China Launches Asian Infrastructure Investment Bank (AIIB), by Wayan


The Chinese government just launched a new bank, whose goal is to balance the financial power of the Asian Development Bank (ADB). This financial structure has been called the Asian Infrastructure Investment Bank (AIIB) after decisions taken during the last July BRICS summit held in Brazil.

Even if important for the economic world, it has seldom been reported by the western media, even by the specialists. So we felt this press review about the Chinese initiative could be of interest.

From the Chinese government side that decision could be seen as a quick and useful way to get rid of the American dollar savings that are burning its fingers hands.

The first public reference to the idea goes back to Xi Jinping’s last visit to Indonesia to attend the October 2013 APEC summit in Bali:

Besides celebrating a flourishing bilateral trade relationship, and becoming the first foreign leader to make a speech in Indonesia’s parliament, he surprised his hosts (and even some of his own officials) with the announcement of a new proposal. This is for an “Asian infrastructure bank”.

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The outlines of this are so far rudimentary, which is why some officials who have been working on the idea were taken aback to hear the president unveil it at a meeting with Indonesia’s president, Susilo Bambang Yudhoyono. But the basic idea is clear enough: to harness some of China’s vast financial resources and the expertise acquired in the spectacular modernisation in recent decades of China’s own infrastructure in order to improve it elsewhere in the region.

The bank would be open to participation by other Asian governments. Indeed, officials say its headquarters would, ideally, be outside China. And it would seek to co-operate rather than compete with other sources of funds—notably, presumably, the Asian Development Bank (ADB) of which China is a member, along with most Asian countries, America and much of Europe. [1]

A failed attempt to open this project to western members was tried in July 2014 :

China has again emphasized the importance of the Asian Infrastructure Investment Bank with a new statement by a top economic official that expressly invites the participation of the United States and Europe.

According to a China Daily report:

“Wei Jianguo, vice-chairman and secretary-general of the China Center for International Economic Exchange, said on the sidelines of the Boao Forum for Asia that the Asian Infrastructure Investment Bank (AIIB) plans to start with $50 billion from governments and at least another $50 billion from financial institutions and private capital.”

“Wei said the multilateral bank aimed to attract more than 30 nations [earlier reports mentioned only 22]. He emphasized that the AIIB is an open and inclusive platform that welcomes not just nations from Asia but others as well, including the United States and European countries.

“Members of the Association of Southeast Asian Nations plus South Korea and Australia are slated to join the platform, while Japan has not yet decided, he said.” [2]

But, as we’ll see later this Chinese open attitude will be met with disdain.

At last the memorandum of understanding has been signed on October 24, 2014:

India along with 20 other countries today signed an agreement to become founding members of the China-backed Asian Infrastructure Investment Bank (AIIB) to aid infrastructure development in the Asian region and reduce the dependence on Western-dominated World Bank and IMF.

Usha Titus, Joint Secretary, Economic Affairs division of the Ministry of Finance, signed the MoU on behalf of India at a special ceremony here at the Great Hall of the People.

China’s Vice Finance Minister Jin Liqun, who was also the former Vice-President of the Asian Development Bank, has been appointed as the Secretary General of AIIB.

The Bank, to be headquartered in Beijing, is expected to be operational by next year.

The MoU specifies that the authorised capital of AIIB is USD 100 billion and the initial subscribed capital is expected to be around USD 50 billion. The paid-in ratio will be 20 per cent.

Voting rights are to be decided after consultations among the members over fixing the bench marks which were expected to be combination of GDP and Purchasing Power Parity (PPP).

Based on this formula, India will be the second largest share holder of the bank after China.

Elaborating on the decision to participate in AIIB, Titus said India’s view is that the new bank provides a rich resource capital base for infrastructure financing, which is good for regional development.

It will help to bridge the infrastructure deficit by playing a complimentary role along with other financial institutions like ADP and IMF, and work for good governance, she told PTI.

Chinese Foreign Ministry spokesperson Hua Chua Chunying yesterday welcomed India’s participation in new bank.

China regards India’s support as a major boost to the bank’s formation which was largely seen as an effort to enlarge funding for the Asian countries reducing the dependence on ADB and other Western-dominated global financial institutions like World Bank and IMF


Besides India and China, other AIIB members are Vietnam, Uzbekistan, Thailand, Sri Lanka, Singapore, Qatar, Oman, the Philippines, Pakistan, Nepal, Bangladesh, Brunei, Cambodia, Kazakhstan, Kuwait, Lao PDR, Malaysia, Mongolia and Myanmar [3]

But four major countries of the Asian area did not actually attend the ceremony. Japan as it was expected but what about South Korea, Indonesia and Australia ? :

Australia, Indonesia and South Korea skipped the launch of a China-backed Asian infrastructure bank on Friday as the United States said it had concerns about the new rival to Western-dominated multilateral lenders.

