The evolution of China’s Asian Infrastructure Investment Bank: from a revisionist to status-seeking agenda

The evolution of China’s Asian Infrastructure Investment Bank: from a revisionist to... Abstract China’s Asian Infrastructure Investment Bank (AIIB) is a controversial addition to both the global and Asian economic architectures. Western critics have alleged it is a vehicle designed to achieve China’s geostrategic goals, while scholars have argued it marks China’s adoption of a ‘revisionist’ foreign policy strategy. This article argues that such interpretations are incorrect, as they fail to account for the evolution of China’s AIIB agenda. To secure a broad membership and international legitimacy for the AIIB, China compromised with partners during governance negotiations in 2015. Western country demands saw several controversial initial proposals dropped, the governance practices of existing multilateral development banks were adopted, and cooperative partnerships were developed with the World Bank and Asian Development Bank. This transition from a revisionist to status-seeking AIIB agenda reveals the flexibility of Chinese economic statecraft, and its willingness to compromise strategic goals to boost the legitimacy of its international leadership claims. 1 Introduction The Asian Infrastructure Investment Bank (AIIB) is a landmark development in global economic governance. Proposed by the Chinese government in 2013, and commencing operations less than three years later, it has quickly become a significant intergovernmental economic institution. Its core mission is to help close the region’s many ‘infrastructure gaps’, by providing a specialized body to concentrate, expertise, and channel capital to transport, energy, urban, and utility projects. It has quickly attracted broad-based support, now counting 70 members from Asia, the Middle East, and Europe. It currently ranks as the world’s fourth largest multilateral development bank (MDB) by capital subscriptions, with $100 billion committed by its members. It is the most significant multilateral institution established in the Asian region since the East Asia Summit of 2005. It is also the first international economic organization conceived, initiated, and led by China, marking the country’s maturation from an institution-follower to institution-builder. The AIIB has also proven very controversial. Critics have alleged it is not simply an infrastructure bank, but rather a vehicle for the realization of the Chinese government’s strategic ambitions. Chinese leadership of the AIIB has led to fears that its loan activities will be tied to geoeconomic agendas, such as its ‘Belt and Road Initiative’ (BRI) designed to foster regional interconnectivity between China and Asian economies. Others have suggested it is a Chinese attempt to undermine the status of existing MDBs – particularly the World Bank and Asian Development Bank (ADB) – and will dilute their efforts to promote transparency and social and environmental standards in development financing. The Chinese government and AIIB leadership have strenuously denied these criticisms, claiming there are no nefarious agendas behind the initiative. However, the Japanese government has cited these concerns when declining invitations to join the bank; while the US lobbied allies in Asia to not participate during membership negotiations in 2015. Despite commencing operations in January 2016, these controversies over the Chinese AIIB agenda have persisted, and today stand as the main challenge for the perceived international legitimacy of the bank. The AIIB has thus become the most recent front in a long-running debate over Chinese foreign policy: As it re-emerges as a global leader, will China behave as a ‘revisionist’ or ‘status quo’ power? While international relations literature often only defines these concepts implicitly,1 they are used to capture the extent to which a state is content with the prevailing international order: both the formal and informal institutions which govern relationships between states, and their status within these institutions (Buzan, 2010). While status quo powers are happy with existing patterns of international order, revisionist powers seek to overturn either the institutions and/or seek a more privileged position within them. On one side of this debate, realists have argued that as China’s relative share of material capabilities rise, it will seek to revise the institutions of global governance to reflect its increasing prominence. It is expected to do this either by developing new international institutions that better serve geostrategic objectives, or seeking wholesale reform within existing ones. On the contrary, liberal-influenced analyses suggest that existing institutions have served Chinese interests well, and that the country’s leaders are comfortable with – and potentially socialized into – contemporary practices of international order. Though minor accommodations may be demanded, China will largely seek to preserve and augment the institutional status quo.2 Revisionist and status quo behavior should be conceptualized not as binary categories but as ideal types. First, they bound a spectrum of potential behaviors with intermediate forms existing between the poles. As Ikenberry and Lim (2017) have suggested, these can include strategies of authority-seeking, obstruction, and external innovation, which are neither pure acceptance of or opposition to existing institutions. Second, a state may express different behaviors across policy domains, mixing revisionism in some areas with a status quo orientation in others. In China’s case, Chin and Thakur (2010) have shown how an acceptance of existing norms and institutions in some areas (particularly multilateral diplomacy) co-exists with more activist attempts to revise others (especially in the economic sphere). Third, as states have multiple foreign policy objectives which map onto different behaviors, this necessitates internal choices over strategy and prioritization. Breslin (2013) suggests that tensions between China’s positions – as a developing country, an emerging power, a P-5 member and peer-competitor to the US – has resulted in ‘conflicting signals and demands’ over what it wants from global governance. These considerations caution against attempts to singularly classify China as a revisionist or status quo power. Instead, these concepts should be used as ideal types which illuminate the competing imperatives behind Chinese foreign policy. The AIIB has reinvigorated debates over Chinese foreign policy intentions. For many years, most analysts have rejected the suggestion that Chinese foreign policy is outwardly revisionist in intent or outcome, typically locating it toward the status quo end of the spectrum (albeit with some reform ambitions) (Johnston, 2003; Huiyun, 2009; Breslin, 2010; Qin, 2010). However, the creation of the AIIB in 2013 has been cited by many as the first and most prominent shift in Chinese foreign policy toward deliberately revisionist strategies, at least in the economic sphere. Ba (2014), Kawai (2015), and Ren (2016) claim the AIIB marks a move away from Deng Xiaoping’s long-standing strategy of ‘keeping a low profile’, to an activist posture which seeks a leadership rather than followership role. Sun (2015), Yu (2016), and Beeson and Li (2016) identify it with a period of dramatic foreign economic policy activism under the Xi Administration, where China is for the first time attempting to build new institutions that will allow it greater influence in the global economy. Etzioni (2016), Harpaz (2016), and Tang (2015) have described it as a deliberate challenge to the US-led Bretton Woods system, designed to break the monopoly of western governments over the international financial system. Writing in the Washington Post, Lawrence Summers (2015) ominously warned: This past month may be remembered as the moment the US lost its role as the underwriter of the global economic system … . I can think of no event since Bretton Woods comparable to the combination of China’s effort to establish a major new institution and the failure of the US to persuade dozens of its traditional allies, starting with Britain, to stay out.Does this conventional wisdom – that China’s AIIB initiative is revisionist attempt to recreate global economic governance – stand up to scrutiny? This article argues that the controversy over the AIIB, and broader claims regarding China’s revisionist intentions, fail to account for how the institution has evolved. As first proposed in 2013, the AIIB was very much a revisionist initiative, designed to foster change in the international financial system and advance Chinese geoeconomic interests. But as its membership expanded in 2015, a new opportunity was presented to its Chinese architects: to secure broad-based legitimacy for the bank by accommodating the interests of developed western economies. This required compromise in how the AIIB was to be designed, particularly in terms of decision-making procedures and loan policies. Chinese negotiators ultimately agreed to these demands, withdrawing many of the more controversial proposals in favor of a governance model that closely conformed to that in other MDBs. These compromises saw China shift from a revisionist to a status-seeking agenda, in which the perceived legitimacy of the bank instead became of paramount importance. This produced a ‘dual movement’ in China’s AIIB strategy: as membership and legitimacy ambitions expanded, its attempts to insert revisionist governance practices were progressively moderated. The bank which emerged from these compromises is far less threatening to the existing patterns of global economic governance than its critics have claimed. Today, the AIIB is a radically different institution from that which China initially pitched in 2013. It is now a broad-based multilateral institution with a diverse range of developed and developing country members. It has transparent governance arrangements which formally vest control with the entire membership, and has adopted policies consistent with international best practices for development financing. It has thus far worked as a collaborator rather than competitor with the existing MDBs, developing close working relationships with the World Bank and ADB. While the AIIB offers the world’s first infrastructure-dedicated MDB, and injects $100 billion of capital into Asian infrastructure financing, it does little to ‘revise’ the existing rules and practices for development financing. This transition also reveals the flexibility of Chinese economic statecraft, and its willingness to compromise with partners to boost its claims to leadership status in the global economy. 2 The AIIB initiative: China’s first foray into economic institution-building The AIIB is a decidedly Chinese project. It was first publicly announced by President Xi Jinping in a speech to the Indonesian Parliament, made on his first foreign tour in October 2013 (Xi, 2013). Premier Li Keqiang also publicly articulated the initiative during an address to the Boao Forum in April 2014 (Li, 2014). The AIIB was presented as a type of ‘win-win’ cooperation which would improve economic connectivity between China and Southeast Asia. Noting that infrastructure links are a key pre-condition for economic integration, the AIIB’s purpose was to upgrade the road, rail, air, and maritime transport linkages within the region. It was only one component of a three-part Chinese proposal to strengthen Asian economic integration, the others being the BRI, and a commitment to upgrade the ASEAN–China free trade agreement (FTA). ASEAN – rather than ‘Asia’ more broadly conceived – was the primary audience at the time. As Xi Jinping remarked: ‘China is committed to greater connectivity with ASEAN countries… [and] will propose the establishment of an Asian infrastructure investment bank that would give priority to ASEAN countries’ needs’ (Xi, 2013). However, China’s ambitions for the AIIB changed as the institution began to take form. Diplomatic negotiations with prospective members bore fruit one year later, when a Memorandum of Understanding (MoU) on establishing the AIIB was signed in October 2014 (Xinhua, 2014b). This established an interim secretariat which was headed by Jin Liqun, a Chinese official with extensive experience in international banking.3 The initial MoU signatories were a group of 20 ‘recipient’ economies from across South, Southeast, and West Asia, who were attracted by the prospect of securing infrastructure financing (Chin, 2016). But in the early months of 2015, Chinese diplomats made strenuous efforts to secure a wider range of major economies from both in and out of Asia. As the 31 March deadline for membership applications approached, a rapid influx of ‘donor’ participants – including the UK, Germany, Australia, Korea, and Saudi Arabia – joined. The AIIB commenced operations and held its first Board of Governors meeting on 16 January 2016, which elected Jin Liqun as its inaugural President. What was initially billed as an ASEAN-focussed initiative had in 18 months grown to become a significant addition to the global economic architecture. Per the Articles of Agreement (2015), the AIIB is an MDB dedicated solely to financing infrastructure and infrastructure-related projects in or between its member states. Membership is open to all current World Bank or ADB members. It has an authorized capital stock of $100 billion, of which 20% is paid-in with the remainder at call. It has a tripartite governance structure consisting of a Board of Governors (representing the member states), a 12-person Board of Directors (to whom policy and investment decisions are delegated), and a management team with responsibility for day-to-day operations. It will engage in direct loans, equity investments, loan guarantees, and technical assistance to infrastructure projects as approved by the Board of Directors; or any other activity approved by the Board of Governors. Ordinary loan decisions require a simple majority of Directors, while governance matters4 require a three-quarter ‘super-majority’ vote. These governance arrangements are almost identical to those of the World Bank and ADB. The principal differences are that: (i) the AIIB will solely finance infrastructure projects; and (ii) it has a non-resident Board of Directors, which will only meet periodically as business needs require (Kawai, 2015). The AIIB is a significant contribution to both the global and regional economic architectures. It is the first MDB established for many years: of the five major MDBs in existence, all but the EBRD were established in the mid-20th century (Table 1). It is very large, with its $100 billion of subscribed capital immediately making it of a similar size to the established regional MDBs. It is also experimental, as it is the only MDB to functionally specialize in infrastructure, and not include broader developmental objectives (such as sustainable development or poverty reduction) in its mandate. In regional terms, it is the first economic body established in Asia since the East Asia Summit was convened in 2005, and the first financial organization since the foundation of the ADB in 1966. Significantly, it is also the first time the Chinese government has proposed, led the negotiations for, and subsequently secured the presidency and headquarters of, a formal multilateral organisation of any kind. The establishment of the AIIB not only reflects a rapid and successful learning process for Chinese diplomats, but also the country’s emergence as an institution-builder in global governance (Chin, 2016; Ren, 2016). Table 1 Key features of five major MDBs and AIIB (2017)   World Bank  EBRD  AfDB  ADB  IADB  AIIB  Year founded  1944  1991  1964  1966  1959  2016  Capital subscriptions  $263 billion  €445 million  $92.1 billion  $147 billion  $157 billion  $100 billion  Largest shareholder (%)  US (17.4)  US (10)  Nigeria (8.9)  Japan (12.8)  US (30)  China (28.8)  Other major shareholders  Japan, Germany, France, UK, China  France, Germany, Italy, Japan, UK  US, Egypt, Japan  US, China, India, Australia  Argentina, Brazil, Mexico, Japan  India, Russia, Germany  Members  189  68  80  67  48  70  Special group shareholdings  42% developing  14% transition  60% regional  65% regional  50% regional  75% regional  Board of Directors  Resident  Resident  Resident  Resident  Resident  Non-resident  Main goals  Economic development, poverty reduction  Economic development, market economies  Economic development, poverty reduction  Economic development, poverty reduction  Economic development, regional integration  Infrastructure and interconnectivity    World Bank  EBRD  AfDB  ADB  IADB  AIIB  Year founded  1944  1991  1964  1966  1959  2016  Capital subscriptions  $263 billion  €445 million  $92.1 billion  $147 billion  $157 billion  $100 billion  Largest shareholder (%)  US (17.4)  US (10)  Nigeria (8.9)  Japan (12.8)  US (30)  China (28.8)  Other major shareholders  Japan, Germany, France, UK, China  France, Germany, Italy, Japan, UK  US, Egypt, Japan  US, China, India, Australia  Argentina, Brazil, Mexico, Japan  India, Russia, Germany  Members  189  68  80  67  48  70  Special group shareholdings  42% developing  14% transition  60% regional  65% regional  50% regional  75% regional  Board of Directors  Resident  Resident  Resident  Resident  Resident  Non-resident  Main goals  Economic development, poverty reduction  Economic development, market economies  Economic development, poverty reduction  Economic development, poverty reduction  Economic development, regional integration  Infrastructure and interconnectivity  Source: Author’s adaptation from Kawai (2015, Table 1) and MDB websites. EBRD European Bank for Reconstruction and Development; AfDB African Development Bank; ADB Asian Development Bank; IADB Inter-American Development Bank. Table 1 Key features of five major MDBs and AIIB (2017)   World Bank  EBRD  AfDB  ADB  IADB  AIIB  Year founded  1944  1991  1964  1966  1959  2016  Capital subscriptions  $263 billion  €445 million  $92.1 billion  $147 billion  $157 billion  $100 billion  Largest shareholder (%)  US (17.4)  US (10)  Nigeria (8.9)  Japan (12.8)  US (30)  China (28.8)  Other major shareholders  Japan, Germany, France, UK, China  France, Germany, Italy, Japan, UK  US, Egypt, Japan  US, China, India, Australia  Argentina, Brazil, Mexico, Japan  India, Russia, Germany  Members  189  68  80  67  48  70  Special group shareholdings  42% developing  14% transition  60% regional  65% regional  50% regional  75% regional  Board of Directors  Resident  Resident  Resident  Resident  Resident  Non-resident  Main goals  Economic development, poverty reduction  Economic development, market economies  Economic development, poverty reduction  Economic development, poverty reduction  Economic development, regional integration  Infrastructure and interconnectivity    World Bank  EBRD  AfDB  ADB  IADB  AIIB  Year founded  1944  1991  1964  1966  1959  2016  Capital subscriptions  $263 billion  €445 million  $92.1 billion  $147 billion  $157 billion  $100 billion  Largest shareholder (%)  US (17.4)  US (10)  Nigeria (8.9)  Japan (12.8)  US (30)  China (28.8)  Other major shareholders  Japan, Germany, France, UK, China  France, Germany, Italy, Japan, UK  US, Egypt, Japan  US, China, India, Australia  Argentina, Brazil, Mexico, Japan  India, Russia, Germany  Members  189  68  80  67  48  70  Special group shareholdings  42% developing  14% transition  60% regional  65% regional  50% regional  75% regional  Board of Directors  Resident  Resident  Resident  Resident  Resident  Non-resident  Main goals  Economic development, poverty reduction  Economic development, market economies  Economic development, poverty reduction  Economic development, poverty reduction  Economic development, regional integration  Infrastructure and interconnectivity  Source: Author’s adaptation from Kawai (2015, Table 1) and MDB websites. EBRD European Bank for Reconstruction and Development; AfDB African Development Bank; ADB Asian Development Bank; IADB Inter-American Development Bank. One noteworthy feature is the so-called ‘regional character’ of the AIIB. Members are formally organized into two groups: regional5 and non-regional members. Rules deliberately vest the regional members with control of key bank decisions. A minimum of 75 percent of the capital stock must be held by regional members, and nine of the twelve Director positions are also reserved for delegates from these states. While most MDBs reserve a portion of their voting stock for special groups of members, in the AIIB this reservation is set at a higher 75% level (Table 1). As governance decisions required a 75% super-majority vote, this reservation rule creates a system of asymmetric veto powers. If regional members vote as a bloc they can always carry a governance decision, while non-regional members are unable to collectively exercise vetoes. The purpose of these voting rules is to ensure the bank remains ‘led’ by its Asian members. Additionally, China currently holds 33% of the capital and 29% of the voting stock. This gives China an informal veto over super-majority governance decisions – a veto power which no other member presently enjoys. 3 What does China really want? The controversy over the AIIB agenda What was the purpose behind China’s creation of the AIIB? There is certainly a huge and unmet demand for infrastructure financing in Asia. Attention was first drawn to the regional ‘infrastructure gap’ by the ADB’s Infrastructure for a Seamless Asia report of 2009. This identified a number of barriers to infrastructure investment – principally, a lack of mechanisms to mobilize private finance for long-term and risky infrastructure projects – and estimated that $750 billion would be required per year to close these gaps (ADB, 2009). A recently revised set of estimates has doubled the annual figure to $1.5 trillion (ADB, 2017a). However, the global economy already has a large number of MDBs,6 all of which dedicate a significant share of their loan activities to infrastructure projects. The ADB considers infrastructure its number one investment priority, and during 2010–15 committed 63% of its loans to infrastructure projects.7 As The Economist (2015) has noted, if the Chinese government wanted to support regional infrastructure, a quicker and less controversial approach would have been to simply increase its capital subscription to the ADB. Why choose the more difficult path of establishing a new MDB from scratch? The official Chinese answer is that the existing MDBs are not up to the task, and a new specialized body is required. Two critiques have been made. The first is that the existing MDBs are too slow in decision-making, due to bureaucratic governance practices that make it difficult to mobilize complex infrastructure projects (Bloomberg, 2015). The second is that other MDBs do not specialize in infrastructure, instead focusing on other developmental agendas (particularly poverty reduction) which impose obstacles to infrastructure projects (Xinhua, 2015a). For example, the Chinese Ministry of Foreign Affairs has argued ‘[The AIIB] will learn from the good practices of other multilateral development banks and avoid taking detours that these banks have made, so as to cut costs and increase efficiency’ (WSJ, 2015d). The absence of a resident Board of Directors is cited as one of the AIIB’s main governance innovations. Jin Liqun has argued that this will enable the bank to concentrate expertise in infrastructure financing, and empower the management team to make faster operational decisions than other MDBs (FT, 2015). This philosophy is embodied in the mantra that the AIIB will be a ‘lean, clean and green’ institution (Reuters, 2015b). However, not all observers are convinced by the official Chinese narrative. Skeptics have argued a range of broader – and potentially revisionist – motives underlie China’s AIIB agenda. These revisionist interpretations start from the observation that the creation of the AIIB is also a challenge to existing patterns of global economic governance. By establishing a new MDB which is controlled by China and developing country governments in Asia, it is argued the AIIB challenges the pre-eminent role of the Washington-centric Bretton Woods institutions (Harpaz, 2016). In conjunction with the closely related BRI project, it also reflects a Chinese attempt to revise the global and regional architectures in ways that properly reflect its newfound political and economic status (Sun, 2015; Beeson and Li, 2016). What unites these revisionist interpretations is the suggestion that a range of strategic objectives, beyond the supply of infrastructure financing, were also behind China’s decision to launch the AIIB. Some have argued the AIIB is part of a Chinese revisionist push for international financial institution (IFI) reform. As its weight in the global economy has grown in recent years, China has pushed for reforms which would give developing countries greater say in IFI governance. However, these initiatives have repeatedly been blocked by western countries, particularly the loan practices of the World Bank (Etzioni, 2016), and US vetoes of IMF voting quota adjustments (Wade and Vestergaard, 2015). Having failed to achieve IFI reform through ‘voice’ strategies, it is argued that China has turned to ‘exit’ instead: creating a new institution which embodies its desired governance practices and within which western countries do not hold veto powers (Reisen, 2015). Lawrence Summers has gone as far to suggest that the AIIB was a direct response to the US Congress rejecting a 2010 IMF agreement to recalculate voting quotas, which would have greatly increased China’s share (Caixin, 2015). Even Chinese officials have publicly connected the AIIB to broader IFI reform efforts. For example, Finance Minister Lou Jiwei explained that the AIIB would reflect developing country interests, and would therefore eschew some of the rules which western countries had insisted upon in other MDBs (Bloomberg, 2015). A more mundane suggestion is that China wishes to use the AIIB to export its spare industrial capacity. The Chinese economy presently has major overcapacity in many of its heavy industries – particularly the steel, energy, and construction sectors – which the government has identified as its top economic policy priority (China Daily, 2016). As much of this could be put to use in infrastructure projects, several analysts have argued the AIIB is in part designed to create business for Chinse heavy industrial sectors (Kawai, 2015; Sun, 2015). In early 2015, there were also reports that the Chinese government wanted the AIIB to issue RMB- rather than USD-denominated loans, to advance its agenda of internationalizing the RMB (SCMP, 2015). This has raised concerns about the transparency and commercial orientation of the AIIB, particularly given China’s control of management. If the Chinese government uses this to ensure that construction contracts are awarded to its firms, and/or are RMB-denominated, the AIIB risks looking less like a genuine MDB and more like an instrument of Chinese financial or industrial policy. American critics have dismissed it as a ‘disguised cash register for Chinese state-owned enterprises’ (Foreign Policy, 2015). On the geopolitical front, others have alleged the AIIB is a vehicle for China to gain diplomatic influence with Asian countries. As China is the single-largest shareholder, holds the Presidency, and currently enjoys a veto power over governance matters, it has significant capacity to shape who receives AIIB loans and on what terms. This led many western commentators to argue that China could preferentially direct AIIB loans as a diplomatic tool: either make side payments to friendly states, or to spread its sphere of influence in the region.8Reisen (2015) has labelled this a form of ‘shadow global diplomacy’, which explicitly aims to dilute US influence in Asia by offering a competing source of development financing. Sun (2015) has documented that this interpretation is also widespread amongst Chinese foreign policy analysts, who have argued that receiving AIIB loans will strengthen Asian countries ties to China, by increasing their political alignment with and/or economic dependence upon it. For their part, Chinese officials have denied such allegations (Xinhua, 2015b), while Jin Liqun has bluntly argued ‘the AIIB is a bank, not a political organisation or political alliance’ (Reuters, 2015b). A related critique is that China intends the AIIB to function as the ‘Belt and Road Bank’. There is significant overlap between the two Chinese initiatives. Both were announced in 2013 and both target countries in South, Southeast, West, and Central Asia, and both emphasize infrastructure and economic connectivity. Rather than financing the most economically-justified infrastructure projects, it is suggested China may use the AIIB to channel capital to those which politically align with its broader BRI plans (Ferdinand, 2016). Indeed, Chinese policy confirms this suggestion. Xi Jinping has argued that the main purpose of the AIIB is to provide capital for infrastructure projects required by the BRI initiative (Xinhua, 2014a). The National Development and Reform Commission’s BRI policy also lists the AIIB – alongside the domestically owned Silk Road Fund (SRF) – as the principal financiers for BRI projects (NDRC, 2015). Given that the SRF is only capitalized to $40 billion, the AIIB is therefore the largest officially-identified source of capital for BRI projects. Tellingly, at the time of writing all the AIIB’s loans have been made to countries falling within the BRI program (Table 3). Table 2 Changes in AIIB capital and voting structures   MoU signatories (October 2014)   Founding members (September 2016)     Capital subscriptions (USD millions)  Voting shares (%)  Capital subscriptions (USD millions)  Voting shares (%)  China  59,350  52.51  29,780  28.79  India  20,504  18.47  8,367  8.31  Russia      6,536  6.56  Germany*      4,484  4.59  Korea      3,739  3.88  Australia      3,691  3.84  France*      3,375  3.53  Indonesia      3,360  3.52  UK*      3,054  3.23  Turkey      2,609  2.80  Italy*      2,571  2.77  Saudi Arabia      2,545  2.74  Other regional  20,110  29.02  9,333  16.30  Other non-regional*,      5,684  9.13   Subtotal regional  100,000  100  69,960  76.75   Subtotal non-regional*      19,168  23.24    MoU signatories (October 2014)   Founding members (September 2016)     Capital subscriptions (USD millions)  Voting shares (%)  Capital subscriptions (USD millions)  Voting shares (%)  China  59,350  52.51  29,780  28.79  India  20,504  18.47  8,367  8.31  Russia      6,536  6.56  Germany*      4,484  4.59  Korea      3,739  3.88  Australia      3,691  3.84  France*      3,375  3.53  Indonesia      3,360  3.52  UK*      3,054  3.23  Turkey      2,609  2.80  Italy*      2,571  2.77  Saudi Arabia      2,545  2.74  Other regional  20,110  29.02  9,333  16.30  Other non-regional*,      5,684  9.13   Subtotal regional  100,000  100  69,960  76.75   Subtotal non-regional*      19,168  23.24  Source: Author’s calculations and (AIIB, 2016d). Notes: *indicates a non-regional member. Implied capital subscriptions are calculated based on 2015 GDP figures, weighted 60% to exchange-rate USD and 40% to USD-PPP (Kawai, 2015). Voting shares are calculated using the formula specified in the AIIB Articles of Agreement. Table 2 Changes in AIIB capital and voting structures   MoU signatories (October 2014)   Founding members (September 2016)     Capital subscriptions (USD millions)  Voting shares (%)  Capital subscriptions (USD millions)  Voting shares (%)  China  59,350  52.51  29,780  28.79  India  20,504  18.47  8,367  8.31  Russia      6,536  6.56  Germany*      4,484  4.59  Korea      3,739  3.88  Australia      3,691  3.84  France*      3,375  3.53  Indonesia      3,360  3.52  UK*      3,054  3.23  Turkey      2,609  2.80  Italy*      2,571  2.77  Saudi Arabia      2,545  2.74  Other regional  20,110  29.02  9,333  16.30  Other non-regional*,      5,684  9.13   Subtotal regional  100,000  100  69,960  76.75   Subtotal non-regional*      19,168  23.24    MoU signatories (October 2014)   Founding members (September 2016)     Capital subscriptions (USD millions)  Voting shares (%)  Capital subscriptions (USD millions)  Voting shares (%)  China  59,350  52.51  29,780  28.79  India  20,504  18.47  8,367  8.31  Russia      6,536  6.56  Germany*      4,484  4.59  Korea      3,739  3.88  Australia      3,691  3.84  France*      3,375  3.53  Indonesia      3,360  3.52  UK*      3,054  3.23  Turkey      2,609  2.80  Italy*      2,571  2.77  Saudi Arabia      2,545  2.74  Other regional  20,110  29.02  9,333  16.30  Other non-regional*,      5,684  9.13   Subtotal regional  100,000  100  69,960  76.75   Subtotal non-regional*      19,168  23.24  Source: Author’s calculations and (AIIB, 2016d). Notes: *indicates a non-regional member. Implied capital subscriptions are calculated based on 2015 GDP figures, weighted 60% to exchange-rate USD and 40% to USD-PPP (Kawai, 2015). Voting shares are calculated using the formula specified in the AIIB Articles of Agreement. Table 3 AIIB-funded projects, June 2017 Funding date  Country  Name  Lead lender/s  AIIB involved at launch?  