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The Asian Infrastructure Investment Bank (AIIB) is an international financial institution proposed by China. AIIB is regarded as a rival for the IMF, the World Bank and the Asian Development Bank (ADB) which the AIIB says are dominated by developed countries like the USA and Japan. In this Article We will explain everything about AIIB and also why India has joined it and the likely challenges AIIB will face in future.

What is AIIB?

  • The ‘AIIB’ is the Asian Infrastructure Investment Bank, a new multilateral development bank first proposed by Xi Jinping in a speech to the Indonesian parliament in October 2013.
  • At the time, Xi explained that ‘to support the process of interconnection and integration of the economic development in the region, China has proposed to build the Asia infrastructure investment bank and provide financial support to infrastructure development in developing countries in the region.’
  • The bank was formally established on October 24, 2014 in a ceremony in Beijing where 21 founding members signed the bill.

Functions of the AIIB:

The AIIB has broad functions, similar to other MDBs.  Under its Articles of Agreement, the AIIB’s functions include:

(i) Promoting public and private investment in the Asia region for development, in particular for infrastructure and other productive sectors;

(ii) Utilizing the resources at its disposal for financing such development in the region; and

(iii) Encouraging private investment  that contributes to economic development in the Asia region, in particular in infrastructure and other productive sectors, and supplementing private investment when private capital is not available on reasonable terms and conditions


Why was AIIB is established when the IMF and World Bank are already there?

The Asian Infrastructure Investment bank (AIIB), the new kid in the development lender’s neighbourhood is a both the result and reflection of changing political economic equation of an increasing multi polar world. The necessity and the differential design of AIIB can be enumerated as follows:

#1. Economic

  1. To begin with China is sitting on a huge pile of unutilised cash and is looking for markets to invest it to earn from the otherwise idle money. Funding projects through AIIB is a structured way to do it.
  2. Investment focus of AIIB will be sector and region specific unlike IMFs and ADBs of the world. AIIB specifically will be an financial enabler for sponsoring infrastructure in Asia
  3. With Yuan’s entry in SDR it makes sense to loan Yuan to spread its global availability.
  4. Asian infrastructure development needs huge investment (estimated $ 800 Bn annually) which certainly cannot be supplied by IMF alone.
  5. The boost to Asian Infrastructure provides a market for Chinese firms with excess capacity in cement and steel lying ideal post slowdown.

#2. Political

  1. Unlike IMF, AIIB does not adopts quota system ie decision making power is not proportionate to contribution, thus it is more democratic. Well, err, China and democracy do not go hand in hand, undeniably Chinese interest will be loudest.
  2. IMF and ADB funding comes with the vested interest of western world like “free” market economy, forced structural reforms, skewed intellectual property rights etc. AIIB’s loan provides an alternative to circumvent western influence during financial emergency.
  3. IMF is increasingly going green with increasing western focus on cleaner and renewable energy (off course with only limited heed to CBDR call), which might not be appealing to nations which are yet to release their quota of developmental pollution. Well, AIIB is here to help.
  4. Presents the benevolent face (most possibly farcical) of the otherwise ruthlessly pragmatic and openly aggressive china.

Why has India joined the AIIB?

There are many reasons for it, a few of them being:

  1. India is preparing to start a large number of infrastructure projects, but they’re short of money, so they need help from China. Of course they can get money from ADB or WB, but they also need to find a balance between China and USA.
  2. It’s a great chance to develop economy links between India and China. These two countries both have huge market, and they also keep a rapid growth of economy.
  3. Though AIIB is a Chinese-lead financial institution, India is welcomed to play a important role in it. It’s the reason why the UK, Germany and France all want to be a member of AIIB.
  4. The AIIB gives countries like India and China the historical opportunity to enter and reform a bastion where they have been traditionally denied entry.

Difference between AIIB and NDB


Challenges that AIIB may likely face in Future?   

China will face many challenges in future while implementing the AIIB .The major challenges include:

  1. Non Participation of USA and Japan: The United States and Japan remain non-committal to the AIIB, althoughthat is an improvement from their previous firm opposition. The AIIB will probably function well without the participation of the United States and Japan. But the participation of these two countries is important for China since it will help improve the new bank’s credit rating and give it added legitimacy.
  2. Security issues: Security will be another major challenge. For example, most of the loans which will be given under AIIB would be to projects in central Asia however there is a challenge of who is going to protect so many projects covering so many countries as this region has some of theworld’s most vulnerable and conflict-ridden territory.
  3. Fear of NPA: Many recipient countries in Asia have poor credit, which means many projects may be promising at the beginning but will be difficult to pursue. Agreement and consensus are reached at the top levels of government, but implementation is at the local level. Local governments often do not care about the central government’s policies and do not always cooperate with foreign investors.


Any doubts?

