Advancing sustainable growth in the United States and China

Asian Infrastructure Investment Bank (AIIB)

The Asian Infrastructure Investment Bank (AIIB), formally launched in January 2016, is often cast as China’s very own World Bank. It’s big and ambitious, with 80 approved members, $100 billion of capital, and the mission of financing an enormous infrastructure need across Asia.

The United States has declined to join the AIIB, making the institution the first multilateral development bank of such size and scope that doesn’t have the U.S. as a founding member. This has led to a wide-ranging debate over how China may be changing the global economic landscape, and whether the balance of economic and diplomatic power may be shifting—toward China and away from the United States.

What does the AIIB do?

According to the Articles of Agreement of the Asian Infrastructure Investment Bank, the AIIB’s main function is to promote both public and private investment into “projects, enterprises, and activities” that contribute to economic development in Asia, with particular focus on infrastructure.

The AIIB is currently funding thirteen projects, including a natural gas infrastructure project in Bangladesh, a Dam Operational Improvement project in Indonesia, and a power plant project in Myanmar. Five of AIIB’s projects have been co-financed with the World Bank.

Why was the AIIB conceived?

The AIIB is, in part, China’s response to the growing infrastructure demands of developing Asia. Some $26 trillion of infrastructure investment is needed in Asia by 2030 says the Asian Development Bank, and according to Arthur Kroeber of Gavekol Dragonomics, “until China stepped up, existing national and multilateral resources were nowhere near enough to meet this need.” In this sense, the motivation behind the AIIB is closely linked with China’s Belt and Road Initiative [add hyperlink to BRI primer], which seeks to deploy massive financial resources towards a sprawling network of infrastructure projects from China to Europe to Central Asia.

Another interpretation is that the AIIB was borne out of Chinese frustration with America’s hold on the levers of power at the World Bank and International Monetary Fund (IMF). Australian finance expert Mike Callaghan and China scholar Paul Hubbard note in the China Economic Journal that some believe China is “attempting to usurp the United States’ economic leadership by creating its own institutions to rival the Bretton Woods institutions, starting with the Asian Infrastructure Investment Bank.”

So is the AIIB a threat to the World Bank?

The Chinese government insists it isn’t. President Xi Jinping argues that the AIIB could “add to the strength of multilateral development banks, thus contributing even more to global development.” Moreover, as noted above, the AIIB has already developed a cooperative framework with the World Bank, financing five projects together.

Still, some fear that the AIIB may signal a broader shift away from the US-led global economic order, or the open, rules based global system defined by institutions such as the World Bank. Princeton University Professor Aaron Friedberg , who has long called for a more assertive US approach to China, says that the AIIB is “part of a larger Chinese effort to create a set of new economic and political institutions and an expanding network of physical infrastructure that will have Beijing at their center.”

Whether or not China intends the AIIB to be a competitor to the World Bank, Beijing cannot easily shirk Western preferences on issues such as environmental, labor, and procurement standards, for at least two reasons, according to Princeton’s G. John Ikenberry, an imminent scholar on the liberal order, and ANU’s Asia expert, Darren Lim. First, given that its membership includes Western nations like the United Kingdom and Germany, and given that Western officials are among the AIIB’s top management ranks, Western standards will have strong advocates. Second, China’s contribution and voting power is approximately 26 percent, which means that it does not have unilateral control over decision-making—though it still holds veto power over supermajority decisions.

Which countries are members?

There are 80 approved members so far, including the UK, Germany, and Australia—with Japan and the United States notably absent. A full list of members can be seen here. According to AIIB President Jin Liqun, the bank expects to have 85 members by the end of 2017.

Some senior Japanese officials are now advocating for participation in the bank. The Japan Times reports that the idea of joining AIIB is “finding renewed enthusiasm within the administration of Prime Minister Shinzo Abe.” The U.S. position is less clear: Shortly after President Donald Trump was elected, former CIA Director James Woolsey, at the time a Trump advisor, wrote that it was a “strategic mistake” to oppose the AIIB. Since then, Woolsey has resigned, and the Trump Administration has made no moves to change the U.S. position. AIIB president Jin, meanwhile, has said the door remains open to the U.S. joining. Membership is open to all members of the World Bank and Asian Development Bank.

By Andy Morimoto (Last updated 10/4/2017)