Chinese President Xi Jinping launches the Asian Infrastructure Investment Bank at a ceremony in Beijing on January 16 (XINHUA)

From an idea on paper to a fully fledged body, the Asian Infrastructure Investment Bank (AIIB) was finally unveiled after two years of preparation.

On January 16, representatives from 57 countries as founding members of the AIIB gathered in Beijing for the bank's inauguration.

"Now is a moment that will be recorded in history," Chinese President Xi Jinping said at the inauguration ceremony. "The founding and opening of the AIIB will effectively boost investment to support infrastructure development in Asia."

Delegates, including Chairman Lou Jiwei (fourth left, back row) of the AIIB Board of Governors and AIIB President Jin Liqun (third left, back row), cut the ribbon for the opening of the headquarters building of the AIIB in Beijing on January 17 (XINHUA)

From 21 to 57

The idea of the bank was first raised by Xi during a visit to Indonesia in October 2013.

One year later, on October 24, 2014, representatives of 21 Asian countries that were willing to join the AIIB as founding members signed a memorandum of understanding (MoU) on establishing the AIIB in Beijing. The MoU specified that the authorized capital of the AIIB is $100 billion, and that the initial subscribed capital is expected to be around $50 billion. In March 2015, the United Kingdom declared its interest in becoming a founding member of the AIIB as the first Western country applying, which was shortly followed by 17 other European countries including France, Germany and Italy.

In April 2015, 57 countries were confirmed to have joined or applied to join the AIIB as prospective founding members. These 57 countries are from Asia, Europe, Africa, Oceania and South America, including four countries from the G7 and 14 from the G20.

Chinese Premier Li Keqiang elaborated on his vision for the new multilateral development bank at the inaugural meeting of the AIIB Board of Governors. "It is important for the AIIB to follow the trend of economic globalization and regional integration and meet the needs of developing members for industrialization and urbanization," he noted.

"The popularity of the AIIB stems from its win-win nature as the bank serves to enhance connectivity among Asian countries by supporting infrastructure development. A prosperous Asia will offer huge markets for global enterprises, which are hungry for business opportunities, and will boost international economic growth," Jin Liqun, President of the AIIB, told Xinhua News Agency in December 2015.

Jin said that the process of establishing the AIIB was also about developing gradual understanding and support of the international community toward the China-backed proposal.

Jin knows the matter well. The veteran of finance used to serve as vice minister of finance of China, and was the vice president of the Asian Development Bank and chairman of the Board of Supervisors for China's sovereign wealth fund, the China Investment Corp.

In 2014, at the age of 65, he was appointed secretary general of the Multilateral Interim Secretariat of the AIIB, which was responsible for executing technical preparations and providing professional support and services for the eight rounds of meetings of chief negotiators of the bank's prospective founding members. These meetings, running from November 2014 through November 2015, finalized the AIIB's Articles of Agreement (AOA), which outline the financial share of each founding member as well as rules for policymaking, governance structure and business and operational systems of the bank, and reached agreement on other issues related to its establishment.

On January 17, Jin was elected as the AIIB's first president.

"China received much support from multilateral financial institutions and aid during the past three decades. The world's second largest economy is now sharing the responsibility and doing something for the rest of the world, hence the establishment of the AIIB," Jin said.

How it works

With an authorized capital of $100 billion, the AIIB will invest in infrastructure, energy, transportation, urban construction, water supply and logistics as well as education and healthcare.

Member countries have to inject a required sum of capital in five batches starting from 30 days after the AIIB's AOA take effect, until the end of 2017.

Based on the GDP volume and capital contribution, China holds the highest voting stake among all members. As new members join, all founding members' shares and voting stakes will be "gradually diluted."

The AIIB has a clear three-tier structure--a board of governors, a board of directors and a management team, which will carry out their duties accordingly.

Thirty of the 57 prospective founding members, representing over 74 percent of the shares, have ratified the AIIB's AOA, thus becoming its full members, Jin told reporters at a press conference in Beijing on January 17. The remaining prospective founding members will have completed their membership processes by the end of this year, he explained.

According to Jin, the AIIB plans to bring the first loans for approval before the end of the year.

In his interview with Xinhua last December, Jin said that profit maximization will not be the AIIB's goal due to its multilateral financial institution status, but the bank's investment projects have to be profitable to ensure financial sustainability. In terms of the energy sector, he said that the bank will take account of Asia's rising energy demands and the battle against climate change when deciding if it will finance coal-fired and nuclear power projects.

Jin also pledged zero tolerance on corruption. "We will make the bank lean, clean and green," he said, adding that there will be a unit responsible for "compliance, effectiveness and integrity," which will report directly to the Board of Directors.

Wide recognition

"The AIIB is bound to play a positive role in promoting global economic growth," said Chen Gang, a senior research fellow with the East Asia Institute at the National University of Singapore. "Established mainly by Western powers, the existing financial system has set a lot of limits on developing countries. The gap can be filled by the AIIB."

He believes China's growing national strength will boost the development bank's financial capability, which will be conducive to all countries, particularly developing ones.

Ibrahim Yusuf, Executive Director of the Indonesia Council on World Affairs, echoed Chen in regards to the functions that the AIIB plays. "The new multilateral mechanism is a supplement and contribution to the existing global financial governance framework," Yusuf said.

Treasury Secretary of New Zealand Gabriel Makhlouf thanked the Chinese Government for its role in establishing a "significant new addition to the world's international financial architecture."

