New Asian infrastructure bank attracts 21 nations

Another sign of growing regional closeness came late last month with the launch of the Asian Infrastructure Investment Bank, a China-driven institution which it hopes will provide a counterbalance to institutions such as the World Bank, International Monetary Fund and Asian Development Bank.

These three institutions are too US, Japanese and European dominated for Chinese tastes, and China, despite being the world's second largest economy, has only limited voting rights in these existing banks.

As a sign of China's growing soft power in the region, 21 Asian nations signed a memorandum of understanding at Beijing's Great Hall of the People. They included fellow BRIC India, as well as poor countries such as Laos and rich states such as Singapore and Qatar.

Noticeably absent were US allies Japan, Australia and, despite the growing trade closeness, South Korea.

The new lender will bankroll the building of roads, railways, power plants and telecoms networks around the region. China will be the biggest stakeholder in the AIIB with a 50 per cent share, and has said it will provide most, even all, of the initial $50 billion (€39.26 billion) in capital.

This is small compared to other institutions – the World Bank’s capital is about $220 billion, while the Asian Development Bank has $175 billion capital, but is still a significant amount.

"In China we have a folk saying. If you would like to get rich, build roads first, and I believe that is a very vivid description of the very importance of infrastructure to economic development," president Xi Jinping told participants after the signing ceremony.

While the bank is well funded, and offers a more transparent way into development projects financed directly by China, there are fears that lending standards will not be tough enough.

Even though the lender is seen as a counterbalance to existing institutions, the Chinese are keen to show that it will follow the best practices set out by them.

“For the AIIB, its operation needs to follow multilateral rules and procedures,” Xi said. “We have also to learn from the World Bank and the Asian Development Bank and other existing multilateral development institutions in their good practices and useful experiences.”

Korea is keeping its options open as to whether it joins or not. Its finance ministry has been in consultations with China over details such as the AIIB’s governance and operational principles.

“We have continued to demand rationality in areas such as governance and safeguard issues, and there’s no reason [for Korea] not to join it,” South Korean finance minister Choi Kyung-hwan said in Beijing last month.