Informal governance and China’s influence in the Asian Infrastructure Investment Bank

Abstract

This article develops a theoretical framework on the conditions and mechanisms of informal governance in international organizations by a major power. It argues that the condition for informal governance is that the major power has favourable outside options, i.e. the alternatives that bring about considerable gains in the absence of cooperation, while other countries do not. When conditions are not in place, the major power is unable to exert informal influence. Based on the theoretical lens of the conditions and mechanisms of informal governance by major powers in international organizations, this article assesses China’s influence in the Asian Infrastructure Investment Bank (AIIB). It finds that China’s influence in the AIIB does not remain static. In the early years after the establishment of the AIIB, China was not in a position to exercise informal governance and did not demonstrate influence beyond the confines of the AIIB’s formal rules. As the situation of outside options for European countries worsening and as China’s outside options improving, China became well placed to implement informal governance. Under such circumstances, China’s preferences are well reflected in the AIIB’s decision-making.