Updated February 27, 2018
Asian Infrastructure Investment Bank
Overview
President Xi, more so than previous Chinese leaders, has
In October 2013, at the Asia-Pacific Economic Cooperation
pursued policies to establish new China-led trade and
Summit in Bali, Indonesia, China proposed creating a new
financial institutions, as well as to further integrate China
multilateral development bank, the Asian Infrastructure
within the existing international financial institutions.
Investment Bank (AIIB). As its name suggests, the Bank’s
President Xi said that the AIIB would “promote
stated purpose is to provide financing for infrastructure
interconnectivity and economic integration in the region”
needs throughout Asia.
and “cooperate with existing multilateral development
banks,” including the World Bank and the ADB.
As the first Chinese-led multilateral development Bank
(MDB), the AIIB presents several policy issues including
Figure 1. China’s Silk Road Economic Belt and
the Bank’s governance and operational practices, the U.S.
Maritime Silk Road Initiatives
role and possible participation, and the relationship between
the AIIB and the existing MDBs. Some observers have also
raised concerns about the transparency and governance of
China-funded development projects. They argue that the
AIIB may undermine decades of effort by the United States
to improve governance, environmental, and social
standards; these standards have been achieved through
conditions attached to World Bank, ADB, and other MDB
loans.
Background
According to the Asian Development Bank (ADB), the
region needs around $750 billion in annual investment in
infrastructure. This sum is substantially greater than any

individual country or existing multilateral development
Source: Xinhuanet.com and Barclays Research
bank (MDB) can provide. Collectively, existing MDBs
currently provide around $130 billion of annual
In October 2014, 21 regional countries met in Beijing,
infrastructure financing globally. Addressing Asia’s large
China and signed a Memorandum of Understanding that set
infrastructure gap will likely require mobilizing public and
out the general principles undergirding the AIIB’s creation.
private sources of financing, as well as new sources of
China set the deadline for expressing interest in joining the
long-term development finance.
AIIB at the end of March 2015. U.S. officials were caught
off-guard when, in early 2015, the United Kingdom,
The AIIB was initially conceived as a regional financing
followed by several other European countries, sought
mechanism for Chinese President Xi Jinping’s “One Belt,
membership in the Chinese-led AIIB. By the time the
One Road” initiative to create a network of highways,
AIIB’s Articles of Agreement were signed in December
railways and other critical infrastructure linking China to
2015, the Bank had 57 founding members, representing
Central and South Asia, the Middle East and Europe (the
every region except North America.
Silk Road Economic Belt) and expanding ports throughout
Asia, the Middle East, Africa and Europe (the Maritime
As AIIB membership grew to include European and other
Silk Road).
advanced economies, Chinese officials distanced the AIIB,
to an extent, from China’s “One Belt, One Road” strategy
At the same time that China is working to deepen its
by agreeing to co-finance its initial projects with the
economic relationships with its neighbors it has intensified
preexisting MDBs. However, it is uncertain how China will
its engagement with the “Bretton Woods Institutions”—the
balance its stated goal of establishing an independent and
World Bank, International Monetary Fund (IMF) and the
high-standard MDB while pursuing its own economic and
regional development banks—with the aim of reforming the
national security priorities for the region. In June 2016,
governance and operations of these institutions to
during a meeting with global executives, the AIIB President
accommodate China’s increased economic influence.
Jin Liquin blurred the lines between the AIIB and Chinese
Chinese leaders have complained for many years that the
national interests, saying that while it would support “One
international financial institutions have been too slow in
Belt, One Road” projects, “the AIIB was not created
recognizing China’s increased stature in the global
exclusively for this initiative.”
economy.
In spring 2016, it was reported that the AIIB’s initial
projects would fund transportation projects in three key
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Asian Infrastructure Investment Bank
“One Belt, One Road” countries: Pakistan (co-financed
infrastructure financing may also serve to channel China’s
with the ADB and the United Kingdom), Tajikistan (co-
overcapacity in its manufacturing and construction sectors.
financed with the European Bank for Reconstruction and
Over the past decade, China has devoted around half of its
Development (EBRD)), and Kazakhstan (co-financed with
GDP to domestic investment. If the current slowdown in the
the World Bank and the EBRD). To date, the AIIB has
Chinese economy continues, regional infrastructure
approved 24 projects worth a total of $4.23 billion. In India,
financing would be a way to redirect China’s excess
the AIIB has approved $1.5 billion in infrastructure projects
capacity in sectors such as rail and highways or port
in 2018 alone.
construction.
