AIIB: China takes the lead



On June 29, representatives from 50 countries gathered in Beijing to participate in the signing ceremony of the articles of agreement of the Asian Infrastructure Investment Bank (AIIB). The significance of the event for both Asia and global order could hardly be overstated. It represents the definitive end of China's traditional strategy to 'Hide your strength, bide your time', articulated by Deng Xiaoping. China's claim for a global role is now fairly explicit, and for the first time, the country has opted for the creation of a new global institution to cement its leadership ambitions.

The creation of the AIIB is good news for three reasons. 

First, the membership of countries from around the world will force China to operate according to a clear set of rules and norms. If other countries started to sharply disagree with the way China leads the institution, they would leave, creating an embarrassment Chinese leaders will seek to avoid. For third countries, receiving loans from the AIIB will be far safer than dealing with China bilaterally. More broadly, China's decision to opt for multilateralism is to be welcomed, affirming the basic principles of today's global order. China will hold 26.06% of the votes, giving it an effective veto over major decisions, followed by India with 7.5% and Russia with 5.92%. Countries defined as "within the region" will hold a combined 75% stake in the bank's $100bn capital base. And yet, as Amitav Acharya rightly wrote in a recent op-ed, "the AIIB is good news for the international community. It poses no risk of Chinese hegemony, while putting China's leadership capacity to its most severe test to date."

Secondly, Asia badly needs greater investment in infrastructure, and none of the existing banks have been able to satisfy such a massive demand. Over the past years, Nicholas Stern, Joseph Stiglitz, Amar Bhattacharya, and Mattia Romani have campaigned globally for new structures. As the four economists point out in a 2013 op-ed,

The infrastructure requirements in emerging-market economies and low-income countries are huge — 1.4-billion people still have no reliable electricity, 900-million lack access to clean water and 2.6-billion do not have adequate sanitation. About 2-billion people will move to cities in the next 25 years. Policy makers must ensure the investments are environmentally sustainable. To meet these and the other challenges, infrastructure spending will have to rise from about $800bn to at least $2-trillion a year in the coming decades or it will be impossible to achieve long-term poverty reduction and inclusive growth.

Together with the World Bank, the New Development Bank, the Asian Development Bank and others, the AIIB is thus a boon for Asian economies, which -- in their entirety -- are set to turn into the center of the global economy during the 21st century. The AIIB therefore does not represent a threat to any other institutions, including the BRICS-led New Development Bank, set to begin operating next year. 

Thirdly, a new large organization like the AIIB -- which will greatly benefit from existing knowledge generated at the World Bank and elsewhere -- may itself produce new ideas and best practices that take the global debate about development further.

The articles, agreed to at a meeting of the bank’s 57 founding member countries last month, call for the Asian Infrastructure Investment Bank to be overseen by an unpaid, nonresident board of directors, unlike the World Bank, the African Development Bank and the Asian Development Bank. The AIIB, which will use English as its operating language, will open bidding for projects to all, unlike the ADB, which restricts contracts to member countries. Several differences with existing institutions will emerge, likely to create a healthy competition of ideas, which may strengthen the effectiveness of lending practices across the board.


As 50 nations signed the bank’s articles of incorporation at a ceremony in the  Great Hall of the People, seven nations which had previously announced their interest stayed away: Denmark, Kuwait, Malaysia, Poland, South Africa, the Philippines and Thailand. However, they have until the end of the year to sign the articles of agreement and would still be regarded as founding members. At least in the case of the Philippines, the reason is overtly political, and tensions between the two countries have recently mounted. The other countries alleged logistical reasons and are most likely to join by the end of the year.

Brazil's decision to become a founding member of the bank -- as the only country of the Western Hemisphere -- will allow the country to participate in and benefit from an institution central to a historic transformation of Asia. Brazil's economic ties to Asia are set to increase further in the coming years, so another institutionalized foothold in the region -- in addition to Brazil's BRICS membership -- matters greatly. It will also help make Brazil assume a gateway function for Latin America when it comes to AIIB-related matters, at least until other countries from the region will apply for membership. 

Read also:

Brazil should join China’s new development bank

Why the BRICS grouping matters more than ever

Entrevista com o jornal Brasil Econômico sobre o Banco Asiático de Investimento em Infraestrutura (AIIB)

Entrevista: “Dinheiro chinês é chance única de integrar fisicamente América Latina”

Photo credit: AP