Is the AIIB a victory for China?

The 31st of March was the deadline for countries to apply for founding member status in the Asian Infrastructure Investment Bank, commonly known as the AIIB, a newly established China-led regional development bank that is seen as a rival to the US-led World Bank and Japan-led Asian Development Bank (ADB). Thus far, a total of 57 nations have signed up as founding members, and it seems possible to say that China's attempt to launch an international financial institution, which could contribute more to regional development, is successful so far. 

What is interesting, however, is despite severe US opposition to the bank, in addition to the majority of Asian countries, AIIB has successfully attracted enormous support from outside of Asia, mostly from the wealthy European nations, which are considered by many people as the closest allies to the US. Chinese Central Television (CCTV) reported that the desperate attempt by the US to wean its allies away from joining the bank has proved to be ineffective. 

One of the possible explanations for why the US failed to persuade its western allies and Asian countries to refrain from joining the bank is the insufficient commitment made by the existing international institution to build basic infrastructure. Whilst the ADB estimates that it will cost approximately 8 trillion USD for the infrastructure improvement, the ADB and the World Bank have reduced the total amount of the financial aid for developing Asian countries since the start of the financial crisis. Needless to say, any delays in essential infrastructure projects will jeopardize the interest of developed and developing countries. 

Since Chinese President Xi Jinping announced proposals for a reinforcement of capital to fulfill the financial needs of rapidly developing Asian countries at the APEC summit in Indonesia in 2013, there has been a growing expectation from the world for the Chinese government to play a more active role in supporting economic growth and investing in the region. 

China's most recent efforts to set up a new regional development bank clearly indicate its strong willingness to accept more responsibility in order to live up to the Asian neighbours’ expectations. John Eatwell, a British economist, was quoted as saying that "with the growth of Renminbi as the international currency, the Chinese government recognized its responsibility to participate in the development of the international institutions which provide stability in international markets." Whilst more and more countries are expressing a positive attitude towards the AIIB, only the US and Japan are showing stiff resistance among the G7 members. 

The US and Japan have maintained strong influence in the global financial system for a long time. For instance, the US and Japan hold 15.56% and 15.67% of the ADB's capital stock respectively, whereas China holds only 6.47% of the total. Since the ADB's voting system is similar to the World Bank's model, with votes being allocated in proportion with members' capital stock, China has a very limited opportunity to participate in the decision-making process. Understandably, many American and Japanese policymakers and economists are recognizing China's true purpose of the AIIB, as a challenge to weaken the existing global financial system, which is literally dominated by the US and Japan. 

However, as the AIIB is proceeding apace, it seems clear that the US and Japan have been forced to change their strategy. At the moment, the two nations are demanding China to meet the international financial standards, instead of asking their own allies not to join the AIIB. Indeed, the Japanese media recently reported that "US Treasury Secretary Jack Lew has urged China's new international investment bank to work closely with the World Bank and other global institutions." Japan's finance minister Taro Aso also required China to address some of the concerns over the AIIB's unclear lending standards and its internal governance. 

Although the US and Japan seem to be left behind after the majority of Asian and European partners rushed into the signatory ceremony, it gave the two nations an opportunity to reconfirm the strong cooperation that exists between Washington and Tokyo. It is also crucial to mention that there has been increasing concern about the actual effectiveness and economic clout of the AIIB, as is lacks two of the world's economic giants. Hence, in order to make sure that the AIIB is a fully functioning bank that can actually contribute to the Asian economy, it is necessary for the Chinese government to present feasible and reliable plan for achieving more clear lending criteria and truly democratic governance of the bank. It seems China has scored a major diplomatic victory over a skeptical US and Japan, however, it is just a first-round match in the tournament. 

Author: Yuki Taira 
International Centre for Security Analysis, King's College London 
Researcher, Japanese Language Consultant