international financial institutions? This article engages the important debate on the shape and trajectory of the liberal international order where China is increasingly playing a prominent role. The research problem focuses on how the AIIB conducts development finance and whether its activities are aligned with those of the United States-led World Bank. The analysis uses quantitative text analysis to examine project documents from the AIIB and World Bank, leveraging the rich textual dimension of their funding activities. The article advances the argument that the AIIB's funding priorities align with those of the World Bank, due to overlapping mandates, an extensive degree of co-financing in AIIB projects and China's own motivations for leading the formation of the AIIB. The analysis finds that the AIIB does not contest and is largely aligned with the liberal script of development finance in its funded projects. Project documents indicate overlap in how the AIIB and World Bank conduct lending and prioritize development objectives, including the application of equivalent environmental and social frameworks. The findings also indicate the emergence of a division of labour between the AIIB and World Bank. AIIB funding favours infrastructure projects that enhance connectivity in the transport and energy sectors, while World Bank funding emphasizes education, social policy and other areas related to human development. The AIIB may well be expanding the ‘liberal script’ of development finance—one that is tailored to the infrastructural needs of the Asian region.

Update: On June 24-26, 2016, the Asian Infrastructure Investment Bank (AIIB) held a board of directors meeting and its first annual meeting in Beijing, China. USD 509 million worth of loans will finance four projects approved by the AIIB The projects can be defined by the following characteristics: 1) infrastructure investment in countries situated on the path connecting the Belt and Road Initiative, 2) proposals by recipient country governments, 3) co-financing with other MDBs, and 4) small loans. Short-term Forecast: The AIIB's projects are predicted to involve joint collaboration via co-financing with other MDBs. As for joint ventures, other MDBs and recipient governments will propose AIIB participation in existing projects, and the AIIB will do due diligence before making a final investment decision. The reason behind this operational structure is that the AIIB is yet a newly-formed MDB and has a staff of only around 40 people in the working group. Consequently, it lacks the internal capacity to pursue a large-scale, stand-alone venture. Also, by setting its initial projects as collaborations with other MDBs, the AIIB can expect lower risk, seek to acquire business operation know-how, and build international public confidence. Above all, the AIIB will seek collaboration with international financial organizations including other MDBs, and strive to settle itself in the international financial system (in a bid to alleviate concerns that China will have undue influence on AIIB projects, or that it will challenge the existing international financial order).Mid to Long-term Forecast: The AIIB will possibly lead a greater share of stand-alone projects and support the Belt and Road Initiative financially, on the back of accumulated experience and better project financing capabilities. Projects related to the Belt and Road Initiative are expected to dominate, and economic corridor implementation projects that strengthen linkage among regions and countries will likely be considered a priority. There is also the possibility of collaboration with other new financial organizations founded under Chinese leadership (the BRICS-led New Development Bank (NDB), the Silk Road Fund, the Shanghai Cooperation Organization (SCO)). These China-led organizations will provide funds for the Belt and Road Initiative's implementation and pursue the internationalization of the renminbi, which will help increase China's financial influence globally. Implications: In the case of co-financing projects, strong contenders are likely to be infrastructure projects related to the Belt and Road Initiative that have been developed and screened by other MDBs. Therefore, Korean companies will stand to gain by seeking participation in such ventures. Meanwhile, for stand-alone projects the AIIB will assess the feasibility of infrastructure projects proposed by member governments and companies. This would call for a proactive approach, identifying in advance the infrastructure demands of recipient countries and then cooperating with local institutions. Financial institutions should also respond appropriately to the AIIB's initial moves to pursue extensive cooperation with other MDBs, state-run financial institutions and global financial companies.

Forming an integral part of China’s grand vision “One Belt One Road” (OBOR or “Belt and Road Initiative”), the Asian Infrastructure Investment Bank (AIIB) launched operations at the start of 2016 with its headquarters located in Beijing. Notwithstanding the bank’s Chinese origin and regional focus, many European countries – including fourteen EU Member States (Austria, Denmark, Finland, France, Germany, Italy, Luxembourg, Malta, Netherlands, Poland, Portugal, Spain, Sweden, United Kingdom) – promptly decided to join as prospective founding members. With the subsequent admission of Belgium, Hungary, Ireland, Cyprus, Greece and Romania as prospective members, the number of participating EU Member States has further increased to twenty. As a result, the AIIB must be regarded as a novel financial institution with global significance, in line with multilateral development banks (MDBs) such as the World Bank or the Asian Development Bank. In the light of such unprecedented developments, this article analyzes major implications resulting from AIIB membership, notably in view of new opportunities but also possible risks for EU Member States and the European Union (EU) as a whole. In particular, the following study assesses the EU’s legal position and influence in the AIIB, explores the EU’s economic interests and anticipated benefits and, last but not least, evaluates the impacts of financial cooperation and integration in the long term. Based on an overall summary, the author concludes with recommendations and suggestions for achieving more sustainable, balanced and fruitful relations on the Eurasian continent.

Infrastructure construction is of great significance to a country’s sustainable economic growth. As the economic globalization and regional integration, Asia has become the world’s most active and most promising region, deepening of cooperation between countries, but pushing forward cooperation needs to rely on sound infrastructure system. However, most of the developing countries in Asia face difficulties, such as poor infrastructure, insufficient funds, which seriously restrict the economic development of Asian countries and weaken the ability to response to the financial crisis. Setting up an investment bank that provides special service on financing for infrastructure construction in Asian countries is particularly important, for China and Asia and even for the whole world; it has the far-reaching significance. The preparation of the Asian infrastructure investment bank is unprecedented, so we need to learn operation pattern and the structure of the organization of experience from the world bank and the Asian development bank and other international financial organizations, combined with the actual situation of the region. As a result, we should analyze the significance and carry on the reasonable and feasible ideas for the Asian infrastructure investment bank.

What makes states join intergovernmental organizations intended to challenge a hegemon? The China-led Asian Infrastructure Investment Bank (AIIB), founded in June 2015, targets the primacy of the US-led Asian Development Bank (ADB) in the Asia-Pacific region, and is a crucial case for answering this question. I argue that early AIIB members are likely to be politically distant from the US in both international and domestic terms. In contrast, subsequent states seeking AIIB membership include democratic states, existing ADB members and countries internationally aligned with the US, as measured by voting similarity at the United Nations General Assembly. Through logit models, I test these propositions and analyze which states adhered to the 2014 Memorandum of Understanding that signaled Beijing’s willingness to form the Bank and which states joined the AIIB subsequently at its foundation in 2015. The results support my claim that early members tend to score low in democratic governance, while late members are US allies.