China Forms Infrastructure Bank Despite US Opposition

By Lauren Dodillet

Representatives from China, India, and 19 other Asian nations gathered in Beijing last Friday to sign a memorandum of understanding to establish the Asian Infrastructure Investment Bank (AIIB). China, which proposed the project last year, hopes the Beijing-based bank will effectively replace the Asian Development Bank and the World Bank in supporting infrastructure projects in underdeveloped Asian countries, reports the New York Times.

China will contribute most of the initial capital of $50 billion, according to the Financial Times. Authorized capital, the maximum amount of money that can be issued to shareholders, is set at $100 billion. When this mark is reached, AIIB will be two-thirds the size of the Asian Development Bank (ADB) and two-fifths the size of the World Bank’s International Bank for Reconstruction and Development.

The Obama administration has said it is opposed to the idea of a World Bank rival, and has been lobbying potential signatories to abstain from joining. South Korea, Japan, Indonesia, and Australia, which all expressed interest in the past, sat out on Friday’s signing. Their reasons ranged from needing more time to think over Beijing’s proposal, to worrying that the AIIB will not follow global standards on environmental and human rights issues.

The World Bank president, Jim Yong Kim, has said he is not worried about the AIIB, especially as China has been working closely with the World Bank on developing the project. He said that there are not currently enough funds to finance the infrastructure projects needed in Asia, which the ADB estimated would amount to $8 trillion by 2020.

Chinese officials agree with Kim, saying that the AIIB will grow to complement, not replace, existing banks. According to Xinhua, Chinese Finance Minister Lou Jiwei has said that the bank will draw from good practices of established banks and implement high-standard safeguard policies. China’s President Xi Jinping has also said that the AIIB must follow multilateral rules, procedures, and existing banks’ best practices.

Founding members are expected to complete the signing and ratification of the articles of agreement sometime in 2015 and formally establish the bank—expected to be led by former China International Capital Corporation chair Jim Liqun—by the end of that year.