The AIIB will have the same size of authorised capital ($US100 billion) as the proposed BRICS Development Bank of which China is also a founding member. In addition, China has set up the $US40 billion Silk Road Foundation to fund connectivity infrastructure projects around the Silk Road Economic Belt. These institutions could theoretically rival the World Bank, at least in size.
Although China may subscribe 50 per cent of the $US100bn capital roughly based on its economic size relative to that of other founding members, it is willing to dilute the shares it holds over time to accommodate new entries.
Emerging Asia accounts for almost half of the world’s infrastructure investment, indicating a major geographical shift of infrastructure spending from the West to East in the foreseeable future.
To satisfy this need and also to better deploy China’s huge foreign exchange reserves, China has clearly stated it sees the role of the AIIB as providing financing for infrastructure needs in Asia.
This will allow large commercial interests to compete for many potential projects in the Asian Pacific region as they have done in many such infrastructure programs with the World Bank and ADB. Given the potential loans to be extended, the infrastructure related business could be as large as $US30 billion.
As more developed countries join the AIIB, firms in member countries can bid for these projects. Without the participation of developed countries, it is very likely that many such projects could fall into the hands of Chinese firms.
Despite the intrusion of the AIIB, it is unlikely to be a rival to institutions like the World Bank, because of the size and status of the established global players.
Indeed, the AIIB will complement existing institutions and it is hoped, with increased competition in development financing business, China could share its successful experiences in developing infrastructure. If done right, the rise of the AIIB could offer a new approach for Asia’s infrastructure financing.
Li-Gang Liu is ANZ ‘s Chief Economist, Greater China