Commonly perceived as a rival to Western-led multinational institutions the AIIB is actually designed to spearhead China's 'Belt and Road' initiative, a flagship strategy shaping China's own economic transformation including capital account liberalisation, free-trade zones and state-owned enterprise (SOE) reforms.
" This change will help transform China into a net exporter of capital."
Li-Gang Liu, Chief Economist, Greater China
As a net exporter for years, China was previously only a net earner of foreign exchange. As the major shareholder of the AIIB, China gains more confidence to deploy its huge reserves in the offshore market.
This change will help transform China into a net exporter of capital and in turn address the lingering issue of global imbalance.
China has demonstrated non-exclusivity in the AIIB establishment process. The bank's articles of agreement clearly state the AIIB will place no restrictions upon goods and services from any country.
While the US attempts to secure its geo-economic power in Asia through accelerating the formation of the Trans-Pacific Partnership (TPP), there is little reason for it to remain sceptical and critical to the rising voice of China in global economic affairs.
The AIIB will also benefit the regional debt capital market. It will raise funds primarily through bond issuance and the inter-bank market transactions. We estimate the AIIB may extend total loans of up to $US175 billion. If it follows the practice of the Asian Development Bank (ADB), its capital market activities could be $US10 billion a year.
The successful launch of the AOA is the first step for China to play a leadership role in a multilateral organisation. China has also gained significant credit in pushing through this international organisation in such a fast pace.
President Xi Jinping and Premier Li Keqiang proposed the idea in October 2013 and the MOU was signed by 22 Asian countries in only October 2014. Even that suggests the AIIB will likely be a very efficient organisation.
CHINA'S OWN REFORM STRATEGY DRIVES THE AIIB