Asian Infrastructure Investment Bank: Governance Innovation and Prospects

ON 29 JUNE 2015, THE LEADERS OF CHINA AND REPRESENTATIVES OF FIFTY-SIX nations gathered in Beijing to sign the Memorandum of Understanding for the creation of the Asian Infrastructure Investment Bank (AIIB). According to its Articles of Agreement, the purpose of the bank is: first, to "foster sustainable economic development, create wealth and improve infrastructure connectivity in Asia by investing in infrastructure and other productive sectors"; and, second, "promote regional cooperation and partnership in addressing development challenges by working in close collaboration with other multilateral and bilateral development institutions." The creation of this new bank is the latest in a wave of new global initiatives that China has promoted, alongside the Group of 20 Leaders Summits (G-20); the internationalization of the renminbi (China's national currency); the New Development Bank (NDB) of the "BRICS" grouping (Brazil, Russia, India, China, and South Africa); and the Silk Road Economic Belt and Twenty-first Century Maritime Silk Road (One Belt & One Road). The AIIB will be headquartered in Beijing, with an initial capital stock of $100 billion. China is contributing the largest share for the new bank, by a large measure ($29.8 billion). According to its fifty-seven "founding members," the AIIB "grew from the recognition of the importance of infrastructure to the development of Asia, and the need for significant additional long-term financing" for infrastructure and development in the region and beyond the region. (1) The other motivation is that China and many developing countries have grown frustrated with what they perceive as the often slow and overly bureaucratic ways of the traditional lenders and their slow pace of representational and operational reform. (2) The fact that it has been a quarter-century since the last major multilateral development bank was created (the European Bank for Reconstruction and Development, founded in 1991), (3) and that the new bank is championed by China (and not by the traditional Western powers or Japan), signals a shift in the balance of world economic power. The lack of precedence of the People's Republic sitting at the center of the table, setting the agenda, defining priorities, and rethinking rules means that rules could emerge in the AIIB-funded projects that differ from those of the liberal international economic order. That a number of the allies of the United States, including Australia, South Korea, Britain, Germany, and France, decided to join the AIIB, even though the United States had discouraged them, suggests that geopolitical calculations among followers are also shifting. (4) Thus, People's Daily, the official newspaper of the Chinese Communist Party, observed wryly that "the expanding Asian Infrastructure Investment Bank shows China's growing global influence. AIIB is attracting international attention." (5) The points above suggest that the creation of the AIIB is an important development in global governance and reflects key shifts in the balance of world economic power. It further suggests that China has made the transition to global leadership, including building new multilateral organizations, after decades where it mainly learned the established norms. (6) In this essay, I examine whether and how the AIIB represents innovation in global governance. I further provide a critical appraisal of the prospects for the new China-backed multilateral bank. My main findings are that the AIIB reflects both continuities and innovations in global governance. So far, most of the innovations are in the governance structures of the bank and its overarching legal frameworks. What is significant about the AIIB's governance innovations is that they are aimed at unlocking the creative potential for the new bank to make breakthroughs in decisionmaking, management, and staffing, and, most importantly, in the lending practices and business models of the bank. …