  1. Root

    Updated with CD Explains & Questions

  2. Srinath Sundareswaran

    Fair points by the CEA. We should focus on such “indirect” initiatives instead of directly garnering support for the UNSC seat or even for membership into groups like NSG. What use does NSG serve us other than a namesake “coveted” place? Last month when the time came for suggestions for expansion of the UNSC all countries including our “All weather friend” started talking in generalities. Never mind that both USA and Russia later clarified their stances saying they did indeed support our bid. That was just unofficial sweet talk.

The myth of rule-making in the international order


Mains Paper 2: IR | Bilateral, regional & global groupings & agreements involving India &/or affecting India’s interests

From UPSC perspective, the following things are important:

Prelims level: Not much

Mains level: India’s aspirations to be a global rule maker and associated constraints


Emerging superpowers being excluded

  1. China and India are being excluded from institutions in the international order
  2. Exclusion ostensibly prevents them from becoming rule makers that presumably would allow them to make or create rules
  3. These rules would help address problems like climate change or nuclear proliferation that no one state can address alone

Issues associated with noninclusion

  1. US and Western countries that lead the international order are not completely open to meaningfully sharing power with rising powers like India
  • The international order was constructed following World War II to manage geopolitical exigencies wrought by the Cold War
  • Over time, international organizations took on different priorities, particularly facilitating liberalization and the opening up of global markets
  • Trade agreements were used to open new markets for American goods
  • Negotiations on a number of agreements from the 1980s on issues like global warming, disarmament and tobacco control were marked by American and, occasionally, European reticence to make rules globally applicable
  • The international order has been liberal but only for a small minority in the West

2. It is difficult for any one country, even the US, to function as a rule maker

  • Being a rule maker is distinct from stitching together ad hoc coalitions to tackle problems
  • Rule makers purportedly work within multilateral fora to address existing trans-boundary problems
  • Negotiating international rules in such settings entail dealing with over 100 different national agendas and as many interpretations on how they perceive a policy problem should be addressed

3. It may not be in India’s interest, now, to seek or acquire greater responsibilities in the international order

  • Leadership is an onerous task
  • Issues like intervention, humanitarian crises, and nuclear proliferation require nifty diplomatic coalitions to address
  • India’s overriding focus on securing its periphery and improving its growth trajectory serve as constraints to higher ambitions in the international order
  • India’s economic interests conflict with or complicate policy choices

Way forward

  1. Leading while trying to sustain growth is complex and not always prudent
  2. The very real constraints that accompany development offer India a political strategy to eschew burden-sharing responsibilities until they can be balanced with domestic commitments
  3. It’s time to take a step back on pontificating on the selectively liberal international order and whether it can accommodate rising powers like India into the mix

Indian concerns about possible AIIB funding for CPEC

  1. India has strategic concerns regarding CPEC that covers areas including Pakistan-occupied-Kashmir
  2. CPEC is the so-called ‘flagship’ project of China’s One-Belt-One-Road (OBOR) initiative, aimed at developing infrastructure in more than 60 countries
  3. OBOR is among those that will get AIIB funding
  4. The Bank’s priority areas in Asia are to help develop sustainable infrastructure, improve transport and energy connectivity and mobilise private sector capital into infrastructure


Make a note of AIIB and OBOR. Find out the headquarters of AIIB and the voting share of India.

Canada to apply to join China-backed AIIB: president of AIIB

  1. Canada will submit its application to join the AIIB by the end of September 2016
  2. AIIB: An international financial institution head quartered in Beijing, China

AIIB to help fund urban development in India

  1. India is identifying projects worth US$ 2-3 billion that could be funded by the Asian Infrastructure Investment Bank (AIIB)
  2. The projects were in the areas of urban development including smart cities, urban transport, energy, inland waterways and water supply
  3. AIIB represents an additional financing window dedicated to infrastructure projects and meeting the financing gap

‘Indian likely to become CFO of AIIB’


  1. India is likely to bag the post of Chief Financial Officer (CFO) in the newly launched Asian Infrastructure Investment Bank (AIIB).
  2. The multilateral bank, whose formation was steered by China in order to boost infrastructure development in Asia.
  3. The newly appointed President of the AIIB — will be from Germany, India, South Korea, Britain and Indonesia.
  4. The Vice-President from Germany would serve as the Chief Operating Officer, while his peer from India would become the bank’s first CFO.
  5. Analysts say that the Chinese have made a decision to run the bank according to international best practices, which include tapping into the experience of European bankers.

India elected to board of directors of AIIB

  1. Dinesh Sharma, Additional Secretary of Ministry of Finance has been elected to the 12-member board through a secret ballot.
  2. AIIBB has authorised capital of $ 100 billion and subscribed capital of $ 50 billion.
  3. AIIB will invest in sectors including energy, transportation, urban construction and logistics as well as education and healthcare.
  4. China is the largest shareholder with 26.06% voting shares followed by India, the second-largest with 7.5%; Russia 5.93% and Germany 4.5%.

