A Big Step Forward for China's AIIB
A map of AIIB founding member countries.
Image Credit: The Diplomat

A Big Step Forward for China's AIIB

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In March, a flurry of counties (including U.S. allies like the U.K., South Korea, and Australia), applied to join China’s new Asian Infrastructure Investment Bank (AIIB) before the March 31 deadline for joining as a founding member. The new bank will have authorized capital of $100 billion, to be used in infrastructure projects throughout Asia.

Being a founding member means having a say in the AIIB charter – especially important for countries that had expressed concern about governance issues related to the new bank. Today, China’s Ministry of Finance announced that the 57 founding members of AIIB have agreed upon the bank’s charter, which will be signed in a ceremony in Beijing at the end of June.

The AIIB negotiators met in Signapore from May 20-22 for talks on the bank’s charter. At stake were a number of concerns: how the bank’s capital will be provided and the corresponding stakeholder levels of each country. China has previously said that 75 percent of AIIB shares will be reserved for Asian countries, meaning European countries like the U.K., Germany, and France will have little say.

Delegates from the Singapore meeting told Reuters that China will likely wind up with a 25-30 percent stake in the bank, making it the largest shareholder. India is expected to be the second largest shareholder at 10-15 percent. That meshes with predictions from the Korean Institute for Economic Policy, which calculated that China and India would be the largest shareholders at roughly 30 and 10 percent, respectively. KIEP, which based its calculations on having 75 percent of shares for Asian countries and allocating shared based on GDP and PPP (purchasing power parity), predicted that Indonesia, Germany, and South Korea would be the next three largest shareholders, all with just under 4 percent.

The biggest question mark for KIEP was the status of Russia – is it included as an Asian country or not? If Russia is part of the Asian group splitting 75 percent of AIIB shares, it would (along with India) would have around 10 percent, while China’s percentage would drop to 25. Meanwhile, other non-Asian countries (Germany, France, the U.K., etc) would see their shares rise by comparison, as Russia would no longer count toward the 25 percent of shares reserved for non-Asian members.

That question remains unanswered for now – there are very few details on the actual contents of the charter (formally known as the Articles of Agreement, or AOA). That will likely change soon as each individual government begins the process of having the AOA ratified through domestic processes.

In addition to allocating shares, the AOA contains information on the governance structure (including the question of whether or not China has veto power over bank decisions) and on the processes for approving and overseeing loans. China has previously promised that the AIIB will follow the same international standards as other lending institutions like the IMF when it comes to environmental concerns and labor rights. China has also promised, however, to keep AIIB “lean and efficient” rather than weighted down by bureaucratic procedures. In other organizations, “some standards are harsh and even attached with political conditions,” Xinhua noted, saying that China founded AIIB precisely to get around those issues.

China says AIIB is expected to begin operations by the end of 2015, although some delegates are uncertain if every member country will be able to win legislative approval for the AOA that quickly.

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