AIIB  Other MDBs  Other partners  Total project value  June 2016  Bangladesh  Power distribution system upgrade  AIIB  Yes  165  97    262  Indonesia  Slum upgrading project  WB  No  216.5  216.5  1310  1743  Pakistan  Shorkot-Khanewal M-4 Motorway upgrade  ADB  No  100  134  39  273  Tajikistan  Dushanbe-Uzbekistan road improvement  EBRD  No  27.5  62.5  16  106    September 2016  Pakistan  Tarbela-5 Hydropower extension  WB  No  300  390  133  823  Myanmar  Myingyan CCGT power plant  ADB, IFC  No  20  117    137    December 2016  Oman  Railway system preparation planning  AIIB  Yes  36    24  60  Oman  Duqm Port commercial terminal  AIIB  Yes  265    88  353  Azerbaijan  TANAP Pipeline  WB  No  600  2600  5400  8600    Mar 2017  Indonesia  Dam operational improvement and safety  WB  No  125  125  50  300  Indonesia  Regional Infrastructure Development Fund  WB  No  100  103  203  406  Bangladesh  Natural Gas infrastructure upgrade  ADB  No  60  167  226  453    May 2017  India  Andhra Pradesh power distribution upgrade  WB  No  160  240  171  571    June 2017  Georgia  Batumi Bypass road project  ADB  No  114  114  87  315  India  India Infrastructure Fund*  None  No  150    600  750  Tajikistan  Nurek Hydropower Rehabilitation Phase I  WB (IDA)  No  60  225  65  350  India  Gujarat rural roads upgrade  AIIB  Yes  329    329  658    Total          2,828  4,591  8,741  16,160  Funding date  Country  Name  Lead lender/s  AIIB involved at launch?  AIIB  Other MDBs  Other partners  Total project value  June 2016  Bangladesh  Power distribution system upgrade  AIIB  Yes  165  97    262  Indonesia  Slum upgrading project  WB  No  216.5  216.5  1310  1743  Pakistan  Shorkot-Khanewal M-4 Motorway upgrade  ADB  No  100  134  39  273  Tajikistan  Dushanbe-Uzbekistan road improvement  EBRD  No  27.5  62.5  16  106    September 2016  Pakistan  Tarbela-5 Hydropower extension  WB  No  300  390  133  823  Myanmar  Myingyan CCGT power plant  ADB, IFC  No  20  117    137    December 2016  Oman  Railway system preparation planning  AIIB  Yes  36    24  60  Oman  Duqm Port commercial terminal  AIIB  Yes  265    88  353  Azerbaijan  TANAP Pipeline  WB  No  600  2600  5400  8600    Mar 2017  Indonesia  Dam operational improvement and safety  WB  No  125  125  50  300  Indonesia  Regional Infrastructure Development Fund  WB  No  100  103  203  406  Bangladesh  Natural Gas infrastructure upgrade  ADB  No  60  167  226  453    May 2017  India  Andhra Pradesh power distribution upgrade  WB  No  160  240  171  571    June 2017  Georgia  Batumi Bypass road project  ADB  No  114  114  87  315  India  India Infrastructure Fund*  None  No  150    600  750  Tajikistan  Nurek Hydropower Rehabilitation Phase I  WB (IDA)  No  60  225  65  350  India  Gujarat rural roads upgrade  AIIB  Yes  329    329  658    Total          2,828  4,591  8,741  16,160  Source: Author’s compilation from AIIB (2017), ADB (2017b), World Bank (2017). *indicates The India Infrastructure Fund received an equity investment; all other AIIB contributions were made as commercially-priced loans. Table 3 AIIB-funded projects, June 2017 Funding date  Country  Name  Lead lender/s  AIIB involved at launch?  AIIB  Other MDBs  Other partners  Total project value  June 2016  Bangladesh  Power distribution system upgrade  AIIB  Yes  165  97    262  Indonesia  Slum upgrading project  WB  No  216.5  216.5  1310  1743  Pakistan  Shorkot-Khanewal M-4 Motorway upgrade  ADB  No  100  134  39  273  Tajikistan  Dushanbe-Uzbekistan road improvement  EBRD  No  27.5  62.5  16  106    September 2016  Pakistan  Tarbela-5 Hydropower extension  WB  No  300  390  133  823  Myanmar  Myingyan CCGT power plant  ADB, IFC  No  20  117    137    December 2016  Oman  Railway system preparation planning  AIIB  Yes  36    24  60  Oman  Duqm Port commercial terminal  AIIB  Yes  265    88  353  Azerbaijan  TANAP Pipeline  WB  No  600  2600  5400  8600    Mar 2017  Indonesia  Dam operational improvement and safety  WB  No  125  125  50  300  Indonesia  Regional Infrastructure Development Fund  WB  No  100  103  203  406  Bangladesh  Natural Gas infrastructure upgrade  ADB  No  60  167  226  453    May 2017  India  Andhra Pradesh power distribution upgrade  WB  No  160  240  171  571    June 2017  Georgia  Batumi Bypass road project  ADB  No  114  114  87  315  India  India Infrastructure Fund*  None  No  150    600  750  Tajikistan  Nurek Hydropower Rehabilitation Phase I  WB (IDA)  No  60  225  65  350  India  Gujarat rural roads upgrade  AIIB  Yes  329    329  658    Total          2,828  4,591  8,741  16,160  Funding date  Country  Name  Lead lender/s  AIIB involved at launch?  AIIB  Other MDBs  Other partners  Total project value  June 2016  Bangladesh  Power distribution system upgrade  AIIB  Yes  165  97    262  Indonesia  Slum upgrading project  WB  No  216.5  216.5  1310  1743  Pakistan  Shorkot-Khanewal M-4 Motorway upgrade  ADB  No  100  134  39  273  Tajikistan  Dushanbe-Uzbekistan road improvement  EBRD  No  27.5  62.5  16  106    September 2016  Pakistan  Tarbela-5 Hydropower extension  WB  No  300  390  133  823  Myanmar  Myingyan CCGT power plant  ADB, IFC  No  20  117    137    December 2016  Oman  Railway system preparation planning  AIIB  Yes  36    24  60  Oman  Duqm Port commercial terminal  AIIB  Yes  265    88  353  Azerbaijan  TANAP Pipeline  WB  No  600  2600  5400  8600    Mar 2017  Indonesia  Dam operational improvement and safety  WB  No  125  125  50  300  Indonesia  Regional Infrastructure Development Fund  WB  No  100  103  203  406  Bangladesh  Natural Gas infrastructure upgrade  ADB  No  60  167  226  453    May 2017  India  Andhra Pradesh power distribution upgrade  WB  No  160  240  171  571    June 2017  Georgia  Batumi Bypass road project  ADB  No  114  114  87  315  India  India Infrastructure Fund*  None  No  150    600  750  Tajikistan  Nurek Hydropower Rehabilitation Phase I  WB (IDA)  No  60  225  65  350  India  Gujarat rural roads upgrade  AIIB  Yes  329    329  658    Total          2,828  4,591  8,741  16,160  Source: Author’s compilation from AIIB (2017), ADB (2017b), World Bank (2017). *indicates The India Infrastructure Fund received an equity investment; all other AIIB contributions were made as commercially-priced loans. What unites these critiques is the suggestion that there is more to China’s AIIB initiative than its declared goal of closing infrastructure gaps. A range of revisionist agendas – whether economic and/or diplomatic – are argued to be motives behind its establishment. This controversy over Chinese intentions has cast a shadow over the AIIB’s membership. The Japanese government has repeatedly declined membership invitations, citing concerns over bank transparency, and fears the AIIB would compete with the ADB’s existing infrastructure efforts (Katada, 2016). The US government has opposed the AIIB on the principle that it would not uphold the high standards of the World Bank and other MDBs. During 2014, the Obama Administration lobbied allies in Asia to decline Chinese membership invitations (Harris, 2015). While these lobbying efforts ultimately failed, the US and Japan continue to maintain a joint position of not joining the AIIB until several governance and transparency concerns are addressed (The White House, 2015). Despite repeated denials by Chinese officials, the controversy over China’s agenda has persisted, and is currently the single greatest challenge to the perceived international legitimacy of the AIIB. 4 Growing membership and negotiating governance compromises One of the major sources of the AIIB controversy concerns bank governance. Two assumptions inform its critics. The first is that the AIIB is a China-controlled institution: that as the founder, host, and largest shareholder, the Chinese government has the capacity to determine to whom and on what terms it will make loans. The second is that the Chinese government has a coherent and unchanging AIIB strategy: a set of strategic goals which it intends to realize through the bank. Both assumptions are problematic. The AIIB which emerged from membership negotiations was a broad-based multilateral institution, which brought together a diverse range of developed and developing countries from many regions of the world. Moreover, these members had their own preferences – which were not always aligned with China’s – over how the AIIB would be governed. To secure the membership of these governments, Chinese negotiators had to find compromises between their own strategic agendas and the interests and demands of partners. China responded to partner requests by recalibrating its strategy, and as a result the AIIB changed quite dramatically between proposal and establishment. China’s initial AIIB pitch was made to prospective members in 2014. This culminated in a MoU to establish the AIIB, which was signed in October 2014 and established an interim secretariat in Beijing. However, its initial efforts to attract members delivered very modest results. The 21 signatories9 to the 2014 MoU were predominantly small, developing countries in South, Southeast, and West Asia. These governments were attracted by the opportunity of accessing a new source of infrastructure financing, and publicly welcomed the Chinese initiative (Chin, 2016; Ba, 2017). However, most of the region’s major economies – including Australia, Japan, Korea, and Russia – initially sat on the sidelines. The exact nature of China’s AIIB proposal at the time was fluid, and never officially presented for public scrutiny. However, reports from involved parties indicate it contained the following features: A focus on attracting member states from within the Asian region (Xinhua, 2015d); Governance arrangements vesting considerable authority in the hands of the Bank President, with reduced Director oversight relative to other MDBs (New York Times, 2014; Japan Times, 2015) Minimalist environmental, social, and transparency safeguards, which fell short of the ‘best practices’ applied by the World Bank and ADB (Devex, 2014) Proposals for loans to be issued either in RMB or an ‘AIIB basket’ with mixed denomination (SCMP, 2015) A preference for using Chinese construction contractors in AIIB-funded projects (Sun, 2015) China to contribute over 50% of the capital stock, and thus hold a formal veto power over all loan decisions (Reuters, 2015a)Together, these proposals amounted to an AIIB that was formally China-controlled, and would have granted the management team considerable autonomy to advance the China’s own economic goals. Such an approach was evidently acceptable to the developing economies who signed the 2014 MoU. However, they were rejected by many western countries, who expressed discomfort with the idea of a Chinese-controlled bank deviating from the accepted international practices in development financing. Key were the US, Japan, and several European countries, who all declined membership invitations citing governance and transparency concerns. During 2014, the US successfully lobbied several allies in Asia – including Australia and Korea – to stay out (Harris, 2015). Indonesia was also initially absent due to its 2017 Presidential election (Ba, 2017). As the final deadline for membership applications approached, it appeared the AIIB would be limited to China and the handful of developing countries willing to accede to its preferred governance model. This was to change with the last-minute addition of European members. On 12 March, the British government took the unexpected step of becoming the first major western economy to join. It officially claimed the intention was to improve the AIIB by shaping governance arrangements from the inside; though observers argued it also hoped AIIB membership would establish the City of London as a hub for Chinese finance (WSJ, 2015a). The US chastised the British government for breaking rank, with officials publicly remarking ‘We are wary about a trend toward constant accommodation of China, which is not the best way to engage a rising power’ (The Guardian, 2015). But British membership would set off a flood of other membership applications. Germany, France, and Italy all announced intentions to join four days later; and over the next fortnight Switzerland, Australia, Korea, Russia, Brazil, and Turkey followed suit. By the 31 March deadline, 57 countries had signed up. This was widely considered a diplomatic coup for China. Its overtures had prevailed in the face of stiff US opposition, and managed to split from the US several of its key alliance partners. Foreign Policy magazine labelled the episode ‘Washington’s big China screw-up’ (2015). Expanded membership greatly increased the perceived international legitimacy of the AIIB. China could boast that its new MDB included most of the world’s major economic powers, conferring a degree of prestige and credibility it had previously lacked (Tang, 2015). However, their presence also fundamentally changed the internal character of the bank. Prior to the expansion, the AIIB could reasonably be described as a China-dominated institution (Table 2). But with the new members came a dramatic redistribution of formal control. China’s shareholding was diluted to 29%, and non-regional members held 23% of the voting power. Moreover, China now had to accommodate an impressive range of economic powers, including 4 of the G7, 14 of the G20, and 12 members of the European Union (EU). Indeed, the EU states had publicly declared they were not content with China’s previous proposals, and as AIIB members would push for governance arrangements similar to those in the other MDBs (WSJ, 2015b). With the Articles of Agreement and other operational policies still to be finalized, negotiations over the final shape of the AIIB became far more complex. During April and May 2015, two further negotiating rounds were held amongst the now-enlarged group of founding members. Significant pressure was brought to bear by the western governments – led by the UK and Germany – to adopt more transparent and rules-based governance practices (WSJ, 2015a, 2015b). These resulted in the final Articles of Agreement which were settled on 22 May. By this time, it was clear that Chinese negotiators had made significant concessions. The AIIB was now to use the same tripartite governance system of other MDBs, which vests the Board of Directors (rather than management team) with authority over loan decision. It explicitly adopted a commercial orientation, with loan decisions to be made against objective criteria and projects required to pay commercial interest rates. Loans were to be issued in USD. China also shelved its request for a formal veto power over loan decisions, and agreed to reduce its shareholding to 28% of the voting stock. The veto power concession was reportedly made to secure the involvement of European governments, who from the outset had made this a condition of their membership (WSJ, 2015c). With the Articles of Agreement in place, members spent the remainder of 2015 negotiating the AIIB’s policies and guidelines.10 Former officials from the World Bank and ADB were brought in to assist with the drafting process (FT, 2016). The result was a set of policies which closely conformed to the international practices of the other MDBs: An Operational Policy on Financing laid out commercial criteria for how potential projects would be assessed, and how financing packages would be structured. A Sovereign-backed Loan and Guarantee Pricing Policy sets transparent interest rates (LIBOR plus specified adjustments) for loans to host government-backed projects. A Procurement Policy outlines a commercially oriented set of procurement goals, which emphasize efficiency, value-for-money, fit-for-purposeness, and transparency. Accountability and transparency are achieved through a Public Information (Interim) Policy and Policy on Prohibited Practices, while Codes of Conduct for Directors and management personnel enforces ethical standards and anti-corruption measures. An Environmental and Social Framework provided a mechanism to evaluate the broader societal impacts of projects during the assessment process. The outcome was an AIIB which, contrary to earlier Chinese claims of institutional innovation, largely reproduces existing MDB governance practices. With the exception of its non-resident Board of Directors and 75% capital reservation for regional members, the AIIB’s governance arrangements are for all practical purposes identical to those of the ADB and World Bank (Kawai, 2015). Additionally, all of the revisionist elements within China’s initial proposal had been removed. Demands for management-led decision-making and Chinese veto powers were abandoned during negotiations for the Articles of Agreement; while the desire to issue RMB-denominated loans and preferentially award contracts to Chinese suppliers were prohibited by the operational policies. As Sun (2015) has argued, this change from a revisionist to legitimacy-enhancing agenda demonstrates the flexibility of China’s AIIB strategy. The prospect of securing western country membership through governance compromises posed a choice: either a formally Chinese-controlled or internationally legitimate bank, but not both. The Chinese government ultimately opted for the latter. While the AIIB started with revisionist intentions, by the time it commenced operations in 2016 its governance practices had transformed to fit squarely within the MDB status quo. 5 Competing or cooperating with the other MDBs? A second source of controversy was