Asian Infrastructure Investment Bank

In October 2013, at the Asia-Pacific Economic Cooperation Summit in Bali, Indonesia, China proposed creating a new multilateral development bank, the Asian Infrastructure Investment Bank (AIIB). As its name suggests, the Bank's stated purpose is to provide financing for infrastructure needs throughout Asia.

The AIIB has also been active in the response to the Coronavirus Disease 2019 (COVID-19) pandemic and is providing up to $20 billion in support to member countries to support their pandemic responses through the end of 2023. Other current strategic priorities are climate finance (50% of AIIB lending by 2025), regional connectivity and mobilizing local private capital.

As the first China-led multilateral development bank (MDB), the AIIB presents several policy issues, including the Bank's governance and operational practices, the U.S. role and possible participation, and the relationship between the AIIB and the existing MDBs. Some observers have also raised concerns about the transparency and governance of China-funded development projects. They argue that the AIIB may undermine decades of effort by the United States to improve governance, environmental, and social standards; these standards have been achieved through 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 highways, railways and other critical infrastructure linking China to the rest of the world. At the same time that China is working to deepen its economic relationships with its neighbors, it has intensified its engagement with the "Bretton Woods Institutions"—the World Bank, International Monetary Fund (IMF) and the regional development banks. China's leaders have stated for many years that the international financial institutions have been too slow in recognizing China's increased stature in the global economy.

President Xi has pursued policies to establish new China-led trade and financial institutions, as well as to further integrate China within the existing international financial institutions. President Xi said that the AIIB would "promote interconnectivity and economic integration in the region" and "cooperate with existing multilateral development banks," including the World Bank and the ADB.

In October 2014, 21 Asian countries met in Beijing, China and signed a Memorandum of Understanding that set out the general principles undergirding the AIIB's creation. China set the deadline for expressing interest in joining the AIIB at the end of March 2015. U.S. officials were caught off-guard when, in early 2015, the United Kingdom, followed by several other European countries, sought membership in the AIIB. By the time the AIIB's Articles of Agreement were signed in December 2015, the Bank had 57 founding members, representing every region except North America. As of January 2023, membership has almost doubled, to 106 members. By contrast, the IMF and the World Bank have 190 member countries.

The Bank has approved a total of $37 billion in new projects as of November 2022, up from $12 billion as of December 2019. India is by far the largest borrower (Figure 1).

Figure 1. AIIB's 5 Largest Borrowers, November 2022 Millions of U.S. Dollars

Source: AIIB.

In recent years, the AIIB has increased its share of standalone projects and decreased the share of loans cofinanced with other MDBs. As of December 2021, 54% of the AIIB projects were cofinanced with other institutions, compared to 67% in June 2018. According to Standard and Poor's analysis, private sector lending is expected to become a larger share of Bank lending, reaching 50% over time.

Membership and Organization

Membership in the AIIB is open to all members of the World Bank or the ADB. Regional members are those located within areas classified as Asia and Oceania by the United Nations. Several European and Asian advanced economies are AIIB members, including France, Germany, Italy, the United Kingdom, Australia, New Zealand, and South Korea. Seventeen of the G-20 members are also AIIB members. Only the United States, Japan, and Mexico are not AIIB members.

The AIIB's total capital is $100 billion, with 20% paid-in and 80% callable capital. As of November 2022, $19.08 billion of the Bank's $20 billion paid-in capital has been subscribed. China is contributing $50 billion, half of the total subscribed capital. India is the second-largest shareholder.

The Bank is based in Beijing, China, and headed by Jin Liqun, China's former vice minister of finance and former chairman of the supervisory board of China's sovereign wealth fund. President Jin was elected to a second five-year term, which started on January 16, 2021. China is the largest shareholder, and its voting power (27%) is substantially greater than the second largest AIIB member, India (8%). This is the largest gap between the top two shareholders at any of the existing MDBs, although the United States has the largest voting share in any single MDB (30% at the Inter-American Development Bank).

For special votes, such as approving membership, selecting the President, increasing the capital stock, and changing the size or composition of the executive board, the AIIB Articles require either a super majority (75% of total voting power with two-thirds of the membership) or a special majority (50% of total voting power with one-half of the membership) of the Board of Governors.

Figure 2. AIIB Total Voting Power, January 2023

Source: AIIB.

The AIIB has a governance structure similar to other MDBs, with two key differences: (1) it does not have a resident board of executive directors that represents member countries' interests on a day-to-day basis; and (2) it gives more decisionmaking authority to regional countries and the largest shareholder, China. Management of most MDB's day-to-day activities (approving loans, establishing policies, and overseeing MDB management) is typically delegated to a resident board of directors, which meets at least once a week. In comparison, the powers delegated to the AIIB's executive board are modest and limited to establishing AIIB policies; supervising AIIB management and operations; and approving strategic, planning, and budget documents.

Issues for Congress

China's Economic Diplomacy

Chinese officials see economic development in Asia as helping to guard against regional instability (e.g., in Afghanistan, Pakistan, and Central Asia) and deepening regional, commercial, and political links to Beijing. China's regional infrastructure financing may also serve to channel China's overcapacity in its manufacturing and construction sectors. China's efforts on behalf of the AIIB also raise questions about China's relationship with the existing MDBs, where it remains a large borrower. Critics question why China still borrows large volumes from the MDBs, often for infrastructure projects, yet believes it has sufficient management expertise to lead a new MDB. To that end, in March 2023, Senator Barrosso and colleagues introduced S. 908, which would require Treasury to oppose any MDB loan to China.

Transparency and Governance Concerns

Several operational aspects of the AIIB raise concerns for some U.S. officials. The Obama and Trump Administrations did not see joining the AIIB as in the U.S. interest. China's large voting power combined with the AIIB's nonresident executive board have led some analysts to question the AIIB's independence from China's leaders. However, since the Bank's founding, its membership has grown to include almost all of the world's countries, it has developed robust operational guidelines and standards, and it maintained AAA ratings from the major rating agencies.

Notwithstanding the AIIB's track record, China, through its infrastructure financing/loans and bilateral aid, has often 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 firms from non-AIIB member countries are considered for bidding on AIIB projects. China's existing loan and project management practices continue to worry some observers.

The impact that AIIB lending may have on setting technological and other standards in the region is another concern. For example, if China uses the AIIB to set up infrastructure for communications, transportation, and energy that uses Chinese equipment or services or to connect more broadly to China's networks, this potentially gives China an ability to develop a commercial foothold in Asia that could disadvantage or exclude U.S. firms.