China Makes It Official, Launches The Bank That Humiliated Washington

In March, China was “handed a propaganda coup” (to use WSJ’s words), when the UK decided, in the face of loud protestations from Washington, to support Beijing’s efforts to launch a new development bank aimed at filling the gaps left by traditional post-war multilateral institutions such as the IMF and the ADB.

The US claims it has concerns about governance and adherence to international norms around corruption and environmental protocol, but as even the most casual observers are well aware, the real concern in Washington (and in Tokyo) is that China will use the bank as an instrument of foreign policy and as a means of embedding the yuan in global investment and trade.

Here's a helpful recap, excerpted from "China's Global Ambitions Take Shape As AIIB Structure Revealed":

The AIIB is funded by 57 founding member countries (the US and Japan have not joined) and will serve to upend traditionally dominant multilateral institutions which have failed to respond to the rising influence and economic clout of their EM membership. This failure has been exemplified of late by Washington’s steadfast refusal to reform the IMF in order to ensure the Fund reflects the economic clout of its members. Although the failure falls largely at the feet of Congress — US lawmakers’ utter inability to legislate has left reform measures stalled — it recently manifested itself at the Presidential level when President Obama had an opportunity to change the structure of the IMF (for the better) without congressional approval but chose not to do so. Importantly, Obama’s decision not to act was not made out of reverence for Congress. Rather, The White House believed that supporting the reform agenda would have jeopardized the US veto, which US officials at all levels view as sacrosanct. 

 

As China builds its own multilateral institutions, Beijing has been keen to dispel the notion that it seeks to supplant the Bretton Woods order with its own brand of Eastern hegemony and although one can certainly question the degree to which China’s aims are rooted purely in an inclination to be benevolent towards nations in need of fixed asset investment, Beijing is making an effort to distance itself from the way the US governs the institutions under its control.

 


Despite the best efforts of The White House, US ally after US ally pledged their support for the China-led effort and four months after the UK opened the flood gates, the new bank has become a reality. WSJ has more:

On Monday, the Asian Infrastructure Investment Bank was launched with representatives from 57 countries gathered in Beijing. The bank came together in less than two years amid strong global interest. 

 

Lou Jiwei, China’s minister of finance, called the launch of the China-backed bank a “win-win for Asia” at the bank’s signing ceremony at Beijing’s Great Hall of the People. Mr. Lou said he thought the bank would start operating toward the end of the year. Of the 57 nations present, 50 signed the agreement

Monday with another seven holding out for potential signing later in the year.

 

Beijing has effective veto power over major decisions via a more than 25% voting share, and some are concerned about how the organization will be managed.

 

In the lead-up to the launch, China has pledged to operate a transparent, socially conscious development bank that helps meet the shortfall in Asian infrastructure funding and works with existing multilateral organizations.

 

China has vowed to bring to the bank some of the speed with which it has gotten work off the ground at home. It has also pledged to decrease the bureaucracy that slows projects at existing multilateral lenders such as the World Bank and the Asian Development Bank.

 

To cut costs and minimize political jockeying, the AIIB will have a nonresident board and focus on technical decision-making, according to founding documents and people close to the bank.

And here's a bit more color from The Washington Post on the signing ceremony:

Underscoring its growing global heft, China launched an infrastructure bank for Asia on Monday, receiving the backing of 50 countries for an initiative that seeks to boost the region’s economy but also put Beijing at the center of its development.

 

Representatives from Britain, Germany, South Korea and Australia were among those who took part in a ceremony to sign the articles of association in the Great Hall of the People, with the United States and Japan the most notable absentees.

 

Many U.S. allies joined the Asian Infrastructure Investment Bank (AIIB) on Monday — despite Washington’s initial objections — in what was seen as a major diplomatic victory for President Xi Jinping.

 

Finance Minister Lou Jiwei said Monday’s ceremony was a milestone and “a first step in an ‘epic journey,’ ” meant to deepen regional cooperation, boost Asia’s infrastructure and support the global economic recovery.

 

Among the other big investors are India, which has a 7.5 percent vote share, and Russia with 5.9 percent, followed by Germany and South Korea. Major decisions require 75 percent agreement, giving China veto power, but this may change if shares are diluted as more countries join.

 

(the Russian delegate signs on the dotted line)

And so, it is now official. China has created and launched a supranational lender aimed directly at supplanting the US-dominated institutions that have defined the global economic order for more than a half century. Despite criticism at home and abroad, the US has largely clung to a strategy that aims to undercut the bank by casting aspersions and claiming the institution has little relevance beyond what is says about Chinese ambition.

As we said earlier this month, "in the AIIB, the US faces a far greater threat to its position in the global economic order than anyone in Washington dares to admit. The smear campaign (that's really the only way to cast it) aimed at painting the new bank as relatively small and meaningful only to the degree that it symbolizes China's global and regional ambitions is profoundly misleading. This is not a pet project for Beijing and the founding members are not pledging hundreds of millions so they can play a part in petty Chinese theatrics. The bank is real. The sooner Washington recognizes and accepts this, the better off it will be in terms of helping to repair the reputational damage the IMF and ADB have suffered as a result of American and Japanese belligerence." 

Aii b Articles of Agreement