criticisms that the AIIB would function as a China-backed competitor to the existing MDBs. All the major MDBs already have dedicated infrastructure financing programs, and in recent years have been increasing the volume of loans to infrastructure projects. The concern is that the AIIB might compete with its peers for the limited number of commercially-viable infrastructure projects available. This is particularly acute given the so-called ‘bankable projects problem’ – the fact that there are few infrastructure projects which are sufficiently developed for a financier to be able to offer a loan. The ADB is considered to be under a particular threat. As the ADB already dedicates more than half its budget to infrastructure, and operates in the same region, critics have claimed that the AIIB and ADB must inevitably compete for the limited number of bankable projects in Asia (Sun, 2015). Japan’s continuing refusal to join the AIIB, despite China’s governance concessions, is reportedly due to a desire to protect the status of the Japan-led ADB against a China-backed rival (Katada, 2016). Chinese actors have gone to great lengths to refute the notion that the AIIB was designed as competitor institution. Jin Liqun has repeatedly denied suggestions of rivalry, pledging that the AIIB would cooperate with the other MDBs through knowledge-sharing and co-financing (Xinhua, 2015c; ASPI, 2016). Concerted efforts were directed at the ADB, with Chinese Premier Li Keqiang personally meeting ADB President Nakao Takehiko a week prior to the March 2015 membership deadline. While this overture failed to convince the Japanese government to join, it did deliver an in-principle agreement for the AIIB and ADB to cooperate through technical exchanges (Japan Times, 2015). The World Bank also responded positively. In a widely publicized speech given in April, President Jim Yong Kim argued that negative attitudes to the AIIB amongst the international development community needed to change: The fundamental issue for us is your enemy cannot be other institutions. Your enemy has to be poverty. If your enemy is poverty, the natural thing to do is welcome any new players that are interested in developing the kind of infrastructure that will end poverty (Devex, 2015).A key element of China’s charm offensive was a set of cooperation agreements negotiated with the other MDBs.11 The first was a co-financing agreement with the World Bank in April 2016, which would enable the two banks to develop and fund infrastructure projects together. The terms stipulated that the World Bank would be the supervising partner, so that its loan policies and safeguards – and not the AIIB’s – would be applied. This was followed by MoUs signed with the ADB, EBRD, and European Investment Bank in May. These were less rigid than the World Bank agreement, but contained provisions for information sharing, dialogue on policy development, and the joint-financing of infrastructure projects. The political logic behind these agreements was to send a message that the AIIB would not be a competitor to the other MDBs. However, these cooperation agreements also had an institutional purpose: to help build the technical capacity of the AIIB itself. When its first financing activities began in June 2016, the AIIB had extremely limited resources. It had no project development ‘pipeline’ of its own, relied upon external consultants for all technical work, and publicly acknowledged many of its policies required further elaboration before they were ready to be used to manage projects (AIIB, 2016c). In short, the AIIB was wholly dependent on other MDBs to supply it both bankable projects and the technical expertise to execute them. Both the World Bank and ADB proved happy to oblige. Their respective Presidents made offers to ‘share knowledge’ with the AIIB during its start-up phase, and many of the key staff and consultants hired during 2016 were former World Bank and/or ADB officials (ASPI, 2016). The World Bank co-financing agreement was especially important in this regard. It not only provided access to World Bank technical experts, but also promised to include the AIIB as a financier partner in infrastructure projects it had been developing for several years (World Bank & AIIB, 2016). The AIIB has since been dependent upon other MDBs for the supply of finance-ready projects. By June 2017, six rounds of funding had been completed, with seventeen projects receiving a total of $2.8 billion (Table 3). However, the AIIB has typically played a junior finance partner role. The World Bank invited it to join seven of its pre-existing projects, the ADB four, and the EBRD one. In each case the MDB partner was the ‘lead lender’ – the party which develops and manages the project, provides the largest financing contribution, and applies their own loan and safeguards policies. The AIIB’s role was limited to that of junior partner, who only became involved once a project was ready for financing, and only contributed finance rather than project management or policy supervision. Only four relatively minor projects were independent efforts launched and managed by the AIIB, and in two cases these were duplications of previous projects developed by other MDBs.12 Even the AIIB’s financial contribution is relatively modest, accounting for only one-third of the MDB loans, and 17% of total project costs. Thus far, the AIIB has mostly loaned with support from, and under the direct policy supervision of, the established MDBs. This data reveals that the AIIB very much remains in a start-up phase. These initial projects provide learning opportunities for the AIIB, which will develop the capacity to operate with greater independence as the institution matures. But given that the AIIB’s $100 billion of subscribed capital is comparable to the other MDBs (Table 1), it will be impossible to dispose of solely by piggybacking on its peers. Nonetheless, there is no evidence the AIIB is competing with the ADB or World Bank for projects. Nor is there evidence of governance standards being diluted. As World Bank or ADB policies are applied to the joint projects, the involvement of the AIIB has made no impact either on project governance, or the commercial structure of loans. Thus far, all the AIIB has done is channel a comparatively small amount of capital into existing MDB mechanisms for infrastructure financing in Asia. 6 Conclusion: Leadership-seeking through a status quo institution To its critics, China’s AIIB initiative is viewed as a revisionist attempt to redraw the institutions of global economic governance. Yet the bank which emerged in 2016 has few such features. The AIIB is a broad-based multilateral institution with a diverse membership of developed and developing economies. It has adopted the governance practices and policy frameworks which are considered international best practices for development financing. It has established cooperative rather than competitive relationships with its MDB peers, and has thus far depended upon them for the supply of technical expertise and bankable projects. While China holds the largest share of the capital stock, and an informal veto over governance decisions, it does not formally control the routine activities of the bank. The AIIB’s principal impacts have been establishing the world’s first-dedicated infrastructure bank, unlocking an additional $100 billion for infrastructure projects in Asia, and being the first multilateral organization conceived of and led by China. These are certainly significant developments for global economic governance. But they also fall well-short of revisionism proper, as they do not challenge the existing norms, rules, or institutional practices for development financing. Far from being a revisionist institution, the AIIB largely conforms to the MDB status quo. This was made possible by a change in the Chinese government’s strategy. China’s initial AIIB pitch was very much for an Asian-focussed and revisionist institution. It would have vested China with formal control of the bank, and advanced a range of Chinese geoeconomic agendas including as IFI reform, RMB internationalization, and the BRI program. While developing economies in Asia accepted this template, western country governments would not participate on these terms. In early 2015 Chinese government faced a choice: either proceed with the revisionist agenda and create a small Asian institution that would be viewed with skepticism elsewhere; or create a larger and globally legitimate body via governance concessions to western partners. Demonstrating the flexibility of Chinese foreign policy, it quickly adapted its proposal to create an institution which many governments were willing to support. The controversy over the AIIB has greatly diminished as a result. In March 2017, a further thirteen governments joined the bank, including Belgium, Canada, and Ireland. It now counts practically all major economies bar the US and Japan as members, and is recognized by its MDB peers as a development financing partner. Why did China change its AIIB strategy? These governance compromises evidence the mixed motives underlying contemporary Chinese foreign policy, and the challenge translating these into shared multilateral institutions. On one hand, the Chinese government clearly harbored revisionist ambitions to establish a new MDB that would reflect its own interests. But on the other, it was also an exercise in status-seeking: becoming an institution-builder rather than just an institution-follower, and thus projecting its desired image as a ‘responsible great power’ (Breslin, 2013). The diverging interests of other major economies meant that these goals proved largely incompatible. Chinese negotiators attempted to realise both revisionist and status-seeking objectives during the early phases of the AIIB, but by early 2015 it had become clear these could not be simultaneously achieved. As Ikenberry and Lim (2017) argue, China’s response to its AIIB dilemma thus reflected a fundamental characteristic of multilateralism – that it is a source of both legitimacy and constraint. Legitimacy-through-leadership is contingent on acceptance-through-followership, and where state preferences diverge, compromise is required by those with leadership aspirations. The constraints imposed by multilateralism required China to sacrifice demands for formal authority over the AIIB in exchange for the informal influence a broad-based institution would offer. Indeed, establishing a ‘status quo AIIB’ has greatly strengthened China’s leadership credentials. Not only has China for the first time led the creation of a multilateral institution, but also hosts the headquarters and presidency of a major international economic organization. Securing the membership of western countries in the face of US opposition – particularly Australia, Germany, Korea, and the UK – signals a recognition of leadership status by the international community that China has never previously enjoyed (Ren, 2016). The compromises made during negotiations has sent a clear message to its key diplomatic partners, both in and outside Asia, that China is willing to make the adjustments necessary to function as a responsible great power (Ba, 2017). As Xinhua editorialized following the accession of the European members: The world watched as the number of countries applying to be founding members of the AIIB rose to 46 by the Tuesday deadline. The soaring participation has been seen as evidence of China's growing international sway. If there is one message to glean from the number of applicants, it is that the world has sensibly voted for a more inclusive, balanced and mutually beneficial international economic order. (Xinhua, 2015a)This transition has broader implications for how contemporary Chinese foreign economic policy is understood. In recent years, China has become a more activist institution-builder, playing a leadership role in economic initiatives such as the AIIB, the BRI, and the New Development Bank. These developments have led many to suggest an historic transformation from a status quo to revisionist orientation in Chinese foreign policy is occurring, as its material capacity for – and interest in – institutional leadership grows (Sun, 2015; Beeson and Li, 2016; Ferdinand, 2016; Yu, 2016). However, the flexibility in China’s AIIB strategy indicates claims regarding putative revisionism should be moderated. The Chinese government certainly held revisionist aspirations for the AIIB; yet it was also willing to shelve these aspirations when faced with the compromises required for successful multilateral leadership. Rather than singularly classifying China as either a revisionist or status quo power, the case of the AIIB demonstrates Chinese foreign policy is flexible, pursues multiple agendas, and is capable of accommodating the interests of its partners. As Breslin (2013) has argued, China has multiple – and sometimes competing – motivations, whose expression in international institutions will be product of negotiated compromise rather than imposed grand design. Of course, the AIIB remains a very new institution. At the time of writing it has been in operation for over a year, and has only issued $2.8 billion worth of loans – a tiny fraction of its $100 billion subscribed capital. Its governance policies remain largely untested, as most of its loans have been made under the policy supervision of the World Bank or ADB. As the AIIB accumulates technical capacity and experience, it will need to begin financing infrastructure projects in its own right. This transition to operational independence will prove the ultimate test of China’s longer term intentions for the bank. In the absence of MDB partners, will the AIIB maintain its declared commitment to a commercial, transparent, and socially- and environmentally sensitive approach to infrastructure financing? And while the Chinese government had ceded formal control, will it use its informal influence over bank operations – via its policy veto power and the bank presidency – to pursue the strategic goals that western critics allege were its real motives? The Chinese government has already changed its AIIB strategy once, it might reverse approach again. But at present, it is clear the AIIB is squarely a status quo institution, principally designed to augment China’s leadership credentials in global economic governance. Time will tell whether revisionist agendas will re-emerge. ACKNOWLEDGEMENTS This research was supported by the Australian Research Council (DP150100217). The author would like to thank Su Xing and Anna Chapman for research assistance; and Stephen Bell, Shaun Breslin, Shahar Hameiri, Eric Helleiner, Richard Higgott, Lee Jones, and John Ravenhill for comments on earlier drafts. Footnotes 1 For a critique of the definitional imprecision regarding ‘revisionist’ behavior, see Johnston (2003, pp. 8–12). 2 For the key terms of this debate, see Buzan (2010), Johnston (2003), Legro (2007). 3 Jin Liqun was a former Chinese Vice-Minister of Finance, Vice-President of the Asian Development Bank, and Chairman of the China International Capital Corporation (Xinhua, 2016). 4 These governance decisions include those surrounding membership, capital allocations and voting rights, the constitution and membership of the Board of Directors, and the creation and amendment of bank policies. 5 Per Article 1.2 of the Articles of Agreement, AIIB regional members comprise those who belong to the UN’s ‘Asia and Oceania’ geographic group. This 55-member group includes many which would not conventionally be considered part of ‘Asia’, such as the states of the Middle East. 6 The exact number depends on how an MDB is defined. There are five core MDBs – the World Bank plus its four regionally-focussed counterparts (EBRD, AfDB, ADB, and IADB) – though many smaller sub-regional and specialized banks extend the list. 7 Author’s calculations (ADB, various years). 8 For a summary of these critiques, see The Diplomat (2014). 9 The 2014 MoU signatories comprised Bangladesh, Brunei, Cambodia, China, India, Kazakhstan, Kuwait, Laos, Malaysia, Mongolia, Myanmar, Nepal, Oman, Pakistan, Philippines, Qatar, Singapore, Sri Lanka, Thailand, Uzbekistan, and Vietnam. 10 These policies are available at AIIB (2016b). 11 A full list of the AIIB’s cooperation agreements is available at AIIB (2016a). 12 The Bangladesh power distribution system upgrade (June 2016) and Indian Gujarat rural roads upgrade (June 2017) projects were AIIB-led. However, both were reproductions of existing ‘templates’ that had been previously developed by the ADB and World Bank through similar in-country projects. 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( 2016) ‘ Motivation behind China’s ‘One Belt, One Road’ initiatives and establishment of the Asian Infrastructure Investment Bank’, Journal of Contemporary China , 26( 105), 353– 368. Google Scholar CrossRef Search ADS   © The author 2017. Published by Oxford University Press in association with the Japan Association of International Relations; all rights reserved. For Permissions, please e-mail: journals.permissions@oup.com http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png International Relations of the Asia-Pacific Oxford University Press