AIIB to have compliance unit

  1. China has committed to hold the AIIB to high standards of governance and transparency.
  2. A special compliance-and-integrity unit will exercise oversight over the management and report directly to the board.
  3. There’ll be division of power and responsibility between the board and management
  4. AIIB plans to raise capital in currencies including US dollars, euros and the yuan, while making loans in American dollars.

Xi Jinping says AIIB to boost infrastructure investment in Asia

Xi says AIIB will provide impetus for economic growth in Asia and the rest of world.

  1. China-led Asian Infrastructure Investment Bank (AIIB) was formally opened by the Chinese President Xi Jinping in Beijing.
  2. The bank expects to lend $10 billion to $15 billion a year for the first 5 years of its operations, beginning in the second quarter of 2016.
  3. Despite opposition from Washington, U.S. allies including Australia, Britain, German, Italy have agreed to join the AIIB in recognition of China’s growing economic clout.

China parliament ratifies $100 bn AIIB

Asian Infrastructure Investment Bank (AIIB) agreement, which establishes the legal framework for the bank.

  1. China being the largest shareholder, ratification is a significant step closer to the AIIB’s formal establishment slated for the end of 2015.
  2. With an authorized capital of $100 billion, the AIIB finance infrastructure projects like construction of roads, railways, and airports in Asia-Pacific Region.
  3. BRICS members China, India and Russia are the three largest shareholders.
  4. With a voting share of 26.06 per cent, 7.5 per cent and 5.92 per cent, respectively.
  5. Among AIIB’s 57 prospective founding members, 54 had signed the agreement as of last month.

India must encourage entry of Renminbi into IMF’s SDR. Why?

India has some things to learn from China.

India should seek to emulate the Chinese model of development that is based on exports and building reserves”.

  1. India’s strategic objective should be to strengthen multilateral institutions and use them to pressure China.
  2. In particular, he added, India should try to make the Asian Infrastructure Bank as universal as possible – especially convincing the US to join – to counter China’s regional interests through the bank.
  3. He termed the US’ refusal to join the Bank a “huge mistake”.
  4. The Chinese transition, he said, was one of a huge shifting of resources from manufacturing to services.

Founding members ink agreement on AIIB

  1. India along with 49 Prospective Founding Members (PFMs) on Monday signed the Articles of Agreement for the formation of the Asian Infrastructure Investment Bank (AIIB).
  2. The AIIB is expected to focus on the infrastructure development in Asia, and unlike the existing International Monetary Fund (IMF) and World Bank, it won’t restrict lending on political considerations.
  3. According to an AIIB press statement, the Bank, will be headquartered in Beijing, and will have an initial authorised capital stock of $100 billion.

Reflecting regional character of the Bank, its regional members will be the majority shareholders, holding approximately 75 percent of shares

[op-ed snap] AIIB: A new multilateral institution

  1. AIIB took shape with 50 members, including Australia, India, Russia and the United Kingdom and the remaining 7 are likely to join by the end of the year.
  2. China will be the largest shareholder (at 30.34%), followed by India (8.52%) and Russia (6.66%).
  3. AIIB is a culmination of China’s concerns that the emerging economies were not being given an adequate say in institutions such as IMF and WB.
  4. With ‘Belt and Road’ project close to her heart, AIIB is likely to invest in projects in China’s Asian neighbourhood which is suffering from a massive infrastructure funding gap.
  5. India’s participation in AIIB indicates mature balancing act to suit its interests – to engage with the West, at the same time exploring options with new financial institutions.

50 nations in, AIIB takes shape

  1. The AIIB is expected to focus on infrastructure development in Asia, and unlike the existing IMF and World Bank, is unlikely to restrict lending on political considerations.
  2. Bank will be headquartered in Beijing, and will have an initial authorised capital stock of $100 billion.India to have 7.5 % voting share, and China 26 %.
  3. India is second largest shareholder with 8.52% stake, after China which holds 30.34% share.

Australia to join China-led AIIB

  1. Australia would join the new China-led Asian Infrastructure Investment Bank (AIIB) as a founding member.
  2. AIIB will work closely with the private sector, paving the way for Australian businesses to take advantage of the growth in infrastructure in the region.
  3. AIIB has still been shunned by the United States and Japan, the world’s largest and 3rd largest economies.

Questions (attempt in the comments section)


Do you think post the creation of China led Asian Infrastructure Investment Bank AIIB), the BRICS-led New Development Bank (NDB) has become irrelevant? Critically analyse.


The proposed banks – BRICS banks and Asian Infrastructure Investment Bank (AIIB) – are China’s answer to the International Monetary Fund (IMF) and the World Bank and at the same time far from being alternatives to IMF and the World Bank, these institutions have different goals.” Critically examine.


Discuss why another multilateral development bank is needed such as the Asian Infrastructure Investment Bank (AIIB) needed and how the AIIB will be different from the World Bank or the Asian Development Bank.

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