Updated January 21, 2021
Asian Infrastructure Investment Bank
Background
interconnectivity and economic integration in the region”
In October 2013, at the Asia-Pacific Economic Cooperation
and “cooperate with existing multilateral development
Summit in Bali, Indonesia, China proposed creating a new
banks,” including the World Bank and the ADB.
multilateral development bank, the Asian Infrastructure
Investment Bank (AIIB). As its name suggests, the Bank’s
In October 2014, 21 Asian countries met in Beijing, China
stated purpose is to provide financing for infrastructure
and signed a Memorandum of Understanding that set out
needs throughout Asia. The AIIB has also been active in the
the general principles undergirding the AIIB’s creation.
response to the Coronavirus Disease 2019 (COVID-19)
China set the deadline for expressing interest in joining the
pandemic and is providing up to $13 billion in support to
AIIB at the end of March 2015. U.S. officials were caught
member countries to support their pandemic responses. The
off-guard when, in early 2015, the United Kingdom,
AIIB’s Crisis Recovery Facility was created in April 2020
followed by several other European countries, sought
and is supporting various health sector and economic
membership in the AIIB. By the time the AIIB’s Articles of
resilience projects. The AIIB also notes that the crisis
Agreement were signed in December 2015, the Bank had
facility can be used to shore up liquidity for other China-
57 founding members, representing every region except
financed infrastructure investments.
North America. As of January 2021, membership has
almost doubled, with the Bank approving 103 members. By
As the first China-led multilateral development bank
contrast, the IMF and the World Bank have 119 member
(MDB), the AIIB presents several policy issues including
countries.
the Bank’s governance and operational practices, the U.S.
role and possible participation, and the relationship between
As of November 2020, the AIIB has approved a total of
the AIIB and the existing MDBs. Some observers have also
$21.5 billion in new projects in 26 countries, up from $12
raised concerns about the transparency and governance of
billion as of December 2019. India is the largest borrower
China-funded development projects. They argue that the
(Figure 1).
AIIB may undermine decades of effort by the United States
to improve governance, environmental, and social
Figure 1. AIIB’s 5 Largest Borrowers, December 2020
standards; these standards have been achieved through
conditions attached to World Bank, Asian Development
Bank (ADB), and other MDB loans. Other analysts note the
AIIB’s track record of facilitating projects and
implementing robust safeguards and policies during its five
years in existence and argue that the time may have come
for the United States to consider joining the Bank.
Background
Some estimate that potential infrastructure projects in Asia
could amount to $26 trillion through 2030, and would likely
require mobilizing public and private sources of financing,
as well as new sources of long-term development finance.
The AIIB was initially conceived as a regional financing