The evolution of China’s Asian Infrastructure Investment Bank: from a revisionist to status-seeking agenda

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Abstract

Abstract China’s Asian Infrastructure Investment Bank (AIIB) is a controversial addition to both the global and Asian economic architectures. Western critics have alleged it is a vehicle designed to achieve China’s geostrategic goals, while scholars have argued it marks China’s adoption of a ‘revisionist’ foreign policy strategy. This article argues that such interpretations are incorrect, as they fail to account for the evolution of China’s AIIB agenda. To secure a broad membership and international legitimacy for the AIIB, China compromised with partners during governance negotiations in 2015. Western country demands saw several controversial initial proposals dropped, the governance practices of existing multilateral development banks were adopted, and cooperative partnerships were developed with the World Bank and Asian Development Bank. This transition from a revisionist to status-seeking AIIB agenda reveals the flexibility of Chinese economic statecraft, and its willingness to compromise strategic goals to boost the legitimacy of its international leadership claims. 1 Introduction The Asian Infrastructure Investment Bank (AIIB) is a landmark development in global economic governance. Proposed by the Chinese government in 2013, and commencing operations less than three years later, it has quickly become a significant intergovernmental economic institution. Its core mission is to help close the region’s many ‘infrastructure gaps’, by providing a specialized body to concentrate, expertise, and channel capital to transport, energy, urban, and utility projects. It has quickly attracted broad-based support, now counting 70 members from Asia, the Middle East, and Europe. It currently ranks as the world’s fourth largest multilateral development bank (MDB) by capital subscriptions, with $100 billion committed by its members. It is the most significant multilateral institution established in the Asian region since the East Asia Summit of 2005. It is also the first international economic organization conceived, initiated, and led by China, marking the country’s maturation from an institution-follower to institution-builder. The AIIB has also proven very controversial. Critics have alleged it is not simply an infrastructure bank, but rather a vehicle for the realization of the Chinese government’s strategic ambitions. Chinese leadership of the AIIB has led to fears that its loan activities will be tied to geoeconomic agendas, such as its ‘Belt and Road Initiative’ (BRI) designed to foster regional interconnectivity between China and Asian economies. Others have suggested it is a Chinese attempt to undermine the status of existing MDBs – particularly the World Bank and Asian Development Bank (ADB) – and will dilute their efforts to promote transparency and social and environmental standards in development financing. The Chinese government and AIIB leadership have strenuously denied these criticisms, claiming there are no nefarious agendas behind the initiative. However, the Japanese government has cited these concerns when declining invitations to join the bank; while the US lobbied allies in Asia to not participate during membership negotiations in 2015. Despite commencing operations in January 2016, these controversies over the Chinese AIIB agenda have persisted, and today stand as the main challenge for the perceived international legitimacy of the bank. The AIIB has thus become the most recent front in a long-running debate over Chinese foreign policy: As it re-emerges as a global leader, will China behave as a ‘revisionist’ or ‘status quo’ power? While international relations literature often only defines these concepts implicitly,1 they are used to capture the extent to which a state is content with the prevailing international order: both the formal and informal institutions which govern relationships between states, and their status within these institutions (Buzan, 2010). While status quo powers are happy with existing patterns of international order, revisionist powers seek to overturn either the institutions and/or seek a more privileged position within them. On one side of this debate, realists have argued that as China’s relative share of material capabilities rise, it will seek to revise the institutions of global governance to reflect its increasing prominence. It is expected to do this either by developing new international institutions that better serve geostrategic objectives, or seeking wholesale reform within existing ones. On the contrary, liberal-influenced analyses suggest that existing institutions have served Chinese interests well, and that the country’s leaders are comfortable with – and potentially socialized into – contemporary practices of international order. Though minor accommodations may be demanded, China will largely seek to preserve and augment the institutional status quo.2 Revisionist and status quo behavior should be conceptualized not as binary categories but as ideal types. First, they bound a spectrum of potential behaviors with intermediate forms existing between the poles. As Ikenberry and Lim (2017) have suggested, these can include strategies of authority-seeking, obstruction, and external innovation, which are neither pure acceptance of or opposition to existing institutions. Second, a state may express different behaviors across policy domains, mixing revisionism in some areas with a status quo orientation in others. In China’s case, Chin and Thakur (2010) have shown how an acceptance of existing norms and institutions in some areas (particularly multilateral diplomacy) co-exists with more activist attempts to revise others (especially in the economic sphere). Third, as states have multiple foreign policy objectives which map onto different behaviors, this necessitates internal choices over strategy and prioritization. Breslin (2013) suggests that tensions between China’s positions – as a developing country, an emerging power, a P-5 member and peer-competitor to the US – has resulted in ‘conflicting signals and demands’ over what it wants from global governance. These considerations caution against attempts to singularly classify China as a revisionist or status quo power. Instead, these concepts should be used as ideal types which illuminate the competing imperatives behind Chinese foreign policy. The AIIB has reinvigorated debates over Chinese foreign policy intentions. For many years, most analysts have rejected the suggestion that Chinese foreign policy is outwardly revisionist in intent or outcome, typically locating it toward the status quo end of the spectrum (albeit with some reform ambitions) (Johnston, 2003; Huiyun, 2009; Breslin, 2010; Qin, 2010). However, the creation of the AIIB in 2013 has been cited by many as the first and most prominent shift in Chinese foreign policy toward deliberately revisionist strategies, at least in the economic sphere. Ba (2014), Kawai (2015), and Ren (2016) claim the AIIB marks a move away from Deng Xiaoping’s long-standing strategy of ‘keeping a low profile’, to an activist posture which seeks a leadership rather than followership role. Sun (2015), Yu (2016), and Beeson and Li (2016) identify it with a period of dramatic foreign economic policy activism under the Xi Administration, where China is for the first time attempting to build new institutions that will allow it greater influence in the global economy. Etzioni (2016), Harpaz (2016), and Tang (2015) have described it as a deliberate challenge to the US-led Bretton Woods system, designed to break the monopoly of western governments over the international financial system. Writing in the Washington Post, Lawrence Summers (2015) ominously warned: This past month may be remembered as the moment the US lost its role as the underwriter of the global economic system … . I can think of no event since Bretton Woods comparable to the combination of China’s effort to establish a major new institution and the failure of the US to persuade dozens of its traditional allies, starting with Britain, to stay out.Does this conventional wisdom – that China’s AIIB initiative is revisionist attempt to recreate global economic governance – stand up to scrutiny? This article argues that the controversy over the AIIB, and broader claims regarding China’s revisionist intentions, fail to account for how the institution has evolved. As first proposed in 2013, the AIIB was very much a revisionist initiative, designed to foster change in the international financial system and advance Chinese geoeconomic interests. But as its membership expanded in 2015, a new opportunity was presented to its Chinese architects: to secure broad-based legitimacy for the bank by accommodating the interests of developed western economies. This required compromise in how the AIIB was to be designed, particularly in terms of decision-making procedures and loan policies. Chinese negotiators ultimately agreed to these demands, withdrawing many of the more controversial proposals in favor of a governance model that closely conformed to that in other MDBs. These compromises saw China shift from a revisionist to a status-seeking agenda, in which the perceived legitimacy of the bank instead became of paramount importance. This produced a ‘dual movement’ in China’s AIIB strategy: as membership and legitimacy ambitions expanded, its attempts to insert revisionist governance practices were progressively moderated. The bank which emerged from these compromises is far less threatening to the existing patterns of global economic governance than its critics have claimed. Today, the AIIB is a radically different institution from that which China initially pitched in 2013. It is now a broad-based multilateral institution with a diverse range of developed and developing country members. It has transparent governance arrangements which formally vest control with the entire membership, and has adopted policies consistent with international best practices for development financing. It has thus far worked as a collaborator rather than competitor with the existing MDBs, developing close working relationships with the World Bank and ADB. While the AIIB offers the world’s first infrastructure-dedicated MDB, and injects $100 billion of capital into Asian infrastructure financing, it does little to ‘revise’ the existing rules and practices for development financing. This transition also reveals the flexibility of Chinese economic statecraft, and its willingness to compromise with partners to boost its claims to leadership status in the global economy. 2 The AIIB initiative: China’s first foray into economic institution-building The AIIB is a decidedly Chinese project. It was first publicly announced by President Xi Jinping in a speech to the Indonesian Parliament, made on his first foreign tour in October 2013 (Xi, 2013). Premier Li Keqiang also publicly articulated the initiative during an address to the Boao Forum in April 2014 (Li, 2014). The AIIB was presented as a type of ‘win-win’ cooperation which would improve economic connectivity between China and Southeast Asia. Noting that infrastructure links are a key pre-condition for economic integration, the AIIB’s purpose was to upgrade the road, rail, air, and maritime transport linkages within the region. It was only one component of a three-part Chinese proposal to strengthen Asian economic integration, the others being the BRI, and a commitment to upgrade the ASEAN–China free trade agreement (FTA). ASEAN – rather than ‘Asia’ more broadly conceived – was the primary audience at the time. As Xi Jinping remarked: ‘China is committed to greater connectivity with ASEAN countries… [and] will propose the establishment of an Asian infrastructure investment bank that would give priority to ASEAN countries’ needs’ (Xi, 2013). However, China’s ambitions for the AIIB changed as the institution began to take form. Diplomatic negotiations with prospective members bore fruit one year later, when a Memorandum of Understanding (MoU) on establishing the AIIB was signed in October 2014 (Xinhua, 2014b). This established an interim secretariat which was headed by Jin Liqun, a Chinese official with extensive experience in international banking.3 The initial MoU signatories were a group of 20 ‘recipient’ economies from across South, Southeast, and West Asia, who were attracted by the prospect of securing infrastructure financing (Chin, 2016). But in the early months of 2015, Chinese diplomats made strenuous efforts to secure a wider range of major economies from both in and out of Asia. As the 31 March deadline for membership applications approached, a rapid influx of ‘donor’ participants – including the UK, Germany, Australia, Korea, and Saudi Arabia – joined. The AIIB commenced operations and held its first Board of Governors meeting on 16 January 2016, which elected Jin Liqun as its inaugural President. What was initially billed as an ASEAN-focussed initiative had in 18 months grown to become a significant addition to the global economic architecture. Per the Articles of Agreement (2015), the AIIB is an MDB dedicated solely to financing infrastructure and infrastructure-related projects in or between its member states. Membership is open to all current World Bank or ADB members. It has an authorized capital stock of $100 billion, of which 20% is paid-in with the remainder at call. It has a tripartite governance structure consisting of a Board of Governors (representing the member states), a 12-person Board of Directors (to whom policy and investment decisions are delegated), and a management team with responsibility for day-to-day operations. It will engage in direct loans, equity investments, loan guarantees, and technical assistance to infrastructure projects as approved by the Board of Directors; or any other activity approved by the Board of Governors. Ordinary loan decisions require a simple majority of Directors, while governance matters4 require a three-quarter ‘super-majority’ vote. These governance arrangements are almost identical to those of the World Bank and ADB. The principal differences are that: (i) the AIIB will solely finance infrastructure projects; and (ii) it has a non-resident Board of Directors, which will only meet periodically as business needs require (Kawai, 2015). The AIIB is a significant contribution to both the global and regional economic architectures. It is the first MDB established for many years: of the five major MDBs in existence, all but the EBRD were established in the mid-20th century (Table 1). It is very large, with its $100 billion of subscribed capital immediately making it of a similar size to the established regional MDBs. It is also experimental, as it is the only MDB to functionally specialize in infrastructure, and not include broader developmental objectives (such as sustainable development or poverty reduction) in its mandate. In regional terms, it is the first economic body established in Asia since the East Asia Summit was convened in 2005, and the first financial organization since the foundation of the ADB in 1966. Significantly, it is also the first time the Chinese government has proposed, led the negotiations for, and subsequently secured the presidency and headquarters of, a formal multilateral organisation of any kind. The establishment of the AIIB not only reflects a rapid and successful learning process for Chinese diplomats, but also the country’s emergence as an institution-builder in global governance (Chin, 2016; Ren, 2016). Table 1 Key features of five major MDBs and AIIB (2017)   World Bank  EBRD  AfDB  ADB  IADB  AIIB  Year founded  1944  1991  1964  1966  1959  2016  Capital subscriptions  $263 billion  €445 million  $92.1 billion  $147 billion  $157 billion  $100 billion  Largest shareholder (%)  US (17.4)  US (10)  Nigeria (8.9)  Japan (12.8)  US (30)  China (28.8)  Other major shareholders  Japan, Germany, France, UK, China  France, Germany, Italy, Japan, UK  US, Egypt, Japan  US, China, India, Australia  Argentina, Brazil, Mexico, Japan  India, Russia, Germany  Members  189  68  80  67  48  70  Special group shareholdings  42% developing  14% transition  60% regional  65% regional  50% regional  75% regional  Board of Directors  Resident  Resident  Resident  Resident  Resident  Non-resident  Main goals  Economic development, poverty reduction  Economic development, market economies  Economic development, poverty reduction  Economic development, poverty reduction  Economic development, regional integration  Infrastructure and interconnectivity    