April 8, 2015
Asian Infrastructure Investment Bank
Beijing. Its head will be Jin Liqun, a former Chinese Vice
Overview
Minister of Finance, sovereign wealth fund chairman, and
ADB Vice-President.
On October 24, 2014, China launched a new development
bank, the Asian Infrastructure Investment Bank (AIIB),
The AIIB has caused some friction between the United
posing a challenge to U.S. policymakers. Chinese President
States, which views it warily, and key allies and partners,
Xi Jinping has said that the bank would “promote
which have chosen to join or expressed an interest in
interconnectivity and economic integration in the region.”
joining. Critics have suggested that the United States has
and “cooperate with existing multilateral development
wasted political capital in its efforts to persuade allies and
banks,” including the World Bank and the Asian
partners not to join what is arguably a relatively small
Development Bank (ADB).
institution. U.S. officials, however, argue that countries
have the greatest leverage to improve governance when
The ADB estimates Asia’s total infrastructure investment
they are on the outside, negotiating to join the AIIB and
needs at $8 trillion between now and 2020. This sum is
lend their prestige to the institution. “I hope before the final
substantially greater than any individual country or existing
commitments are made anyone who lends their name to this
multilateral development bank (MDB) can provide.
organization will make sure that the governance is
Collectively, existing MDBs currently provide around $130
appropriate,” noted U.S. Treasury Secretary Jack Lew in
billion of annual infrastructure financing. Addressing
March 2015.
Asia’s large infrastructure gap will likely require
mobilizing public and private sources of financing, as well
The United States stands ready to welcome new
as new sources of long-term development finance.
institutions into the international development
architecture, provided that they share the
However, the creation of the AIIB, the proposed Bank
international community's strong commitment to
raises many issues including: the Bank’s governance and
complementing the existing institutions and
operational practices, the U.S. role and possible
maintaining time-tested, and ever-improving, principles
participation, and the relationship between the AIIB and the
and standards. Nathan Sheets, Under Secretary for
existing MDBs, among others. Some observers have raised
International Affairs, Department of the Treasury, January
concerns about the transparency and governance of China-
7, 2015.
funded development projects and see the AIIB proposal
potentially undermining decades of efforts by the United
States and others to improve governance and environmental
Issues for Congress
and social standards. An additional possible U.S. concern is
the emergence of Chinese-led regional economic
The AIIB raises several political and economic issues for
institutions, such as the AIIB, in which the United States
U.S. policymakers as they examine the AIIB proposal and
may have little influence.
consider potential U.S. involvement with the Bank.
Membership and Organization
China’s Economic Diplomacy
As of April 8, 2015, the AIIB has 35 founding members
The AIIB is one of several mechanisms to support a more
including India, the Philippines, Singapore, New Zealand,
assertive Chinese international economic policy. China sees
and Saudi Arabia. Several European countries including
the AIIB and other financing mechanisms, including a $40
France, Germany, Italy, Luxembourg and the United
billion Silk Road Fund, the $100 billion New Development
Kingdom have also joined the AIIB, reportedly over U.S.
Bank (formerly known as the BRICS Development Bank),
objections. An additional 23 countries, including Australia
and the Shanghai Cooperation Organization Development
and South Korea have applied to join the AIIB. Japan has
Bank, as a means to finance what it calls a “Silk Road
not yet decided whether it will seek to join the Bank.
Economic Belt” and a “21st Century Maritime Silk Road.”
The “Silk Road Economic Belt” would be a network of
According to Chinese officials, the AIIB’s Articles of
highways, railways and other critical infrastructure linking
Agreement are to be finalized by June 2015; and lending is
China to Central and South Asia, the Middle East and
slated to begin by the end of 2015. The AIIB’s initial total
Europe. The Silk Road Maritime Route entails building or
capital reportedly will be $100 billion, with 20% paid-in
expanding ports throughout Asia, the Middle East, Africa
and 80% callable capital. China is expected to initially
and Europe.
contribute $50 billion, half of the initial subscribed capital.