mechanism for China’s “One Belt, One Road” initiative to
Source: AIIB, Standard and Poor’s
create a network of highways, railways and other critical
As AIIB membership grew to include European and other
infrastructure linking China to the rest of the world. At the
advanced economies, China’s leadership distanced the
same time that China is working to deepen its economic
AIIB, to an extent, from China’s “One Belt, One Road”
relationships with its neighbors, it has intensified its
initiative by agreeing to co-finance its initial projects with
engagement with the “Bretton Woods Institutions”—the
the preexisting MDBs. However, it is uncertain how China
World Bank, International Monetary Fund (IMF) and the
will balance its stated goal of establishing an independent
regional development banks. China’s leaders have
and high-standard MDB, while pursuing its own economic
complained for many years that the international financial
and national security priorities for the region.
institutions have been too slow in recognizing China’s
increased stature in the global economy.
In recent years, the AIIB has also increased its share of
stand-alone projects and decreased the share of loans co-
President Xi, has pursued policies to establish new China-
financed with other MDBs. As of November 2020, 54% of
led trade and financial institutions, as well as to further
the AIIB projects were co-financed with other institutions,
integrate China within the existing international financial
compared to 67% in June 2018. According to December
institutions. President Xi said that the AIIB would “promote
2020 Standard and Poor’s analysis, private sector lending is
expected to become a larger share of Bank lending,
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Asian Infrastructure Investment Bank
reaching 50% over time. It was 27% of AIIB’s total
Issues for Congress
approvals of $12 billion as of year-end 2019.
China’s Economic Diplomacy
Chinese officials see economic development in Asia as
Membership and Organization
helping to guard against regional instability (e.g., in
Membership in the AIIB is open to all members of the
Afghanistan, Pakistan, and Central Asia) and deepening
World Bank or the ADB. Regional members are those
regional commercial and political links to Beijing. China’s
located within areas classified as Asia and Oceania by the
regional infrastructure financing may also serve to channel
United Nations. Several European and Asian advanced
China’s overcapacity in its manufacturing and construction
economies are AIIB members, including France, Germany,
sectors. China’s efforts on behalf of the AIIB also raise
Italy, the United Kingdom, Australia, New Zealand, South
questions about China’s relationship with the existing
Korea, and New Zealand. Seventeen of the G-20 members
MDBs, where it remains a large borrower. Critics question
are also AIIB members. Only the United States, Japan, and
why China still borrows large volumes from the MDBs,
Mexico are not AIIB members.
often for infrastructure projects, yet believes it has
sufficient management expertise to lead a new MDB.
The AIIB’s total capital is $100 billion, with 20% paid-in
and 80% callable capital. As of September 2020, $18.9
Transparency and Governance Concerns
billion of the Bank’s $20 billion paid-in capital has been
Several operational aspects of the AIIB raise concerns for
subscribed. China is contributing $50 billion, half of the
some U.S. officials. The Obama and Trump
subscribed capital. India is the second-largest shareholder.
Administrations did not see joining the AIIB as in the U.S.
The Bank is based in Beijing, China and headed by Jin
interest. China’s large voting power combined with the
Liqun, China’s former vice minister of finance and former
AIIB’s nonresident executive board has led some analysts
chairman of the supervisory board of China’s sovereign
to question the AIIB’s independence from China’s leaders.
wealth fund. President Jin was elected to a second five-year
However, since the Bank’s founding, its membership has
term, which started on January 16, 2021. China is, the
grown to include almost all of the world’s countries, it has
largest shareholder and its voting power (27%) is
developed robust operational guidelines and standards, and
substantially greater than the second largest AIIB member,
it maintained AAA ratings from the major rating agencies.
India (8%) (Figure 2). This is the largest gap between the
top two shareholders at any of the existing MDBs, although
Notwithstanding the AIIB’s track record, China, through its
the United States has the largest voting share in any single
infrastructure financing/loans and bilateral aid, has often
MDB (30% at the Inter-American Development Bank).
supported large-scale infrastructure projects throughout
Asia with less regard to social or environmental standards,
Figure 2. AIIB Total Voting Power, January 2021
or the underlying institutions in the recipient country, than
the MDBs (including the AIIB). Some observers argue that
competitive pressure from the AIIB and China’s bilateral
sources of financing may also lead some MDBs to
reconsider the World Bank’s international best practices in
procurement policies and other safeguards. Absent best
practices on procurement and other safeguards, there may
be greater potential for corruption in MDB-funded projects,
especially in countries with weak domestic institutions.
Commercial Implications for U.S. Firms
Many European governments may have joined the AIIB to
ensure access for their domestic firms in bidding for
contracts on potential infrastructure projects. While China
has issued assurances that there will be open and
Source: AIIB
transparent procurement, it remains uncertain to what extent
The AIIB has a governance structure similar to other
firms from non-AIIB member countries are considered for
MDBs, with two key differences: (1) it does not have a
bidding on AIIB projects. China’s existing loan and project
resident board of executive directors that represents
management practices continue to cause worry among some
member countries’ interests on a day-to-day basis; and (2) it
observers. The impact that AIIB lending may have on
gives more decision-making authority to regional countries
setting technological standards in the region is another
and the largest shareholder, China, which has veto power
concern. For example, if China uses the AIIB to set up
over operational matters. Management of most MDB’s day-
infrastructure for communications, transportation, and
to-day activities (approving loans, establishing policies, and
energy that use Chinese equipment or services or connect
overseeing MDB management) is typically delegated to a
more broadly to China’s networks this potentially gives
resident board of directors, which meets at least once a
China an ability to develop a strong commercial foothold in
week. In comparison, the powers delegated to the AIIB’s
Asia that could disadvantage or exclude U.S. firms.
executive board are modest and limited to establishing AIIB
policies; supervising AIIB management and operations; and
Martin A. Weiss, Specialist in International Trade and
approving strategic, planning, and budget documents.
Finance
IF10154
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Asian Infrastructure Investment Bank


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https://crsreports.congress.gov | IF10154 · VERSION 11 · UPDATED

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