Exclusive details: China's plans for a new Asian Infrastructure Investment Bank

Information shared exclusively with Devex reveal new details about China’s ambitious plan to set up an infrastructure investment bank for the Asia-Pacific region by next year, including its structure and upcoming milestones in its creation. The institution, tentatively called the Asian Infrastructure Investment Bank, was first proposed by Chinese President Xi Jinping in October during the Asia-Pacific Economic Cooperation in Bali to help finance infrastructure and other development projects in the region. Because details have been lacking until now, speculation has been rampant about its exact scope and composition as well as how it may align and engage with existing development institutions and investors in the region. Documents seen exclusively by Devex now suggest a starting capital of $50 billion for AIIB — with another option of $100 billion. In both cases, paid-in capital would be roughly $10 billion, with capital increasing by necessity “in due course.” Specific startup contributions were not laid out in the document, which was created by China’s Ministry of Finance. China has already discussed the creation of AIIB with several potential founding members — and even signed a memorandum of understanding with Mongolia (and perhaps others) — as Devex previously reported. Other countries reportedly in talks with China include Singapore and Malaysia. Negotiations with potential founding members are expected to be completed in October. Membership will be “open and inclusive” to “all countries,” according to the document, with all legal requirements expected to be completed before the end of 2015 for AIIB to start operating “at the earliest possible date.” Between 70 percent and 75 percent of the bank’s funding is expected to come from regional members, the rest from non-regional members. The most important factor in determining a regional member’s capital allocation will be the country’s gross domestic product; for non-regional members, it will be based on consultations, the document revealed. AIIB funding will mainly be comprised of loans, equity investments, guarantees, trust funds, grants and concessional funding. Priority will be on infrastructure in the areas of energy and power, transportation and telecommunication, rural infrastructure and agriculture, urban development and logistics. The document suggests, however, that the bank may go beyond that scope — and even its regional focus — when “to meet challenges of the globalized economy.” AIIB will coordinate and collaborate with other multilateral and bilateral development institutions in the region, according to the Chinese finance ministry. Coordination especially with the Asian Development Bank will be key if AIIB wants to operate harmoniously with the Manila-based financial institution. At ADB’s recent annual meeting in Astana, Kazakhstan, President Takehiko Nakao announced his intention to merge two of the bank’s main funds, worth $50 billion — the same amount eyed by China for the planned infrastructure bank. Infrastructure needs in the Asia-Pacific region amount to roughly $800 billion per year, according to ADB — an estimate cited by AIIB’s proponents to justify the need for a new bank, given ADB’s much broader scope. AIIB structure AIIB will be headed by a board of governors as well as a board of directors and a management team led by the president, according to the document seen by Devex, which did not reveal the size or composition of the two boards. AIIB’s governance and operation “shall follow the practice generally accepted by existing MDBs,” the document states. Total voting power for each member will be comprised of basic votes and proportional votes. Chinese leaders want the board of governors to hold “all” powers, including the authority to set membership policies, admit and suspend members, elect the board of directors, approve the general balance sheet and change the authorized capital. The board of directors, under the plan, will have the power to elect the bank’s president, determine salary brackets and approve overall strategy, budget, operational rules and policies. The board of directors, comprised of “non-residential” members, will meet four times per year, according to the document. It will also appoint the head of the bank’s independent evaluation unit and supervise that division. Management, led by the president, will handle the daily operations of the institution, and oversee the work of a credit and investment committee consisting of senior members of the management team and perhaps some “independent experts.” AIIB headquarters will be located within a founding member nation “amenable to the operation of AIIB as agreed by the consensus,” with liaison offices expected to be set up in several member countries, according to the document. Reports suggest that Hong Kong, Singapore or Kuala Lumpur top the list of candidate cities. Some of the next steps in the creation of AIIB include the formation of a multilateral working group after the signing of MOUs between member states. This is to pave the way for the preparation of a technical plan and “articles of agreement” to institutionalize the bank before the end of next year. Establishing the multilateral bank may prove easier than running it. As ADB’s Nakao said during his speech in Astana: “To do a good banking business, there are so many elements needed including finding appropriate projects, lending money and implementing the projects, monitoring and ensuring the payment of the governments.” Join the Devex community and access more in-depth analysis, breaking news and business advice — and a host of other services — on international development, humanitarian aid and global health.