Asia Infrastructure Investment Bank: What Does China and Asia Gain?

Inaugurated on January 16, 2016, the Asian Infrastructure Investment Development Bank (AIIB) is a multilateral development institution that aims to provide financial support for infrastructure development in Asia. Its objectives are to foster economic development and promote regional cooperation and partnership. First proposed by President Xi Jinping in October 2013 during his visit to Indonesia, AIIB has a registered capital of USD 100 billion and 57 countries as founding members from around the world. According to AIIB’s Articles of Agreement, 75% of the authorized capital will be reserved for the regional member countries in Asia.

Many people see the establishment of AIIB as an aspiration of China’s soft power projection, which is a natural consequence of China’s increasing growth as a world power. Fewer people understand, however, that AIIB represents an innovative and new model of development institution. “Its (the AIIB’s) modus operandi will be lean, clean and green: lean, with a small efficient management team and highly skilled staff; clean, an ethical organization with zero tolerance for corruption; and green, an institution built on respect for the environment” By proposing these principles, China invents a more transparent and inclusive way of cooperating in international development issues, thereby creating institutions that other states would likely embrace.

The innovative and unique set of value propositions forwarded by China through the establishment of AIIB could be seen from the examples below.

One distinctive feature of AIIB is its non-resident board (in comparison with the resident board of the World Bank). With its Board of Directors working remotely in their home countries, AIIB is likely to reduce cost, increase decision making efficiency, and avoid bureaucracy. These features are made possible because today’s world is wired by telephone, video conference, and wireless internet. A non-resident board is likely to give the management team the maximum room and space to operate as well as make decisions for the daily operations of the bank and be accountable for its outcome and performance.

Another salient feature is that AIIB wants to be an ethical multilateral development bank with zero tolerance for corruption. To make this happen, AIIB has established an independent compliance unit, reporting directly to the Board of Directors. The Director General of Compliance, Effectiveness, and Integrity, for example, has the responsibility “to monitor compliance with the bank’s policy and procedures, evaluate the quality of implementation outcomes and results of the Bank’s investment portfolio”.^{^[2]} Moreover, AIIB’s recruitment process operates strictly on the basis of meritocracy, with assessment and selection focusing on leadership skills, technical competency, and interpersonal skills. Transparency is evident in the advertising of all vacant positions on the official website of AIIB. Moreover, all candidates are required to submit applications through the official website. Assessment and selection are conducted with assistance of a third party global consulting firm to provide necessary independence and objectivity.

Finally, AIIB was established at a time when the world was suffering from serious pollution in the air, land, and water resources, especially in developing markets. With its investment focus on energy, transportation, water, and waste management sectors, AIIB is committed to addressing the shortage of infrastructure and fostering economic growth inside and outside Asia, enabling focus on environmental protection from the beginning of its inception. The concept of being “green” is adopted as an advanced value for development in the contemporary world.

What do China and Asia gain from the AIIB initiative? Based on the innovative propositions listed above, China and the Asian countries will likely benefit with the following advantages over the existing multilateral development banks, such as the World Bank:

AIIB is an addition to the world’s existing development institutions; however, because of its focus on Asia, AIIB will significantly address the infrastructure investment needs in Asia, which amounts to USD 8 trillion. This step will pave the way for further economic growth and connectivity among Asian countries.

Because of the new share allocation system, Asian countries can hold no less than 75% share in the stocks of the bank and have a majority say at the Board level as well as the management team level with regard to decision making for major activities of the bank.

The adoption of a non-resident board as well as clear accountability of the management team for the outcome of the bank operations will foster a performance-driven culture more similar to that of the private

Globally recruited and professionally screened managers and professional staff will bring higher standards and better quality staffing into the bank, eventually leading to better employee performance and greater productivity for the bank.

Despite the above, we should also envisage the challenges that the Bank may encounter in the foreseeable future. One challenge is that the environment in which the AIIB mission will be executed is the same as that for other existing multilateral development banks such as the World Bank. Hence the challenge would be obtaining an outcome superior to others in terms of efficiency against the same global geo-political and economic context. The other challenge is that AIIB needs to strike a balance between efficiency and quality. Achieving the right balance is critically important for a new development institution such as AIIB, which is yet to establish its credibility and reputation. Despite these and other challenges, no one can deny that AIIB represents an innovative and active step taken by China to assert its political and economic influence regionally and globally.

Written by: Alexander Peng, School of International Studies, Peking University