Asia Infrastructure Investment Bank (AIIB)

The Asian Infrastructure Investment Bank is the newest addition to the “crowded field” of multinational development funding (AIIB or the Bank). This China-dominated development bank began operations in January 2016 and financed massive infrastructure projects across Asia. In terms of participation and norms, it offers an alternative to the Western-dominated MDBs. The Bank had 103 member governments, including potential members, from all around the world in January 2021.

AIIB’s multinational management and staff have taken root in its headquarters in Beijing, home of its initiator and largest shareholder, the People’s Republic of China. It enjoys a AAA rating as an international financial institution.

Asia Infrastructure Investment Bank (AIIB) establishment

China’s leader Xi Jinping proposed the bank in 2013 at UN headquarters. The initiative was launched in October 2014 at a ceremony in Beijing and lastly opened in January 2016. The bank’s initial capital was $100 billion, equivalent to two-third of the capital of the Asian Development Bank and roughly half of the capital of the World Bank.

There is a major infrastructure financing gap in the Asian region; it is estimated that USD26 trillion in funding will be required over the next decade to meet Asia’s needs by 2030. The AIIB, in collaboration with the World Bank Group and the Asian Development Bank, is assisting in filling this gap and leveraging private sector funds for infrastructure projects.

The Bank’s aim, such as that of other development banks, is to improve social and economic results throughout Asia and beyond. The bank presently has 86 verified members all over the world. The AIIB began operations in January 2016 in accordance with the terms of the AIIB Articles of Agreement (which went into effect in December 2015). 

AIIB Structure

The AIIB, the same as traditional MDBs, has a three-tiered governance structure that includes: 

1. Board of governors (one governor at the ministerial level per member); 
2. Board of directors (one director for each of the 12 voting constituencies, operating by consensus); 
3. top management led by a president and five vice presidents.

The bank’s highest level of decision-making authority is held by the board of governors, which meets once a year at the annual meeting, for example, to approve new members. The board of governors, on the other hand, has delegated the drafting and adoption of the bank’s strategies and policies to the board of directors, which also oversees the AIIB’s day-to-day operations performed by top management. The AIIB’s president is chosen by the board of governors; he or she must be a national of a regional member country and can be re-elected only once.

Jin Liqun, the AIIB’s current and inaugural president, is a Chinese national who has held senior positions in the Chinese Ministry of Finance, the ADB, and the IBRD. Jin Liqun was re-elected for a second term, being the only candidate in the 2020 presidential election.

The AIIB’s ‘lean and clean’ governance model includes several innovative features that reflect the bank’s vision of doing things differently than traditional MDBs.

Membership and Voting Rights

Membership in the AIIB is open to all World Bank and Asian Development Bank members, and it is divided into regional and non-regional members.

Regional members are those who live in areas designated by the United Nations as Asia and Oceania.

In contrast to other MDBs (multilateral development banks), the AIIB allows non-sovereign entities to apply for membership if their home country is a member. As a result, sovereign wealth funds (such as the China Investment Corporation) or state-owned enterprises from member countries may be able to join the Bank.

China is the bank’s largest shareholder, accounting for 26.61 percent of voting shares, followed by India (7.6 percent), Russia (6.01 percent), and Germany (4.2 percent). Regional members control 75% of the Bank’s total voting power.

AIIB and India

India has been the largest borrower of Asian Infrastructure Investment Bank (AIIB) lending since the bank’s commencement, with total project portfolios of US$4.4 billion.

Some important key points:

1. India is the bank’s second-largest stakeholder (7.6%), behind only China.
2. India has received the most AIIB funding for infrastructure projects.
3. The bank has also approved $500 million for a COVID-19 Emergency Response Fund and Health Systems Preparedness Project in India, which spans a variety of sectors including energy, water, transportation, and others, including the Bangalore Metro Rail.
4. On February 1, 2022, former Reserve Bank of India (RBI) Governor Urjit Patel will join the Asian Infrastructure Investment Bank (AIIB) as Vice President for Investment Operations for South Asia, the Pacific Islands, and South-East Asia.

Objections against AIIB

Despite being the world’s biggest economies, the United States and Japan are not members of the Asian infrastructure investment bank.

The United States opposes the bank because of China’s share monopoly, which it sees as an incursion on the international financial system. There is also a notion that a bank is a vehicle for the Chinese government’s expansionist agenda. There’s also a belief, echoed by AIIB’s non-resident board, that the Chinese government can exert tight supervision over the bank’s operations.

Conclusion

The Asian Infrastructure Investment Bank (AIIB) is a multilateral development bank whose declared mission is to improve Asia’s social and economic conditions. The AIIB, as a China-led organisation, also helps to bolster China’s standing as a global economic force. The bank invests in a variety of businesses and initiatives that aim to boost international trade through improving infrastructure, mainly in Asian countries.