Membership and Organization
China’s efforts on behalf of the AIIB also raise questions
The AIIB was formally established in late 2015 and, as of
about China’s relationship with the existing MDBs, where
February 2018, has 61 members and 23 prospective
it remains a large borrower. Critics question why China still
members. Membership in the AIIB is open to all members
borrows large volumes from the MDBs, often for
of the World Bank or the ADB. Regional members are
infrastructure projects, yet believes it has sufficient
those located within areas classified as Asia and Oceania by
management expertise to lead a new MDB.
the United Nations. Several European and Asian advanced
economies are AIIB members including France, Germany,
Transparency and Governance Concerns
Italy, the United Kingdom, Australia, New Zealand, South
Several operational aspects of the proposed AIIB raise
Korea, and New Zealand.
concerns for some U.S. officials. The Obama
Administration expressed no interest in the United States
The AIIB’s initial total capital is $100 billion, with 20%
joining the AIIB and reportedly unsuccessfully lobbied
paid-in and 80% callable capital. China is contributing $50
several countries against joining. China’s large voting
billion, half of the initial subscribed capital. India is the
power combined with the AIIB’s nonresident executive
second-largest shareholder. The Bank is based in Beijing,
board has led some analysts to question the AIIB’s
China and headed by Jin Liqun, a former Chinese vice
independence from Chinese leaders.
minister of finance, sovereign wealth fund chairman, and
ADB vice-president.
China, through its bilateral aid, has supported large-scale
infrastructure projects throughout Asia with less regard to
China’s voting share at the AIIB (26%) is 71% larger than
social or environmental standards, or the underlying
that of the second largest AIIB member nation, India (7%).
institutions in the recipient country than the MDBs. Some
This is the largest gap between the first and second largest
observers are concerned that some developing countries
shareholders at any of the existing MDBs, although the
will resist the safeguards and conditions attached to World
United States has the largest voting in any single MDB
Bank or ADB loans and turn to the AIIB instead. Chinese
(30% at the Inter-American Development Bank).
officials have given assurances that the AIIB would adopt
the MDBs’ best practices. Competitive pressure from the
The AIIB has a governance structure similar to other
AIIB and other sources of financing may also lead the
MDBs, with two key differences: (1) it does not have a
MDBs to reconsider the World Bank’s international best
resident board of executive directors that represents
practices in procurement policies and other safeguards.
member countries’ interests on a day-to-day basis; and (2)
Absent best practices on procurement and other safeguards,
the AIIB gives more decisionmaking authority to regional
there may be greater potential for corruption in MDB-
countries and the largest shareholder, China.
funded projects, especially in countries with weak domestic
institutions.
MDBs typically have a board of governors, a board of
executive directors, a president, and several vice-presidents.
Commercial Implications for U.S. Firms
The board of governors is the highest decisionmaking body
Many European governments may have joined the AIIB to
and generally is comprised of treasury secretaries or finance
ensure access for their domestic firms in bidding for
ministers of member countries. Management of the MDB’s
contracts on potential infrastructure projects. While China
day-to-day activities (approving loans, establishing policies,
has issued assurances that there will be open and
and overseeing MDB management) is typically delegated to
transparent procurement, it remains uncertain to what extent
a resident board of directors, which meets at least once a
firms from non-AIIB member countries will be considered
week. In comparison, the powers delegated to the AIIB’s
for bidding on AIIB projects. China’s existing loan and
executive board are modest and limited to establishing AIIB
project management practices continue to cause worry
policies; supervising AIIB management and operations; and
among some observers. The impact that AIIB lending may
approving strategic, planning, and budget documents.
have on setting technological standards in the region is
another concern. For example, if China uses the AIIB to
Issues for Congress
install Huawei network and telecommunications equipment
throughout the Asia-pacific region, U.S. technology firms
China’s Economic Diplomacy
might be effectively kept out of the Asia-Pacific market.
Chinese officials see economic development in the region
as helping to guard against regional instability (e.g., in
Martin A. Weiss,
Afghanistan, Pakistan, and Central Asia) and deepening
regional political links to Beijing. Regional Chinese
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Asian Infrastructure Investment Bank



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