This is an excerpt from “China and the Evolving Asian Infrastructure Investment Bank,” in Asian Infrastructure Investment Bank: China as a Responsible Stakeholder? (Sasakawa Peace Foundation USA, 2015)
Since Chinese President Xi Jinping proposed the establishment of an Asian Infrastructure Investment Bank (AIIB) during his trip to Southeast Asia in October 2013, China has dedicated significant political, economic and diplomatic efforts toward paving the way for a successful initiation of the new financial institution. China has made the AIIB a priority and pushed for its successful debut by rallying regional support, broadening the membership base, refining the bank’s role and assuaging doubts. These efforts led to the signing of a Memorandum of Understanding (MOU) on AIIB’s establishment by 21 Asian countries in October 2014 and applications by 57 countries to become founding members of the bank before the deadline of March 31, 2015. After five rounds of intensive negotiations, 50 countries signed the Articles of Agreement (AOA) for the Asian Infrastructure Investment Bank on June 29, 2015 in Beijing.
From the beginning, China has had multiple aims in establishing AIIB. The most important and seemingly altruistic one has been to help meet the region’s need for increased infrastructure development funds. In Chinese coverage of the issue, the creation of AIIB has also been closely related to China’s “One Belt, One Road” strategy, which aims to use infrastructure projects to export China’s excess capacity, promote trade and project influence abroad. In addition, AIIB represents part of China’s effort to “democratize” the international order, and has been described as Beijing’s “first serious challenge to the U.S.-led global economic order established at Bretton Woods 70 years ago.”1 Finally, AIIB could have important strategic implications for China’s relations with countries in the region.
China’s diverse goals in forming AIIB are not free of internal inconsistencies and external controversies. Indeed, since China’s October 2013 announcement of its plan to establish the bank, AIIB has raised many questions, touched on many sensitive issues and led to serious policy debates in and outside China. There is an intrinsic tension between China’s ambitious claims that AIIB will provide funding for necessary infrastructure projects, some of which may be financially risky, and the bank’s identity as a multilateral development bank rather than a foreign aid agency.
With China the largest shareholder in AIIB and Beijing clearly pursuing some of its national interests through the bank, questions have also been raised about the extent to which AIIB’s decision-making process and operations will be truly multilateral. China’s stated goals of maintaining high standards at the bank, and also making quick, practical decisions with a “lean” institution that does not even have a resident board for oversight, present other inherent challenges. Further uncertainties relate to the details of AIIB’s fundraising model, loan guarantee system and collaboration with existing multilateral institutions. The AOA has provided some answers, but many details have yet to be worked out.
The negotiation process that led to the AOA has made China keenly aware of the incompatibility of some of its goals, in turn leading Beijing to adjust its expectations and position in certain areas. The unexpected embrace of the bank by developed European countries, for example, created an opportunity to move AIIB toward prevailing international norms and standards. As a result, the AIIB reflected in the AOA today is quite different from the AIIB China envisioned before March 2015. In this sense, the evolution of AIIB may provide a model of how China’s behavior can be shaped by the collective efforts of the international community and how China’s ambitions can be accommodated without overturning the existing international order.
The full chapter is available here.