World Bank  EBRD  AfDB  ADB  IADB  AIIB  Year founded  1944  1991  1964  1966  1959  2016  Capital subscriptions  $263 billion  €445 million  $92.1 billion  $147 billion  $157 billion  $100 billion  Largest shareholder (%)  US (17.4)  US (10)  Nigeria (8.9)  Japan (12.8)  US (30)  China (28.8)  Other major shareholders  Japan, Germany, France, UK, China  France, Germany, Italy, Japan, UK  US, Egypt, Japan  US, China, India, Australia  Argentina, Brazil, Mexico, Japan  India, Russia, Germany  Members  189  68  80  67  48  70  Special group shareholdings  42% developing  14% transition  60% regional  65% regional  50% regional  75% regional  Board of Directors  Resident  Resident  Resident  Resident  Resident  Non-resident  Main goals  Economic development, poverty reduction  Economic development, market economies  Economic development, poverty reduction  Economic development, poverty reduction  Economic development, regional integration  Infrastructure and interconnectivity  Source: Author’s adaptation from Kawai (2015, Table 1) and MDB websites. EBRD European Bank for Reconstruction and Development; AfDB African Development Bank; ADB Asian Development Bank; IADB Inter-American Development Bank. Table 1 Key features of five major MDBs and AIIB (2017)   World Bank  EBRD  AfDB  ADB  IADB  AIIB  Year founded  1944  1991  1964  1966  1959  2016  Capital subscriptions  $263 billion  €445 million  $92.1 billion  $147 billion  $157 billion  $100 billion  Largest shareholder (%)  US (17.4)  US (10)  Nigeria (8.9)  Japan (12.8)  US (30)  China (28.8)  Other major shareholders  Japan, Germany, France, UK, China  France, Germany, Italy, Japan, UK  US, Egypt, Japan  US, China, India, Australia  Argentina, Brazil, Mexico, Japan  India, Russia, Germany  Members  189  68  80  67  48  70  Special group shareholdings  42% developing  14% transition  60% regional  65% regional  50% regional  75% regional  Board of Directors  Resident  Resident  Resident  Resident  Resident  Non-resident  Main goals  Economic development, poverty reduction  Economic development, market economies  Economic development, poverty reduction  Economic development, poverty reduction  Economic development, regional integration  Infrastructure and interconnectivity    World Bank  EBRD  AfDB  ADB  IADB  AIIB  Year founded  1944  1991  1964  1966  1959  2016  Capital subscriptions  $263 billion  €445 million  $92.1 billion  $147 billion  $157 billion  $100 billion  Largest shareholder (%)  US (17.4)  US (10)  Nigeria (8.9)  Japan (12.8)  US (30)  China (28.8)  Other major shareholders  Japan, Germany, France, UK, China  France, Germany, Italy, Japan, UK  US, Egypt, Japan  US, China, India, Australia  Argentina, Brazil, Mexico, Japan  India, Russia, Germany  Members  189  68  80  67  48  70  Special group shareholdings  42% developing  14% transition  60% regional  65% regional  50% regional  75% regional  Board of Directors  Resident  Resident  Resident  Resident  Resident  Non-resident  Main goals  Economic development, poverty reduction  Economic development, market economies  Economic development, poverty reduction  Economic development, poverty reduction  Economic development, regional integration  Infrastructure and interconnectivity  Source: Author’s adaptation from Kawai (2015, Table 1) and MDB websites. EBRD European Bank for Reconstruction and Development; AfDB African Development Bank; ADB Asian Development Bank; IADB Inter-American Development Bank. One noteworthy feature is the so-called ‘regional character’ of the AIIB. Members are formally organized into two groups: regional5 and non-regional members. Rules deliberately vest the regional members with control of key bank decisions. A minimum of 75 percent of the capital stock must be held by regional members, and nine of the twelve Director positions are also reserved for delegates from these states. While most MDBs reserve a portion of their voting stock for special groups of members, in the AIIB this reservation is set at a higher 75% level (Table 1). As governance decisions required a 75% super-majority vote, this reservation rule creates a system of asymmetric veto powers. If regional members vote as a bloc they can always carry a governance decision, while non-regional members are unable to collectively exercise vetoes. The purpose of these voting rules is to ensure the bank remains ‘led’ by its Asian members. Additionally, China currently holds 33% of the capital and 29% of the voting stock. This gives China an informal veto over super-majority governance decisions – a veto power which no other member presently enjoys. 3 What does China really want? The controversy over the AIIB agenda What was the purpose behind China’s creation of the AIIB? There is certainly a huge and unmet demand for infrastructure financing in Asia. Attention was first drawn to the regional ‘infrastructure gap’ by the ADB’s Infrastructure for a Seamless Asia report of 2009. This identified a number of barriers to infrastructure investment – principally, a lack of mechanisms to mobilize private finance for long-term and risky infrastructure projects – and estimated that $750 billion would be required per year to close these gaps (ADB, 2009). A recently revised set of estimates has doubled the annual figure to $1.5 trillion (ADB, 2017a). However, the global economy already has a large number of MDBs,6 all of which dedicate a significant share of their loan activities to infrastructure projects. The ADB considers infrastructure its number one investment priority, and during 2010–15 committed 63% of its loans to infrastructure projects.7 As The Economist (2015) has noted, if the Chinese government wanted to support regional infrastructure, a quicker and less controversial approach would have been to simply increase its capital subscription to the ADB. Why choose the more difficult path of establishing a new MDB from scratch? The official Chinese answer is that the existing MDBs are not up to the task, and a new specialized body is required. Two critiques have been made. The first is that the existing MDBs are too slow in decision-making, due to bureaucratic governance practices that make it difficult to mobilize complex infrastructure projects (Bloomberg, 2015). The second is that other MDBs do not specialize in infrastructure, instead focusing on other developmental agendas (particularly poverty reduction) which impose obstacles to infrastructure projects (Xinhua, 2015a). For example, the Chinese Ministry of Foreign Affairs has argued ‘[The AIIB] will learn from the good practices of other multilateral development banks and avoid taking detours that these banks have made, so as to cut costs and increase efficiency’ (WSJ, 2015d). The absence of a resident Board of Directors is cited as one of the AIIB’s main governance innovations. Jin Liqun has argued that this will enable the bank to concentrate expertise in infrastructure financing, and empower the management team to make faster operational decisions than other MDBs (FT, 2015). This philosophy is embodied in the mantra that the AIIB will be a ‘lean, clean and green’ institution (Reuters, 2015b). However, not all observers are convinced by the official Chinese narrative. Skeptics have argued a range of broader – and potentially revisionist – motives underlie China’s AIIB agenda. These revisionist interpretations start from the observation that the creation of the AIIB is also a challenge to existing patterns of global economic governance. By establishing a new MDB which is controlled by China and developing country governments in Asia, it is argued the AIIB challenges the pre-eminent role of the Washington-centric Bretton Woods institutions (Harpaz, 2016). In conjunction with the closely related BRI project, it also reflects a Chinese attempt to revise the global and regional architectures in ways that properly reflect its newfound political and economic status (Sun, 2015; Beeson and Li, 2016). What unites these revisionist interpretations is the suggestion that a range of strategic objectives, beyond the supply of infrastructure financing, were also behind China’s decision to launch the AIIB. Some have argued the AIIB is part of a Chinese revisionist push for international financial institution (IFI) reform. As its weight in the global economy has grown in recent years, China has pushed for reforms which would give developing countries greater say in IFI governance. However, these initiatives have repeatedly been blocked by western countries, particularly the loan practices of the World Bank (Etzioni, 2016), and US vetoes of IMF voting quota adjustments (Wade and Vestergaard, 2015). Having failed to achieve IFI reform through ‘voice’ strategies, it is argued that China has turned to ‘exit’ instead: creating a new institution which embodies its desired governance practices and within which western countries do not hold veto powers (Reisen, 2015). Lawrence Summers has gone as far to suggest that the AIIB was a direct response to the US Congress rejecting a 2010 IMF agreement to recalculate voting quotas, which would have greatly increased China’s share (Caixin, 2015). Even Chinese officials have publicly connected the AIIB to broader IFI reform efforts. For example, Finance Minister Lou Jiwei explained that the AIIB would reflect developing country interests, and would therefore eschew some of the rules which western countries had insisted upon in other MDBs (Bloomberg, 2015). A more mundane suggestion is that China wishes to use the AIIB to export its spare industrial capacity. The Chinese economy presently has major overcapacity in many of its heavy industries – particularly the steel, energy, and construction sectors – which the government has identified as its top economic policy priority (China Daily, 2016). As much of this could be put to use in infrastructure projects, several analysts have argued the AIIB is in part designed to create business for Chinse heavy industrial sectors (Kawai, 2015; Sun, 2015). In early 2015, there were also reports that the Chinese government wanted the AIIB to issue RMB- rather than USD-denominated loans, to advance its agenda of internationalizing the RMB (SCMP, 2015). This has raised concerns about the transparency and commercial orientation of the AIIB, particularly given China’s control of management. If the Chinese government uses this to ensure that construction contracts are awarded to its firms, and/or are RMB-denominated, the AIIB risks looking less like a genuine MDB and more like an instrument of Chinese financial or industrial policy. American critics have dismissed it as a ‘disguised cash register for Chinese state-owned enterprises’ (Foreign Policy, 2015). On the geopolitical front, others have alleged the AIIB is a vehicle for China to gain diplomatic influence with Asian countries. As China is the single-largest shareholder, holds the Presidency, and currently enjoys a veto power over governance matters, it has significant capacity to shape who receives AIIB loans and on what terms. This led many western commentators to argue that China could preferentially direct AIIB loans as a diplomatic tool: either make side payments to friendly states, or to spread its sphere of influence in the region.8Reisen (2015) has labelled this a form of ‘shadow global diplomacy’, which explicitly aims to dilute US influence in Asia by offering a competing source of development financing. Sun (2015) has documented that this interpretation is also widespread amongst Chinese foreign policy analysts, who have argued that receiving AIIB loans will strengthen Asian countries ties to China, by increasing their political alignment with and/or economic dependence upon it. For their part, Chinese officials have denied such allegations (Xinhua, 2015b), while Jin Liqun has bluntly argued ‘the AIIB is a bank, not a political organisation or political alliance’ (Reuters, 2015b). A related critique is that China intends the AIIB to function as the ‘Belt and Road Bank’. There is significant overlap between the two Chinese initiatives. Both were announced in 2013 and both target countries in South, Southeast, West, and Central Asia, and both emphasize infrastructure and economic connectivity. Rather than financing the most economically-justified infrastructure projects, it is suggested China may use the AIIB to channel capital to those which politically align with its broader BRI plans (Ferdinand, 2016). Indeed, Chinese policy confirms this suggestion. Xi Jinping has argued that the main purpose of the AIIB is to provide capital for infrastructure projects required by the BRI initiative (Xinhua, 2014a). The National Development and Reform Commission’s BRI policy also lists the AIIB – alongside the domestically owned Silk Road Fund (SRF) – as the principal financiers for BRI projects (NDRC, 2015). Given that the SRF is only capitalized to $40 billion, the AIIB is therefore the largest officially-identified source of capital for BRI projects. Tellingly, at the time of writing all the AIIB’s loans have been made to countries falling within the BRI program (Table 3). Table 2 Changes in AIIB capital and voting structures   MoU signatories (October 2014)   Founding members (September 2016)     Capital subscriptions (USD millions)  Voting shares (%)  Capital subscriptions (USD millions)  Voting shares (%)  China  59,350  52.51  29,780  28.79  India  20,504  18.47  8,367  8.31  Russia      6,536  6.56  Germany*      4,484  4.59  Korea      3,739  3.88  Australia      3,691  3.84  France*      3,375  3.53  Indonesia      3,360  3.52  UK*      3,054  3.23  Turkey      2,609  2.80  Italy*      2,571  2.77  Saudi Arabia      2,545  2.74  Other regional  20,110  29.02  9,333  16.30  Other non-regional*,      5,684  9.13   Subtotal regional  100,000  100  69,960  76.75   Subtotal non-regional*      19,168  23.24    MoU signatories (October 2014)   Founding members (September 2016)     Capital subscriptions (USD millions)  Voting shares (%)  Capital subscriptions (USD millions)  Voting shares (%)  China  59,350  52.51  29,780  28.79  India  20,504  18.47  8,367  8.31  Russia      6,536  6.56  Germany*      4,484  4.59  Korea      3,739  3.88  Australia      3,691  3.84  France*      3,375  3.53  Indonesia      3,360  3.52  UK*      3,054  3.23  Turkey      2,609  2.80  Italy*      2,571  2.77  Saudi Arabia      2,545  2.74  Other regional  20,110  29.02  9,333  16.30  Other non-regional*,      5,684  9.13   Subtotal regional  100,000  100  69,960  76.75   Subtotal non-regional*      19,168  23.24  Source: Author’s calculations and (AIIB, 2016d). Notes: *indicates a non-regional member. Implied capital subscriptions are calculated based on 2015 GDP figures, weighted 60% to exchange-rate USD and 40% to USD-PPP (Kawai, 2015). Voting shares are calculated using the formula specified in the AIIB Articles of Agreement. Table 2 Changes in AIIB capital and voting structures   MoU signatories (October 2014)   Founding members (September 2016)     Capital subscriptions (USD millions)  Voting shares (%)  Capital subscriptions (USD millions)  Voting shares (%)  China  59,350  52.51  29,780  28.79  India  20,504  18.47  8,367  8.31  Russia      6,536  6.56  Germany*      4,484  4.59  Korea      3,739  3.88  Australia      3,691  3.84  France*      3,375  3.53  Indonesia      3,360  3.52  UK*      3,054  3.23  Turkey      2,609  2.80  Italy*      2,571  2.77  Saudi Arabia      2,545  2.74  Other regional  20,110  29.02  9,333  16.30  Other non-regional*,      5,684  9.13   Subtotal regional  100,000  100  69,960  76.75   Subtotal non-regional*      19,168  23.24    MoU signatories (October 2014)   Founding members (September 2016)     Capital subscriptions (USD millions)  Voting shares (%)  Capital subscriptions (USD millions)  Voting shares (%)  China  59,350  52.51  29,780  28.79  India  20,504  18.47  8,367  8.31  Russia      6,536  6.56  Germany*      4,484  4.59  Korea      3,739  3.88  Australia      3,691  3.84  France*      3,375  3.53  Indonesia      3,360  3.52  UK*      3,054  3.23  Turkey      2,609  2.80  Italy*      2,571  2.77  Saudi Arabia      2,545  2.74  Other regional  20,110  29.02  9,333  16.30  Other non-regional*,      5,684  9.13   Subtotal regional  100,000  100  69,960  76.75   Subtotal non-regional*      19,168  23.24  Source: Author’s calculations and (AIIB, 2016d). Notes: *indicates a non-regional member. Implied capital subscriptions are calculated based on 2015 GDP figures, weighted 60% to exchange-rate USD and 40% to USD-PPP (Kawai, 2015). Voting shares are calculated using the formula specified in the AIIB Articles of Agreement. Table 3 AIIB-funded projects, June 2017 Funding date  Country  Name  Lead lender/s  AIIB involved at launch?  