Measuring the Success of Filling the Gap: The Asian Infrastructure Investment Bank

By Clifford Hwang

The reception to the proposal for the Asian Infrastructure Investment Bank (AIIB) has been highly divergent.  The United States and Japan are currently “non-committal” in regards to membership. Europe was wary at first; Germany will be one of the AIIB’s largest shareholders. China viewed it as a “diplomatic triumph.” Ultimately, the AIIB’s success will determine how it should have been viewed.

Chinese President Xi Jinping first proposed the launch of a China-led investment in 2013, and after two years of development, the AIIB is now expected to launch at the end of the year. The AIIB, in addition to institutions like the World Bank and the Asian Development Bank, is expected to provide funding for various infrastructure projects in Asia with its capital of $100 billion. With the growing need of infrastructure investment coupled with previous inadequate funding levels, the AIIB is expected to partially fill the investment gap in Asia, which is estimated to be around $800 billion a year

Different groups will measure the AIIB’s success differently. These measurements, which are often interlinked, include the AIIB’s commercial performance, the effectiveness of its governance structure, and its ability to further China’s foreign policy goals. Those staunchly opposing the creation of the AIIB will perhaps measure its success by witnessing the degree to which it fails.

One basic measure of success, as with any lending institution, will be commercial: can the bank generate a financial return? The AIIB will serve to focus on infrastructure projects, which should complement and not compete with the World Bank and the IMF, which aim to reduce poverty and increase economic growth. Despite such a large investment gap in the region, there may be a lack of fully designed infrastructure proposals, environmental and social effects studied, and financial return demonstrated. Amidst this backdrop, how will the AIIB generate returns? Will this mean that the AIIB will have less rigorous selection criteria for investment projects, such as placing less emphasis on environmental and social consequences of projects? Selection criteria, however, is likely to be fairly similar to other multilateral lending institutions (i.e. rigorous) because of its overlapping shareholder base and the proposed governance scheme. 

A second measure of success, closely intertwined with the first, will be the effectiveness of the AIIB’s governance structure and the appeal of adopting those governance structures in the future. The Articles of Agreement layout a structure where China will have the greatest voting power at roughly 26 percent voting rights while India, Russia, and Germany, the three next largest contributors, will possess approximately eight, six, and four percent, respectively. Despite China’s skewed voting rights, China will only have veto power over major decisions that require a supermajority or 75 percent vote, such as those involving structure, membership and capital increases. China will not have veto power over the AIIB’s day-to-day operations.

At the board level, there will be twelve total seats on the board with nine reserved for Asian countries and three reserved for non-Asian countries. China, Russia, and India will hold four out of nine spots available for Asian countries, and Germany will hold one seat out of the three seats allocated to non-Asian countries. The remaining countries will determine the rest of the seats. In many ways, the governance structure is very similar to the current governance structures in place in international institutions, and this may be because during negotiations, non-Asian countries were able to effectively negotiate and bring China within international norms.

A third way to measure success will be how far China is able to extend its foreign policy. Even here, measurements will differ. Some will think success will be China’s ability to use the AIIB to advance the country’s domestic interests such as promoting its goods or gaining political leverage through investment decisions. Success in this sense may be difficult or perhaps even unattractive to achieve after China has shown a clear commitment to transparent governance; it will be even harder to do this overtly with so many other countries participating in the organization. Others will think success will be attained when China adheres to international norms, shows its ability to lead an international organization, and changes the global perception of China’s role in the international community. Success in this sense, while difficult, may perhaps be likely as China’s “soft power” is likely to increase with the AIIB’s operations.

As one of the newest international organizations to be formed, it is difficult to tell how to measure the AIIB’s success. Perhaps in a few years, it will be undeniable that the AIIB has succeeded, and it will be a mere truism to decide which measure of success is most apt, but for now, the world can only wonder how this venture will fare.