This would give China a 50% share of total voting power in
Many accounts of the AIIB debate have argued that
the institution. India would be the second largest
Congress’s decision not to ratify the 2010 reforms of the
shareholder. The headquarters of the bank will be in
www.crs.gov | 7-5700

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Asian Infrastructure Investment Bank
International Monetary Fund’s quota system, which would
For example, the World Bank and other MDBs have
have modestly increased China’s stake in the IMF, seems to
operational guidelines on dealing with involuntary
have convinced China to create new financial institutions.
resettlement. If MDB development projects require the
forced relocation of a population, there are operational
Figure 1. China’s Silk Road Economic Belt and
procedures to ensure compensation and resettlement
Maritime Silk Road Initiatives
planning. By contrast, China has supported large scale
infrastructure projects throughout Asia with less regard to
social or environmental standards, or the underlying
institutions in the recipient country. Some observers have
raised concerns that countries will resist the safeguards and
conditions attached to World Bank or ADB loans and turn
to the AIIB instead. Chinese officials have given assurances
that the AIIB would adapt the MDBs’ best practices. The
continued participation of European countries, as well as
cooperation with the IMF and other MDBs, will likely
require that China fulfill these assurances.
Competitive pressure from the AIIB and other sources of
financing may lead the MDBs to reconsider World Bank
international best practices in procurement policies and
Source: Xinhuanet.com and Barclays Research.
other safeguards and either relax their safeguards or transfer
the responsibility for compliance to the borrower country.
Chinese officials see economic development in the region
The World Bank is currently reviewing its safeguard
as helping to guard against regional instability (e.g., in
policies and its policy on the use of so-called “Country
Afghanistan, Pakistan, and Central Asia) and deepening
Systems,” which might allow countries to apply their own
regional political linkages to Beijing. Regional Chinese
social and environmental safeguard systems in some
infrastructure financing may also serve to channel China’s
circumstances. Absent best practices on procurement and
overcapacity in its construction sector. Over the past
other safeguards, there may be greater potential for
decade, China has devoted around half of its GDP to
corruption in MDB-funded projects, especially in countries
domestic investment. If the slowdown in the Chinese
with weak domestic institutions.
economy continues, regional infrastructure financing would
be a way to redirect China’s excess capacity in sectors such
Commercial Implications for U.S. Firms
as rail and highways or port construction.
Many European governments appear to be joining the AIIB
China’s funding of new development banks also raises
to assure access for their firms in bidding for contracts on
questions about China’s relationship with the MDBs, where
potential infrastructure projects. While China has issued
it remains a large borrower. Critics question why China still
assurances that there will be open and transparent
feels it needs to work with the World Bank to hone its
procurement, it remains uncertain whether firms from non-
project management skills, and yet thinks it has sufficient
AIIB member countries will be able to bid. China’s existing
management expertise to run a new development bank.
loan and project management practices continue to cause
issue. The impact AIIB lending may have on setting
Transparency and Governance Concerns
technological standards in the region is another concern.
For example, if China uses the AIIB to install Huawei
Several operational aspects of the proposed AIIB raise
network and telecommunications equipment throughout the
concerns for U.S. and other officials. China’s holding of
Asia-pacific region, U.S. technology firms might be
more than 50% of the voting power would make the AIIB
effectively kept out of the Asia-Pacific market.
the only MDB in which one country has a majority of the
total voting power. Second, the AIIB, as currently
Global Financing for Infrastructure Investment
envisioned, would have a non-resident Board of Directors,
which would not be involved in approving AIIB investment
MDB support for infrastructure financing has waned in
decisions; investment decisions would be made by AIIB
recent years. China’s AIIB plans may encourage MDBs and
staff. At existing MDBs, a member-driven Board of
financial institutions to examine ways of increasing
Directors meets regularly to make lending decisions and
infrastructure financing in Asia. Three Japanese banks and
approve specific projects.
five banks from France, Britain, and Australia have also
agreed to partner with the ADB to facilitate infrastructure
It also appears that the AIIB may not fully endorse other
investment by providing advice to borrowing countries on
MDBs’ emphasis on open, transparent, and accountable
matters like raising funds and project management.
practices, including procurement procedures, as well as
safeguards for labor, environmental, and other social
Martin A. Weiss, mweiss@crs.loc.gov, 7-5407
concerns. The U.S. government considers these rules and

safeguards central to the effectiveness of development
IF10154
assistance, and has used its leadership in the MDBs to
advocate for their use.
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