AIIB's governance and China’s credibility

AIIB's governance and China’s credibility

China’s Asian Infrastructure Investment Bank (AIIB) has been endorsed by 57 major nations including all the major emerging countries, but also Germany, the UK and France, writes Prince Michael of Liechtenstein.

The US abstained, seeing it as competition to the International Monetary Fund (IMF) and the World Bank. It is competition, but as GIS highlighted in a report on April 17 and a statement on April 10, the competition could prove beneficial.

China will now have to prove it is a responsible leader. It has to show that the bank is not there primarily to serve Chinese interests and will meet high standards of practice. For China to lead this kind of regional development should prove it has the ability to guide without dominating the region.

At the IMF, the US has a de facto veto right. Decisions need an 85 per cent majority and the US has more than 16 per cent of the voting rights. This made a lot of sense at its inception, when the US was the only country able to lead such an institution after the Second World War, this ‘domination’ now provides room for criticism.

It would be good for China’s credibility for it to lead by ability and not by a dominating vote.

It has been more or less agreed that GDP should be the criteria for the allocation of voting rights in the new bank. What has still to be agreed is a basic ratio of vote distribution between Asian and non-Asian nations. Discussion continues on whether 70 to 75 per cent of the votes should be reserved for the Asian countries, and this would give China a clear leading position.

This could become an issue for European members of the bank who believe, rightly or wrongly, that they are key in promoting best practice and transparency.

AIIB has big potential. China's initiative can improve its international standing as long as China leads on merit and does not try to dominate. The current discussion on the bank's decision-making is therefore relevant.

Related reports:

China’s AIIB attracts 47 global members to challenge for opportunities

Need for greater global financial competition

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