"The economic potential of Asia is unmatched, and realizing that potential, with the help of the AIIB, will support better economic performance in New Zealand," said Makhlouf.

Business publication Exame in Brazil, the only Latin American country among the AIIB's 57 founding members, focused on the benefits that the AIIB would bring to developing countries, particularly China's pledge to create a $50-million special fund to support infrastructure project preparations for the less developed among AIIB members.

In the eyes of British Foreign Secretary Philip Hammond, the AIIB allows his country "to support Asia's economic development and to share our experience of international financial institution regulation in developing the governance model for the AIIB."

AIIB Membership

Membership in the Asian Infrastructure Investment Bank (AIIB) is open to members of the International Bank for Reconstruction and Development as well as the Asian Development Bank. The Board of Governors of the bank is responsible for decisions on new members.

Regional members are those located within areas classified as Asia and Oceania by the UN, except as otherwise decided by the Board of Governors.

Fifty-seven prospective founding members (PFMs) are listed in Schedule A of the AIIB's Articles of Agreement (AOA): Australia, Austria, Azerbaijan, Bangladesh, Brazil, Brunei Darussalam, Cambodia, China, Denmark, Egypt, Finland, France, Georgia, Germany, Iceland, India, Indonesia, Iran, Israel, Italy, Jordan, Kazakhstan, Kuwait, Kyrgyz Republic, Lao PDR, Luxembourg, Malaysia, Maldives, Malta, Mongolia, Myanmar, Nepal, the Netherlands, New Zealand, Norway, Oman, Pakistan, the Philippines, Poland, Portugal, Qatar, Russia, Saudi Arabia, Singapore, South Africa, South Korea, Spain, Sri Lanka, Sweden, Switzerland, Tajikistan, Thailand, Turkey, the United Arab Emirates, the United Kingdom, Uzbekistan and Viet Nam.

Founding members of the AIIB will be those PFMs that signed the AOA before December 31, 2015 and fulfill all other conditions of membership--deposit of the instrument of ratification, and acceptance or approval and payment of the initial subscription--before December 31, 2016 or if necessary, until such later date as may be decided by the Board of Governors. Members are listed as regional and non-regional in Schedule A of the AOA.

After the AIIB is formally established, others may apply for AIIB membership. The process for the admission of new (non-founding) members will be finalized after the Board of Governors is in place.

(Source:www.aiib.org )  

AIIB Chronology

January 16-18, 2016: The AIIB's inauguration ceremony and inaugural meetings of the bank's Board of Governors and Board of Directors were held in Beijing.

December 25, 2015: The AIIB was formally established in Beijing after its Articles of Agreement (AOA) came into effect.

November 4, 2015: The Standing Committee of the National People's Congress, China's top legislature, ratified the AIIB's AOA.

November 3-4, 2015: The eighth Chief Negotiators Meeting (CNM) on the establishment of the AIIB was convened in Jakarta, Indonesia, where attendees discussed the draft AIIB 2016 Business Plan and Budget, the draft Public Information Interim Policy, the draft Environmental and Social Framework, and preparations for establishing the bank. The CNM was established by the bank's prospective founding members (PFMs) as the forum to negotiate and agree on the AOA and other issues.

September 28-29, 2015: The seventh CNM took place in Frankfurt, Germany. Attendees reached broad agreement on moving forward with the AIIB's key operational, financial, corporate procurement, environmental and social framework and HR policies.

August 24-25, 2015: The sixth CNM in Tbilisi, Georgia, approved an interim start-up budget for the AIIB and discussed the draft Bank By-Laws and Rules of Procedure for the Boards of Governors and Directors. Jin Liqun from China was selected as the bank's president-designate by consensus at the meeting.

June 29, 2015: Representatives from 50 PFMs signed the AIIB's AOA in Beijing, giving the remaining seven PFMs the option to sign the articles by the end of 2015.

May 20-22, 2015: The final text of the AOA was adopted at the fifth CNM in Singapore.

April 27-28, 2015: The fourth CNM was held in Beijing to discuss a revised version of the draft AOA.

April 15, 2015: China announced that 57 countries from Asia, Oceania, Europe, South America and Africa had joined or applied to join the AIIB as PFMs before the deadline for submission of membership applications on March 31.

March 30-31, 2015: Deliberations on the draft AOA continued at the third CNM in Almaty, Kazakhstan.

January 15-16, 2015: The second CNM was held in Mumbai, India, and launched discussions on the draft AOA.

November 28, 2014: The first CNM was held in Kunming, China.

October 24, 2014: Twenty-one Asian countries signed a memorandum of understanding in Beijing on establishing the AIIB. The countries are: Bangladesh, Brunei, Cambodia, China, India, Kazakhstan, Kuwait, Laos, Malaysia, Mongolia, Myanmar, Nepal, Oman, Pakistan, the Philippines, Qatar, Singapore, Sri Lanka, Thailand, Uzbekistan and Viet Nam.

November 2013: Bilateral and multilateral discussions and consultations commenced on core principles and key elements for establishing the AIIB. In the first nine months of 2014, five rounds of multilateral talks were held and a consensus was reached on all key elements, such as the bank's purpose, membership, capital subscription, voting powers and decision-making structures.

October 2, 2013: Chinese President Xi Jinping proposed the AIIB as an institution to finance infrastructure construction and promote regional connections and economic integration in Jakarta, Indonesia.

(Compiled by Beijing Review )

Copyedited by Bryan Michael Galvan

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