U.S. Reluctantly Accepts China’s AIIB

September 30, 2015 Posted by China Briefing Reading Time: 4 minutes

The United States has said it has ‘secured’ commitments from China concerning the governance of the Asian Infrastructure Investment Bank (AIIB ). The Beijing led bank has attracted nearly 60 investing nations, including all members of the Association of Southeast Asian Nations (ASEAN) and half of the EU. The United States has declined to participate.

The Chinese commitment, made during President Xi’s visit to Washington, has stated that it would “abide by the highest international environmental and governance standards.”

In addition to addressing US concerns, China has also agreed to provide increased funding to the World Bank’s International Development Association and the IMF. This meeting of minds concerning international development funding brings to close a somewhat embarrassing chapter for the United States. It had been somewhat vocal in its criticism of the AIIB, seeing it as a rival to the Washington controlled World Bank and the Japanese invested Asian Development Bank. Despite Washington calling for nations not to invest, many have, including the United Kingdom – long a U.S. partner but now one of the ten largest shareholders in the AIIB.

The AIIB initial capital is some US$100 billion. Based in Beijing, the bank is awaiting clearance from some of the participating nations who require acts of parliament to be passed in their home countries to ratify the decision made to join the AIIB and provide funding to it. This process is expected to take 18 months, following which the project – and the eventual corporate make-up of the AIIB – will become somewhat clearer.

China meanwhile has been busy in institutionalizing development funding. Its US$40 billion Silk Road Fund has just made its first investment in a power plant in Pakistan, and its US$16 billion Silk Road Gold Fund has also been launched, in which member nations are funding gold and related mining exploration along the Eurasian route. Comprising similar members to the AIIB, the Gold Fund, which is housed under the Shanghai Gold Exchange, will facilitate purchases of gold for the central banks of member countries to not only increase their gold reserve holdings, but also improve their ability to raise capital.

Chris Devonshire-Ellis is the Founding Partner of Dezan Shira & Associates – a specialist foreign direct investment practice providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in emerging Asia. Since its establishment in 1992, the firm has grown into one of Asia’s most versatile full-service consultancies with operational offices across China, Hong Kong, India, Singapore and Vietnam, in addition to alliances in Indonesia, Malaysia, Philippines and Thailand, as well as liaison offices in Italy, Germany and the United States. For further information, please email china@dezshira.com or visit www.dezshira.com.

Chris can be followed on Twitter at @CDE_Asia.

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