Asian Infrastructure Investment Bank (AIIB) is a multilateral development bank with a mission to improve social and economic outcomes in Asia and beyond. The headquarters is situated at Beijing and it commenced operations from January 2016. It currently has 61 members and 23 prospective members, altogether 84 approved members. The bank started operating after the agreement entered on 25 December 2015. The treaty came into force after ratifications were received from 10 member states holding a total of 50% of initial subscriptions of the Authorized Capital Stock.
The United Nations after the launch of AIIB opined that the bank has a potential for “scaling up financing for sustainable development” for the concern of global economic governance. The capital of the bank is 100 billion USD. The bank was originally proposed by China in 2013 and initiative was officially launched in Beijing in October 2014.
AIIB offers sovereign and non-sovereign financing for sound and sustainable projects in energy and power, transportation and telecommunications, rural infrastructure and agriculture development, water supply, and sanitation, environmental protection, and urban development and logistics.
History of AIIB:
The proposition for the formation of the “Asian Infrastructure Investment Bank” was first made by the Vice Chairman of the China Center for International Economic Exchanges, a Chinese research organization, at the Bo’ao Forum in April 2009. The underlying setting was to improve utilization of Chinese currency reserves in the wake of the global financial crisis.
The initiative was formally launched by Chinese President Xi Jinping on a state visit to Indonesia in October 2013. The Chinese government has been disappointed with what it sees as the slow pace of reforms and administration and needs more noteworthy contribution to global establishments like the IMF, World Bank and Asian Development Bank which it claims are commanded by American, European and Japanese interests.
In April 2014, Chinese Premier Li Keqiang conveyed a keynote speech at the opening of the Bo’ao Forum for Asia and said that China was prepared to escalate consultations with important parties in and outside Asia on the arrangements for the Asian Infrastructure Investment Bank. In June 2014 China proposed doubling the registered capital of the bank from 50 billion USD to $100 billion USD and welcomed India to participate in the founding of the bank. On 24 October 2014, twenty-one nations signed a Memorandum of Understanding (MOU) with respect to the AIIB in Beijing, China.
At the beginning of March 2015, the United Kingdom’s Chancellor of the Exchequer, George Osborne, reported that the UK had chosen to apply to join the Bank, turning into the first Western nation to do as such. The declaration was criticized by the U.S. administration. A few other European states including Germany, France, and Italy took after the UK’s choice to join the AIIB in March 2015. Negotiations occurred in the framework of five Chief Negotiators Meetings (CNMs) which occurred between November 2014 and May 2015. The Articles of Agreement, the legal framework of the bank, were deduced in the fifth CNM. It was signed on 29 June 2015 by 50 of the named 57 prospective founding members in Beijing, while the other seven signed later.
On 25 December 2015, the Articles of Agreement entered into force. On 16 January 2016, the board of governors of the bank convened its inaugural gathering in Beijing and announced the bank open for business. Jin Liqun was chosen as the bank’s president for a five-year term.
The Articles of Agreement form the legal basis for the Bank. 57 Prospective Founding Members (PFM) named in Annex A of the agreement are eligible to sign and ratify the Articles, and thus becoming a member of the Bank. Different states, which are parties to the International Bank for Reconstruction and Development or the Asian Development Bank, may become members after approval of their accession by the bank.
The AIIB is both constituted and governed, by public international law, the sources of which include applicable international conventions, customary international law, general principles of law and subsidiary mean for the determination of rules of law.
Despite its international legal personality independent of that of its Members, the AIIB, unlike other States, does not have general competence. As it were, it might just exercise those forces explicitly or impliedly bestowed upon it by the Articles of Agreement. In the facilitation of the AIIB’s command, internal legislation is issued by the administrative organs of the AIIB, deriving its impact from the Articles of Agreement. The subsequent organization and impact of such legislation are established by the AIIB’s Internal Legal Framework.
The AIIB’s Internal Legal Framework legally and logically emerges from the Articles of Agreement and the roles and competence ascribed to the Board of Governors, the Board of Directors and the President. It reacts to the authority of the Board of Governors to adopt rules and regulations, and the power of the Board of Directors to establish Policies and adopt the Staff Regulations. It is likewise settled as per the generally recognized principles of international administrative law which derive from the public international law which governs the AIIB.
