Asian Infrastructure Investment Bank

Asian Infrastructure Investment Bank

Updated May 4, 2023
Asian Infrastructure Investment Bank
In October 2013, at the Asia-Pacific Economic Cooperation
interconnectivity and economic integration in the region”
Summit in Bali, Indonesia, China proposed creating a new
and “cooperate with existing multilateral development
multilateral development bank, the Asian Infrastructure
banks,” including the World Bank and the ADB.
Investment Bank (AIIB). As its name suggests, the Bank’s
stated purpose is to provide financing for infrastructure
In October 2014, 21 Asian countries met in Beijing, China
needs throughout Asia.
and signed a Memorandum of Understanding that set out
the general principles undergirding the AIIB’s creation.
The AIIB has also been active in the response to the
China set the deadline for expressing interest in joining the
Coronavirus Disease 2019 (COVID-19) pandemic and is
AIIB at the end of March 2015. U.S. officials were caught
providing up to $20 billion in support to member countries
off-guard when, in early 2015, the United Kingdom,
to support their pandemic responses through the end of
followed by several other European countries, sought
2023. Other current strategic priorities are climate finance
membership in the AIIB. By the time the AIIB’s Articles of
(50% of AIIB lending by 2025), regional connectivity and
Agreement were signed in December 2015, the Bank had
mobilizing local private capital.
57 founding members, representing every region except
North America. As of January 2023, membership has
As the first China-led multilateral development bank
almost doubled, to 106 members. By contrast, the IMF and
(MDB), the AIIB presents several policy issues, including
the World Bank have 190 member countries.
the Bank’s governance and operational practices, the U.S.
role and possible participation, and the relationship between
The Bank has approved a total of $37 billion in new
the AIIB and the existing MDBs. Some observers have also
projects as of November 2022, up from $12 billion as of
raised concerns about the transparency and governance of
December 2019. India is by far 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, November 2022
standards; these standards have been achieved through
Mil ions of U.S. Dol ars
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 and argue that
the time may have come for the United States to consider
joining the Bank.
Background
The Asian Development Bank estimates 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 create a network of
Source: AIIB.
highways, railways and other critical infrastructure linking
In recent years, the AIIB has increased its share of
China to the rest of the world. At the same time that China
standalone projects and decreased the share of loans
is working to deepen its economic relationships with its
cofinanced with other MDBs. As of December 2021, 54%
neighbors, it has intensified its engagement with the
“Bretton Woods Institutions”—
of the AIIB projects were cofinanced with other
the World Bank,
institutions, compared to 67% in June 2018. According to
International Monetary Fund (IMF) and the regional
Standard and Poor’s analysis, private sector lending is
development banks. China’s leaders have stated for many
expected to become a larger share of Bank lending,
years that the international financial institutions have been
too slow in recognizing China’s increased stature in the
reaching 50% over time.
global economy.
Membership and Organization
Membership in the AIIB is open to all members of the
President Xi has pursued policies to establish new China-
World Bank or the ADB. Regional members are those
led trade and financial institutions, as well as to further
located within areas classified as Asia and Oceania by the
integrate China within the existing international financial
institutions. President Xi said that the AIIB would “
United Nations. Several European and Asian advanced
promote
economies are AIIB members, including France, Germany,
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Asian Infrastructure Investment Bank
Italy, the United Kingdom, Australia, New Zealand, and
Issues for Congress
South Korea. Seventeen of the G-20 members are also AIIB
China’s Economic Diplomacy
members. Only the United States, Japan, and Mexico are
Chinese officials see economic development in Asia as
not AIIB members.
helping to guard against regional instability (e.g., in
The AIIB’s total capital
Afghanistan, Pakistan, and Central Asia) and deepening
is $100 billion, with 20% paid-in
regional, commercial, and political links to Beijing. China’s
and 80% callable capital. As of November 2022, $19.08
billion of the Bank’s $20 billion paid
regional infrastructure financing may also serve to channel
-in capital has been
China’s overcapacity in its manufacturing and construction
subscribed. China is contributing $50 billion, half of the
sectors. China’s efforts on behalf of the AIIB also raise
total subscribed capital. India is the second-largest
questions about China’s relationship with the existing
shareholder.
MDBs, where it remains a large borrower. Critics question
why China still borrows large volumes from the MDBs,
The Bank is based in Beijing, China, and headed by Jin
often for infrastructure projects, yet believes it has
Liqun, China’s former vice minister of finance and former
chairman of the supervisory board of China’s
sufficient management expertise to lead a new MDB. To
sovereign
that end, in March 2023, Senator Barrosso and colleagues
wealth fund. President Jin was elected to a second five-year
introduced S. 908, which would require Treasury to oppose
term, which started on January 16, 2021. China is the
any MDB loan to China.
largest shareholder, and its voting power (27%) is
substantially greater than the second largest AIIB member,
Transparency and Governance Concerns
India (8%). This is the largest gap between the top two
Several operational aspects of the AIIB raise concerns for
shareholders at any of the existing MDBs, although the
some U.S. officials. The Obama and Trump
United States has the largest voting share in any single
Administrations did not see joining the AIIB as in the U.S.
MDB (30% at the Inter-American Development Bank).
interest. China’s large voting power combined with the
AIIB’s nonresident executive board have led some analysts
For special votes, such as approving membership, selecting
to question the AIIB’s independence from China’s leaders.
the president, increasing the capital stock, and changing the
However, since the Bank’s founding, its membership has
size or composition of the executive board, the AIIB
grown to include almost all of the world’s countries, it has
Articles require either a super majority (75% of total voting
developed robust operational guidelines and standards, and
power with two-thirds of the membership) or a special
it maintained AAA ratings from the major rating agencies.
majority (50% of total voting power with one-half of the
membership) of the Board of Governors.
Notwithstanding the AIIB’s track record, China, through its
infrastructure financing/loans and bilateral aid, has often
Figure 2. AIIB Total Voting Power, January 2023
supported large-scale infrastructure projects throughout
Asia with less regard to social or environmental standards,
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 lead some MDBs to reconsider
the World Bank’s international best practices in
procurement policies and other safeguards.
Commercial Implications for U.S. Firms
Many European governments may have joined the AIIB to
ensure access for their domestic firms in bidding on
contracts involving potential infrastructure projects. While
China has issued assurances that there will be open and
transparent procurement, it remains uncertain to what extent
Source: AIIB.
firms from non-AIIB member countries are considered for
The AIIB has a governance structure similar to other
bidding on AIIB projects. China’s existing loan and project
MDBs, with two key differences: (1) it does not have a
management practices continue to worry some observers.
resident board of executive directors that represents
The impact that AIIB lending may have on setting
member countries’ interests on a day-to-day basis; and (2) it
technological and other standards in the region is another
gives more decisionmaking authority to regional countries
concern. For example, if China uses the AIIB to set up
and the largest shareholder, China. Management of most
infrastructure for communications, transportation, and
MDB’s day-to-day activities (approving loans, establishing
energy that uses Chinese equipment or services or to
policies, and overseeing MDB management) is typically
connect more broadly to China’s networks, this potentially
delegated to a resident board of directors, which meets at
gives China an ability to develop a commercial foothold in
least once a week. In comparison, the powers delegated to
Asia that could disadvantage or exclude U.S. firms.
the AIIB’s executive board are modest and limited to
establishing AIIB policies; supervising AIIB management
Martin A. Weiss, Specialist in International Trade and
and operations; and approving strategic, planning, and
Finance
budget documents.
IF10154
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Asian Infrastructure Investment Bank

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https://crsreports.congress.gov | IF10154 · VERSION 17 · UPDATED