AIIB  Other MDBs  Other partners  Total project value  June 2016  Bangladesh  Power distribution system upgrade  AIIB  Yes  165  97    262  Indonesia  Slum upgrading project  WB  No  216.5  216.5  1310  1743  Pakistan  Shorkot-Khanewal M-4 Motorway upgrade  ADB  No  100  134  39  273  Tajikistan  Dushanbe-Uzbekistan road improvement  EBRD  No  27.5  62.5  16  106    September 2016  Pakistan  Tarbela-5 Hydropower extension  WB  No  300  390  133  823  Myanmar  Myingyan CCGT power plant  ADB, IFC  No  20  117    137    December 2016  Oman  Railway system preparation planning  AIIB  Yes  36    24  60  Oman  Duqm Port commercial terminal  AIIB  Yes  265    88  353  Azerbaijan  TANAP Pipeline  WB  No  600  2600  5400  8600    Mar 2017  Indonesia  Dam operational improvement and safety  WB  No  125  125  50  300  Indonesia  Regional Infrastructure Development Fund  WB  No  100  103  203  406  Bangladesh  Natural Gas infrastructure upgrade  ADB  No  60  167  226  453    May 2017  India  Andhra Pradesh power distribution upgrade  WB  No  160  240  171  571    June 2017  Georgia  Batumi Bypass road project  ADB  No  114  114  87  315  India  India Infrastructure Fund*  None  No  150    600  750  Tajikistan  Nurek Hydropower Rehabilitation Phase I  WB (IDA)  No  60  225  65  350  India  Gujarat rural roads upgrade  AIIB  Yes  329    329  658    Total          2,828  4,591  8,741  16,160  Funding date  Country  Name  Lead lender/s  AIIB involved at launch?  AIIB  Other MDBs  Other partners  Total project value  June 2016  Bangladesh  Power distribution system upgrade  AIIB  Yes  165  97    262  Indonesia  Slum upgrading project  WB  No  216.5  216.5  1310  1743  Pakistan  Shorkot-Khanewal M-4 Motorway upgrade  ADB  No  100  134  39  273  Tajikistan  Dushanbe-Uzbekistan road improvement  EBRD  No  27.5  62.5  16  106    September 2016  Pakistan  Tarbela-5 Hydropower extension  WB  No  300  390  133  823  Myanmar  Myingyan CCGT power plant  ADB, IFC  No  20  117    137    December 2016  Oman  Railway system preparation planning  AIIB  Yes  36    24  60  Oman  Duqm Port commercial terminal  AIIB  Yes  265    88  353  Azerbaijan  TANAP Pipeline  WB  No  600  2600  5400  8600    Mar 2017  Indonesia  Dam operational improvement and safety  WB  No  125  125  50  300  Indonesia  Regional Infrastructure Development Fund  WB  No  100  103  203  406  Bangladesh  Natural Gas infrastructure upgrade  ADB  No  60  167  226  453    May 2017  India  Andhra Pradesh power distribution upgrade  WB  No  160  240  171  571    June 2017  Georgia  Batumi Bypass road project  ADB  No  114  114  87  315  India  India Infrastructure Fund*  None  No  150    600  750  Tajikistan  Nurek Hydropower Rehabilitation Phase I  WB (IDA)  No  60  225  65  350  India  Gujarat rural roads upgrade  AIIB  Yes  329    329  658    Total          2,828  4,591  8,741  16,160  Source: Author’s compilation from AIIB (2017), ADB (2017b), World Bank (2017). *indicates The India Infrastructure Fund received an equity investment; all other AIIB contributions were made as commercially-priced loans. Table 3 AIIB-funded projects, June 2017 Funding date  Country  Name  Lead lender/s  AIIB involved at launch?  AIIB  Other MDBs  Other partners  Total project value  June 2016  Bangladesh  Power distribution system upgrade  AIIB  Yes  165  97    262  Indonesia  Slum upgrading project  WB  No  216.5  216.5  1310  1743  Pakistan  Shorkot-Khanewal M-4 Motorway upgrade  ADB  No  100  134  39  273  Tajikistan  Dushanbe-Uzbekistan road improvement  EBRD  No  27.5  62.5  16  106    September 2016  Pakistan  Tarbela-5 Hydropower extension  WB  No  300  390  133  823  Myanmar  Myingyan CCGT power plant  ADB, IFC  No  20  117    137    December 2016  Oman  Railway system preparation planning  AIIB  Yes  36    24  60  Oman  Duqm Port commercial terminal  AIIB  Yes  265    88  353  Azerbaijan  TANAP Pipeline  WB  No  600  2600  5400  8600    Mar 2017  Indonesia  Dam operational improvement and safety  WB  No  125  125  50  300  Indonesia  Regional Infrastructure Development Fund  WB  No  100  103  203  406  Bangladesh  Natural Gas infrastructure upgrade  ADB  No  60  167  226  453    May 2017  India  Andhra Pradesh power distribution upgrade  WB  No  160  240  171  571    June 2017  Georgia  Batumi Bypass road project  ADB  No  114  114  87  315  India  India Infrastructure Fund*  None  No  150    600  750  Tajikistan  Nurek Hydropower Rehabilitation Phase I  WB (IDA)  No  60  225  65  350  India  Gujarat rural roads upgrade  AIIB  Yes  329    329  658    Total          2,828  4,591  8,741  16,160  Funding date  Country  Name  Lead lender/s  AIIB involved at launch?  AIIB  Other MDBs  Other partners  Total project value  June 2016  Bangladesh  Power distribution system upgrade  AIIB  Yes  165  97    262  Indonesia  Slum upgrading project  WB  No  216.5  216.5  1310  1743  Pakistan  Shorkot-Khanewal M-4 Motorway upgrade  ADB  No  100  134  39  273  Tajikistan  Dushanbe-Uzbekistan road improvement  EBRD  No  27.5  62.5  16  106    September 2016  Pakistan  Tarbela-5 Hydropower extension  WB  No  300  390  133  823  Myanmar  Myingyan CCGT power plant  ADB, IFC  No  20  117    137    December 2016  Oman  Railway system preparation planning  AIIB  Yes  36    24  60  Oman  Duqm Port commercial terminal  AIIB  Yes  265    88  353  Azerbaijan  TANAP Pipeline  WB  No  600  2600  5400  8600    Mar 2017  Indonesia  Dam operational improvement and safety  WB  No  125  125  50  300  Indonesia  Regional Infrastructure Development Fund  WB  No  100  103  203  406  Bangladesh  Natural Gas infrastructure upgrade  ADB  No  60  167  226  453    May 2017  India  Andhra Pradesh power distribution upgrade  WB  No  160  240  171  571    June 2017  Georgia  Batumi Bypass road project  ADB  No  114  114  87  315  India  India Infrastructure Fund*  None  No  150    600  750  Tajikistan  Nurek Hydropower Rehabilitation Phase I  WB (IDA)  No  60  225  65  350  India  Gujarat rural roads upgrade  AIIB  Yes  329    329  658    Total          2,828  4,591  8,741  16,160  Source: Author’s compilation from AIIB (2017), ADB (2017b), World Bank (2017). *indicates The India Infrastructure Fund received an equity investment; all other AIIB contributions were made as commercially-priced loans. What unites these critiques is the suggestion that there is more to China’s AIIB initiative than its declared goal of closing infrastructure gaps. A range of revisionist agendas – whether economic and/or diplomatic – are argued to be motives behind its establishment. This controversy over Chinese intentions has cast a shadow over the AIIB’s membership. The Japanese government has repeatedly declined membership invitations, citing concerns over bank transparency, and fears the AIIB would compete with the ADB’s existing infrastructure efforts (Katada, 2016). The US government has opposed the AIIB on the principle that it would not uphold the high standards of the World Bank and other MDBs. During 2014, the Obama Administration lobbied allies in Asia to decline Chinese membership invitations (Harris, 2015). While these lobbying efforts ultimately failed, the US and Japan continue to maintain a joint position of not joining the AIIB until several governance and transparency concerns are addressed (The White House, 2015). Despite repeated denials by Chinese officials, the controversy over China’s agenda has persisted, and is currently the single greatest challenge to the perceived international legitimacy of the AIIB. 4 Growing membership and negotiating governance compromises One of the major sources of the AIIB controversy concerns bank governance. Two assumptions inform its critics. The first is that the AIIB is a China-controlled institution: that as the founder, host, and largest shareholder, the Chinese government has the capacity to determine to whom and on what terms it will make loans. The second is that the Chinese government has a coherent and unchanging AIIB strategy: a set of strategic goals which it intends to realize through the bank. Both assumptions are problematic. The AIIB which emerged from membership negotiations was a broad-based multilateral institution, which brought together a diverse range of developed and developing countries from many regions of the world. Moreover, these members had their own preferences – which were not always aligned with China’s – over how the AIIB would be governed. To secure the membership of these governments, Chinese negotiators had to find compromises between their own strategic agendas and the interests and demands of partners. China responded to partner requests by recalibrating its strategy, and as a result the AIIB changed quite dramatically between proposal and establishment. China’s initial AIIB pitch was made to prospective members in 2014. This culminated in a MoU to establish the AIIB, which was signed in October 2014 and established an interim secretariat in Beijing. However, its initial efforts to attract members delivered very modest results. The 21 signatories9 to the 2014 MoU were predominantly small, developing countries in South, Southeast, and West Asia. These governments were attracted by the opportunity of accessing a new source of infrastructure financing, and publicly welcomed the Chinese initiative (Chin, 2016; Ba, 2017). However, most of the region’s major economies – including Australia, Japan, Korea, and Russia – initially sat on the sidelines. The exact nature of China’s AIIB proposal at the time was fluid, and never officially presented for public scrutiny. However, reports from involved parties indicate it contained the following features: A focus on attracting member states from within the Asian region (Xinhua, 2015d); Governance arrangements vesting considerable authority in the hands of the Bank President, with reduced Director oversight relative to other MDBs (New York Times, 2014; Japan Times, 2015) Minimalist environmental, social, and transparency safeguards, which fell short of the ‘best practices’ applied by the World Bank and ADB (Devex, 2014) Proposals for loans to be issued either in RMB or an ‘AIIB basket’ with mixed denomination (SCMP, 2015) A preference for using Chinese construction contractors in AIIB-funded projects (Sun, 2015) China to contribute over 50% of the capital stock, and thus hold a formal veto power over all loan decisions (Reuters, 2015a)Together, these proposals amounted to an AIIB that was formally China-controlled, and would have granted the management team considerable autonomy to advance the China’s own economic goals. Such an approach was evidently acceptable to the developing economies who signed the 2014 MoU. However, they were rejected by many western countries, who expressed discomfort with the idea of a Chinese-controlled bank deviating from the accepted international practices in development financing. Key were the US, Japan, and several European countries, who all declined membership invitations citing governance and transparency concerns. During 2014, the US successfully lobbied several allies in Asia – including Australia and Korea – to stay out (Harris, 2015). Indonesia was also initially absent due to its 2017 Presidential election (Ba, 2017). As the final deadline for membership applications approached, it appeared the AIIB would be limited to China and the handful of developing countries willing to accede to its preferred governance model. This was to change with the last-minute addition of European members. On 12 March, the British government took the unexpected step of becoming the first major western economy to join. It officially claimed the intention was to improve the AIIB by shaping governance arrangements from the inside; though observers argued it also hoped AIIB membership would establish the City of London as a hub for Chinese finance (WSJ, 2015a). The US chastised the British government for breaking rank, with officials publicly remarking ‘We are wary about a trend toward constant accommodation of China, which is not the best way to engage a rising power’ (The Guardian, 2015). But British membership would set off a flood of other membership applications. Germany, France, and Italy all announced intentions to join four days later; and over the next fortnight Switzerland, Australia, Korea, Russia, Brazil, and Turkey followed suit. By the 31 March deadline, 57 countries had signed up. This was widely considered a diplomatic coup for China. Its overtures had prevailed in the face of stiff US opposition, and managed to split from the US several of its key alliance partners. Foreign Policy magazine labelled the episode ‘Washington’s big China screw-up’ (2015). Expanded membership greatly increased the perceived international legitimacy of the AIIB. China could boast that its new MDB included most of the world’s major economic powers, conferring a degree of prestige and credibility it had previously lacked (Tang, 2015). However, their presence also fundamentally changed the internal character of the bank. Prior to the expansion, the AIIB could reasonably be described as a China-dominated institution (Table 2). But with the new members came a dramatic redistribution of formal control. China’s shareholding was diluted to 29%, and non-regional members held 23% of the voting power. Moreover, China now had to accommodate an impressive range of economic powers, including 4 of the G7, 14 of the G20, and 12 members of the European Union (EU). Indeed, the EU states had publicly declared they were not content with China’s previous proposals, and as AIIB members would push for governance arrangements similar to those in the other MDBs (WSJ, 2015b). With the Articles of Agreement and other operational policies still to be finalized, negotiations over the final shape of the AIIB became far more complex. During April and May 2015, two further negotiating rounds were held amongst the now-enlarged group of founding members. Significant pressure was brought to bear by the western governments – led by the UK and Germany – to adopt more transparent and rules-based governance practices (WSJ, 2015a, 2015b). These resulted in the final Articles of Agreement which were settled on 22 May. By this time, it was clear that Chinese negotiators had made significant concessions. The AIIB was now to use the same tripartite governance system of other MDBs, which vests the Board of Directors (rather than management team) with authority over loan decision. It explicitly adopted a commercial orientation, with loan decisions to be made against objective criteria and projects required to pay commercial interest rates. Loans were to be issued in USD. China also shelved its request for a formal veto power over loan decisions, and agreed to reduce its shareholding to 28% of the voting stock. The veto power concession was reportedly made to secure the involvement of European governments, who from the outset had made this a condition of their membership (WSJ, 2015c). With the Articles of Agreement in place, members spent the remainder of 2015 negotiating the AIIB’s policies and guidelines.10 Former officials from the World Bank and ADB were brought in to assist with the drafting process (FT, 2016). The result was a set of policies which closely conformed to the international practices of the other MDBs: An Operational Policy on Financing laid out commercial criteria for how potential projects would be assessed, and how financing packages would be structured. A Sovereign-backed Loan and Guarantee Pricing Policy sets transparent interest rates (LIBOR plus specified adjustments) for loans to host government-backed projects. A Procurement Policy outlines a commercially oriented set of procurement goals, which emphasize efficiency, value-for-money, fit-for-purposeness, and transparency. Accountability and transparency are achieved through a Public Information (Interim) Policy and Policy on Prohibited Practices, while Codes of Conduct for Directors and management personnel enforces ethical standards and anti-corruption measures. An Environmental and Social Framework provided a mechanism to evaluate the broader societal impacts of projects during the assessment process. The outcome was an AIIB which, contrary to earlier Chinese claims of institutional innovation, largely reproduces existing MDB governance practices. With the exception of its non-resident Board of Directors and 75% capital reservation for regional members, the AIIB’s governance arrangements are for all practical purposes identical to those of the ADB and World Bank (Kawai, 2015). Additionally, all of the revisionist elements within China’s initial proposal had been removed. Demands for management-led decision-making and Chinese veto powers were abandoned during negotiations for the Articles of Agreement; while the desire to issue RMB-denominated loans and preferentially award contracts to Chinese suppliers were prohibited by the operational policies. As Sun (2015) has argued, this change from a revisionist to legitimacy-enhancing agenda demonstrates the flexibility of China’s AIIB strategy. The prospect of securing western country membership through governance compromises posed a choice: either a formally Chinese-controlled or internationally legitimate bank, but not both. The Chinese government ultimately opted for the