Members of AIIB:
The 57 Prospective Founding Members can become Founding Members through:
- Consenting to the Articles of Arrangement in 2015
- Ratifying the Articles of Agreement in 2015 or 2016
All Prospective Founding Members have signed the Articles, 52 of which have ratified them, including 92% of the shares of all PFM. The condition for membership is ratification by 10 states, comprising 50% of initial subscriptions of the capital stock.
In March 2017, 13 different states were conceded prospective enrollment. As of 13 October, total affirmed membership of AIIB is 80 (Regional Members: 38, Non-Regional Members: 20, Prospective Members: 23).
The Articles of Agreement accommodate non-sovereign entities to become members of the bank. Notwithstanding the requirements for sovereign states, the membership of dependent territories must be upheld by the state in charge of its external relations. For example, the membership of Chinese Taipei (Taiwan) is still disputed.
China has the highest percentage of total subscription of 31.34% (29,780.4 million USD), followed by India in the second place with 8.80% (8,376.3 million USD).
Good governance is the hallmark of AIIB and it strives to operate at the highest possible standards, accountability, and transparency. All powers of the bank are vested in the Board of Governors, which is the highest decision-making body under the Articles of Agreements. The Board of Directors are responsible for general operations of the bank, they also exercise all the powers delegated to them by the Board of Governors like approving bank’s strategy, annual plan budget, supervising the management of the bank etc.
The Senior Management Team consists of the President of the bank, five Vice Presidents and the General Counsel. The President is elected by the shareholders and he is supported by the Senior Management Team. The Team is responsible for policy and strategy, investments, finance, and administration.
The International Advisory Panel is established to support President and Senior Management on the bank’s strategies and policies and also on general operational issues. This panel meets in tandem with the Bank’s Annual Meeting or as requested by the President. The President selects and appoints the members of the panel.
The Relevance of AIIB in the Present Day World:
AIIB has established four institutional goals which build on its progress;
- Sharpening the Bank’s Strategic Focus and Shaping its Corporate Brand
- Scaling-Up Support to Clients and Refining the Programming Approach
- Bolstering Financial Sustainability and Paving the Way for Market Access
- Continuing Institution Building
The bank emphasizes on three areas of particular relevance, which are now called as Bank’s thematic priorities, which are;
- Sustainable Infrastructure
- Cross-Country Connectivity
- Private Capital Mobilization
The AIIB funds Asian infrastructure development, which helps in the economic development of the relatively backward Asian nations. At present, numerous Asian nations are either at the initial or acceleration phase of industrialization and urbanization. They have an incredible demand for the infrastructure of transportation, energy, communication etc, yet endure an extreme deficiency of supply and are faced with the deficiency of construction funds and the lack of technology and experience. Asian Development Bank assesses that the Asian locale has a financing hole as high as $800 billion in infrastructure construction every year from 2010 to 2020. In perspective of this, the primacy of the AIIB is supporting infrastructure foundation in the Asian region and that construction clearly has the impact of promoting the Asian economy.
The AIIB will profit the European developed nations like Britain, France, Germany, and Italy by widening the investment channel and extending foreign trade. Now, as a developed economy, Europe does not have new economic growth point and has a low return on investment. Asia is an imperative engine of world economic growth and has an extensive demand for infrastructure investment specifically. Subsequently, by joining the AIIB, a rising multilateral development institution, European nations will obviously gain profits from their investment in the dynamic Asian region and construct a closer economic and trade relations with Asia, exploring new markets for European products and service.
The AIIB will form a global “three-pillar” financial pattern together with the IMF and the World Bank. The three pillars mutual cooperation, mutual complementation and healthy competition This will be useful to balance out the world financial order and effectively guard against economic and financial turmoil and risks.
This long-planned initiative reflects the developing impact China expects to play on world economic and financial affairs thus care must be taken to avoid it to become the sole driving element for the bank.
Recently Former Chief Secretary of Gujarat D.J Pandian has been selected as Vice-President and Chief Investment Officer of AIIB. This alongside the positive engagement of AIIB President Jin Liqun with Prime Minister Narendra Modi has made a positive assumption among the political and business circle in regards to the future engagement and part of India with AIIB. As India plays a significant part in giving validity to the bank it must use its leverage to ensure transparency and democracy in the administration of affairs.
– Medha P M
Content Writer at Legal Bites