China‘s $50 billion Asian Infrastructure Investment Bank (AIIB) is seen as a challenge to the World Bank and Asian Development Bank, both of which count Washington and its allies as their biggest financial backers.

China, which is keen to extend its influence and soft power in the region, has limited voting rights in these existing banks despite being the world’s second-largest economy.

The AIIB, launched in Beijing at a ceremony attended by Chinese finance minister Lou Jiwei and delegates from 21 countries including India, Thailand and Malaysia, aims to give project loans to developing nations. China is set to be its largest shareholder with a stake of up to 50 percent.

Indonesia was not present and neither were South Korea and Australia, according to a pool report.

Japan, China’s main rival in Asia and which dominates the $175 billion Asian Development Bank along with the United States, was also not present, but it was not expected to be.

Media reports said U.S. Secretary of State John Kerry put pressure on Australia to stay out of the AIIB.

However, State Department spokeswoman Jen Psaki said:

“Secretary Kerry has made clear directly to the Chinese as well as to other partners that we ‎welcome the idea of an infrastructure bank for Asia but we strongly urge that it meet international standards of governance and transparency.

“We have concerns about the ambiguous nature of the AIIB proposal as it currently stands, that we have also expressed publicly.”

In a speech to delegates after the inauguration, Chinese President Xi Jinping said the new bank would use the best practices of the World Bank and the Asian Development Bank.

“For the AIIB, its operation needs to follow multilateral rules and procedures,” Xi said. “We have also to learn from the World Bank and the Asian Development Bank and other existing multilateral development institutions in their good practices and useful experiences.”



The Australian Financial Review said Kerry had personally asked Australian Prime Minister Tony Abbott to keep Australia out of the AIIB.

“Australia has been under pressure from the U.S. for some time to not become a founding member of the bank and it is understood Mr Kerry put the case directly to the prime minister when the pair met in Jakarta on Monday ­following the inauguration of Indonesian President Joko Widodo,” the paper said.

South Korea, one of Washington’s strongest diplomatic allies in Asia, has yet to say it will formally participate in the bank. Its finance ministry said last week it has been speaking with China to request more consideration over details such as the AIIB’s governance and operational principles.

“We have continued to demand rationality in areas such as governance and safeguard issues, and there’s no reason (for Korea) not to join it,” South Korean Finance Minister Choi Kyung-hwan said in Beijing on Thursday after attending a separate regional meeting.

The Seoul-based JoongAng Daily quoted a South Korean diplomatic source as saying: “While Korea has been dropped from the list of founding members of the AIIB this time around, it is still in a deep dilemma on what sort of strategic choices it has to make as China challenges the U.S.-led international order.” [4]

What has been the Chinese reaction to such a defiant attitude ? :

China today refuted US’ criticism of Asia Infrastructure Investment Bank (AIIB) lacking transparency saying 20 countries have endorsed the multilateral structure of the newly-established institution.

“I want to reiterate that during the whole process of the AIIB, China has maintained communication and coordination with Japan, US and Indonesia and other countries.

“We welcome the participation of other countries in the process,” Chinese Foreign Ministry Spokesperson Hua Chunying said about the AIIB, a Chinese initiative [5]

And, because China understands that cooperation is more important than competition for the future of the area :

Despite failing to meet a deadline on Friday, the federal government can still sign on as a founding member of the China-led Asian Infrastructure Investment Bank (AIIB) at any time before the end of next year.

According to Chinese state news agency Xinhua, Beijing will not close the door to the likes of South Korea, Indonesia and Australia despite pressing hard for a deal last week.

“AIIB is an open, inclusive institution. All countries that are committed to regional development in Asia and global economic development can join AIIB,” Chinese Finance Minister Lou Jiwei told Xinhua.

We believe there will be more countries joining it in the future.”

However, should Australia join sometime next year, it may miss out on providing input into the Articles of Agreement, which will guide the formal establishment of AIIB by the end of 2015. [6]

There have been no official comments from the Indonesian government. It could be that Yudhoyono, the former president, preferred to leave the decision to the newly elected one, Joko Widodo. Let’s just see what it will be. But how could he push back such an opportunity , since Indonesia is one of the countries of the area that most needs financial help to build its huge, and still lacking, infrastructure. This is a test to evaluate his will to free Indonesia from decades of negative pressure from both the USA and Australia.

See you next year for the birth of that bank that will allow the poorest countries, whose development is still late (Lao, Cambodia, Philippines Myanmar and so many others, finally to be able to get investment without having first to kneel to the political diktat imposed by the IMF or the ADB.

Wayan from The French Saker.



Editing: Michael

The statements, views and opinions expressed in this column are solely those of the author and do not necessarily represent those of Oceania Saker.







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