latter. While the AIIB started with revisionist intentions, by the time it commenced operations in 2016 its governance practices had transformed to fit squarely within the MDB status quo. 5 Competing or cooperating with the other MDBs? A second source of controversy was criticisms that the AIIB would function as a China-backed competitor to the existing MDBs. All the major MDBs already have dedicated infrastructure financing programs, and in recent years have been increasing the volume of loans to infrastructure projects. The concern is that the AIIB might compete with its peers for the limited number of commercially-viable infrastructure projects available. This is particularly acute given the so-called ‘bankable projects problem’ – the fact that there are few infrastructure projects which are sufficiently developed for a financier to be able to offer a loan. The ADB is considered to be under a particular threat. As the ADB already dedicates more than half its budget to infrastructure, and operates in the same region, critics have claimed that the AIIB and ADB must inevitably compete for the limited number of bankable projects in Asia (Sun, 2015). Japan’s continuing refusal to join the AIIB, despite China’s governance concessions, is reportedly due to a desire to protect the status of the Japan-led ADB against a China-backed rival (Katada, 2016). Chinese actors have gone to great lengths to refute the notion that the AIIB was designed as competitor institution. Jin Liqun has repeatedly denied suggestions of rivalry, pledging that the AIIB would cooperate with the other MDBs through knowledge-sharing and co-financing (Xinhua, 2015c; ASPI, 2016). Concerted efforts were directed at the ADB, with Chinese Premier Li Keqiang personally meeting ADB President Nakao Takehiko a week prior to the March 2015 membership deadline. While this overture failed to convince the Japanese government to join, it did deliver an in-principle agreement for the AIIB and ADB to cooperate through technical exchanges (Japan Times, 2015). The World Bank also responded positively. In a widely publicized speech given in April, President Jim Yong Kim argued that negative attitudes to the AIIB amongst the international development community needed to change: The fundamental issue for us is your enemy cannot be other institutions. Your enemy has to be poverty. If your enemy is poverty, the natural thing to do is welcome any new players that are interested in developing the kind of infrastructure that will end poverty (Devex, 2015).A key element of China’s charm offensive was a set of cooperation agreements negotiated with the other MDBs.11 The first was a co-financing agreement with the World Bank in April 2016, which would enable the two banks to develop and fund infrastructure projects together. The terms stipulated that the World Bank would be the supervising partner, so that its loan policies and safeguards – and not the AIIB’s – would be applied. This was followed by MoUs signed with the ADB, EBRD, and European Investment Bank in May. These were less rigid than the World Bank agreement, but contained provisions for information sharing, dialogue on policy development, and the joint-financing of infrastructure projects. The political logic behind these agreements was to send a message that the AIIB would not be a competitor to the other MDBs. However, these cooperation agreements also had an institutional purpose: to help build the technical capacity of the AIIB itself. When its first financing activities began in June 2016, the AIIB had extremely limited resources. It had no project development ‘pipeline’ of its own, relied upon external consultants for all technical work, and publicly acknowledged many of its policies required further elaboration before they were ready to be used to manage projects (AIIB, 2016c). In short, the AIIB was wholly dependent on other MDBs to supply it both bankable projects and the technical expertise to execute them. Both the World Bank and ADB proved happy to oblige. Their respective Presidents made offers to ‘share knowledge’ with the AIIB during its start-up phase, and many of the key staff and consultants hired during 2016 were former World Bank and/or ADB officials (ASPI, 2016). The World Bank co-financing agreement was especially important in this regard. It not only provided access to World Bank technical experts, but also promised to include the AIIB as a financier partner in infrastructure projects it had been developing for several years (World Bank & AIIB, 2016). The AIIB has since been dependent upon other MDBs for the supply of finance-ready projects. By June 2017, six rounds of funding had been completed, with seventeen projects receiving a total of $2.8 billion (Table 3). However, the AIIB has typically played a junior finance partner role. The World Bank invited it to join seven of its pre-existing projects, the ADB four, and the EBRD one. In each case the MDB partner was the ‘lead lender’ – the party which develops and manages the project, provides the largest financing contribution, and applies their own loan and safeguards policies. The AIIB’s role was limited to that of junior partner, who only became involved once a project was ready for financing, and only contributed finance rather than project management or policy supervision. Only four relatively minor projects were independent efforts launched and managed by the AIIB, and in two cases these were duplications of previous projects developed by other MDBs.12 Even the AIIB’s financial contribution is relatively modest, accounting for only one-third of the MDB loans, and 17% of total project costs. Thus far, the AIIB has mostly loaned with support from, and under the direct policy supervision of, the established MDBs. This data reveals that the AIIB very much remains in a start-up phase. These initial projects provide learning opportunities for the AIIB, which will develop the capacity to operate with greater independence as the institution matures. But given that the AIIB’s $100 billion of subscribed capital is comparable to the other MDBs (Table 1), it will be impossible to dispose of solely by piggybacking on its peers. Nonetheless, there is no evidence the AIIB is competing with the ADB or World Bank for projects. Nor is there evidence of governance standards being diluted. As World Bank or ADB policies are applied to the joint projects, the involvement of the AIIB has made no impact either on project governance, or the commercial structure of loans. Thus far, all the AIIB has done is channel a comparatively small amount of capital into existing MDB mechanisms for infrastructure financing in Asia. 6 Conclusion: Leadership-seeking through a status quo institution To its critics, China’s AIIB initiative is viewed as a revisionist attempt to redraw the institutions of global economic governance. Yet the bank which emerged in 2016 has few such features. The AIIB is a broad-based multilateral institution with a diverse membership of developed and developing economies. It has adopted the governance practices and policy frameworks which are considered international best practices for development financing. It has established cooperative rather than competitive relationships with its MDB peers, and has thus far depended upon them for the supply of technical expertise and bankable projects. While China holds the largest share of the capital stock, and an informal veto over governance decisions, it does not formally control the routine activities of the bank. The AIIB’s principal impacts have been establishing the world’s first-dedicated infrastructure bank, unlocking an additional $100 billion for infrastructure projects in Asia, and being the first multilateral organization conceived of and led by China. These are certainly significant developments for global economic governance. But they also fall well-short of revisionism proper, as they do not challenge the existing norms, rules, or institutional practices for development financing. Far from being a revisionist institution, the AIIB largely conforms to the MDB status quo. This was made possible by a change in the Chinese government’s strategy. China’s initial AIIB pitch was very much for an Asian-focussed and revisionist institution. It would have vested China with formal control of the bank, and advanced a range of Chinese geoeconomic agendas including as IFI reform, RMB internationalization, and the BRI program. While developing economies in Asia accepted this template, western country governments would not participate on these terms. In early 2015 Chinese government faced a choice: either proceed with the revisionist agenda and create a small Asian institution that would be viewed with skepticism elsewhere; or create a larger and globally legitimate body via governance concessions to western partners. Demonstrating the flexibility of Chinese foreign policy, it quickly adapted its proposal to create an institution which many governments were willing to support. The controversy over the AIIB has greatly diminished as a result. In March 2017, a further thirteen governments joined the bank, including Belgium, Canada, and Ireland. It now counts practically all major economies bar the US and Japan as members, and is recognized by its MDB peers as a development financing partner. Why did China change its AIIB strategy? These governance compromises evidence the mixed motives underlying contemporary Chinese foreign policy, and the challenge translating these into shared multilateral institutions. On one hand, the Chinese government clearly harbored revisionist ambitions to establish a new MDB that would reflect its own interests. But on the other, it was also an exercise in status-seeking: becoming an institution-builder rather than just an institution-follower, and thus projecting its desired image as a ‘responsible great power’ (Breslin, 2013). The diverging interests of other major economies meant that these goals proved largely incompatible. Chinese negotiators attempted to realise both revisionist and status-seeking objectives during the early phases of the AIIB, but by early 2015 it had become clear these could not be simultaneously achieved. As Ikenberry and Lim (2017) argue, China’s response to its AIIB dilemma thus reflected a fundamental characteristic of multilateralism – that it is a source of both legitimacy and constraint. Legitimacy-through-leadership is contingent on acceptance-through-followership, and where state preferences diverge, compromise is required by those with leadership aspirations. The constraints imposed by multilateralism required China to sacrifice demands for formal authority over the AIIB in exchange for the informal influence a broad-based institution would offer. Indeed, establishing a ‘status quo AIIB’ has greatly strengthened China’s leadership credentials. Not only has China for the first time led the creation of a multilateral institution, but also hosts the headquarters and presidency of a major international economic organization. Securing the membership of western countries in the face of US opposition – particularly Australia, Germany, Korea, and the UK – signals a recognition of leadership status by the international community that China has never previously enjoyed (Ren, 2016). The compromises made during negotiations has sent a clear message to its key diplomatic partners, both in and outside Asia, that China is willing to make the adjustments necessary to function as a responsible great power (Ba, 2017). As Xinhua editorialized following the accession of the European members: The world watched as the number of countries applying to be founding members of the AIIB rose to 46 by the Tuesday deadline. The soaring participation has been seen as evidence of China's growing international sway. If there is one message to glean from the number of applicants, it is that the world has sensibly voted for a more inclusive, balanced and mutually beneficial international economic order. (Xinhua, 2015a)This transition has broader implications for how contemporary Chinese foreign economic policy is understood. In recent years, China has become a more activist institution-builder, playing a leadership role in economic initiatives such as the AIIB, the BRI, and the New Development Bank. These developments have led many to suggest an historic transformation from a status quo to revisionist orientation in Chinese foreign policy is occurring, as its material capacity for – and interest in – institutional leadership grows (Sun, 2015; Beeson and Li, 2016; Ferdinand, 2016; Yu, 2016). However, the flexibility in China’s AIIB strategy indicates claims regarding putative revisionism should be moderated. The Chinese government certainly held revisionist aspirations for the AIIB; yet it was also willing to shelve these aspirations when faced with the compromises required for successful multilateral leadership. Rather than singularly classifying China as either a revisionist or status quo power, the case of the AIIB demonstrates Chinese foreign policy is flexible, pursues multiple agendas, and is capable of accommodating the interests of its partners. As Breslin (2013) has argued, China has multiple – and sometimes competing – motivations, whose expression in international institutions will be product of negotiated compromise rather than imposed grand design. Of course, the AIIB remains a very new institution. At the time of writing it has been in operation for over a year, and has only issued $2.8 billion worth of loans – a tiny fraction of its $100 billion subscribed capital. Its governance policies remain largely untested, as most of its loans have been made under the policy supervision of the World Bank or ADB. As the AIIB accumulates technical capacity and experience, it will need to begin financing infrastructure projects in its own right. This transition to operational independence will prove the ultimate test of China’s longer term intentions for the bank. In the absence of MDB partners, will the AIIB maintain its declared commitment to a commercial, transparent, and socially- and environmentally sensitive approach to infrastructure financing? And while the Chinese government had ceded formal control, will it use its informal influence over bank operations – via its policy veto power and the bank presidency – to pursue the strategic goals that western critics allege were its real motives? The Chinese government has already changed its AIIB strategy once, it might reverse approach again. But at present, it is clear the AIIB is squarely a status quo institution, principally designed to augment China’s leadership credentials in global economic governance. Time will tell whether revisionist agendas will re-emerge. ACKNOWLEDGEMENTS This research was supported by the Australian Research Council (DP150100217). The author would like to thank Su Xing and Anna Chapman for research assistance; and Stephen Bell, Shaun Breslin, Shahar Hameiri, Eric Helleiner, Richard Higgott, Lee Jones, and John Ravenhill for comments on earlier drafts. Footnotes 1 For a critique of the definitional imprecision regarding ‘revisionist’ behavior, see Johnston (2003, pp. 8–12). 2 For the key terms of this debate, see Buzan (2010), Johnston (2003), Legro (2007). 3 Jin Liqun was a former Chinese Vice-Minister of Finance, Vice-President of the Asian Development Bank, and Chairman of the China International Capital Corporation (Xinhua, 2016). 4 These governance decisions include those surrounding membership, capital allocations and voting rights, the constitution and membership of the Board of Directors, and the creation and amendment of bank policies. 5 Per Article 1.2 of the Articles of Agreement, AIIB regional members comprise those who belong to the UN’s ‘Asia and Oceania’ geographic group. This 55-member group includes many which would not conventionally be considered part of ‘Asia’, such as the states of the Middle East. 6 The exact number depends on how an MDB is defined. There are five core MDBs – the World Bank plus its four regionally-focussed counterparts (EBRD, AfDB, ADB, and IADB) – though many smaller sub-regional and specialized banks extend the list. 7 Author’s calculations (ADB, various years). 8 For a summary of these critiques, see The Diplomat (2014). 9 The 2014 MoU signatories comprised Bangladesh, Brunei, Cambodia, China, India, Kazakhstan, Kuwait, Laos, Malaysia, Mongolia, Myanmar, Nepal, Oman, Pakistan, Philippines, Qatar, Singapore, Sri Lanka, Thailand, Uzbekistan, and Vietnam. 10 These policies are available at AIIB (2016b). 11 A full list of the AIIB’s cooperation agreements is available at AIIB (2016a). 12 The Bangladesh power distribution system upgrade (June 2016) and Indian Gujarat rural roads upgrade (June 2017) projects were AIIB-led. However, both were reproductions of existing ‘templates’ that had been previously developed by the ADB and World Bank through similar in-country projects. 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