The emergence of Asian Infrastructure Investment Bank (AIIB) is surely a turning point in multilateral development financing in the Asia-Pacific region. While initially the focus was on the potential role of this new financial institution in addressing Asia's infrastructure gap, it has, over time, shifted to who will join and who will not than what the new bank is up to.

Ever since Chinese President Xi Jinping mooted the idea of a new multilateral bank to address Asia's infrastructure needs, the US vehemently opposed the move and tried to dissuade its allies from joining the bank. But all the US allies, except Japan, joined the bank. This has been termed a diplomatic triumph of China over the US.

The US and Japan fear the absence of a credible mechanism in the process of financing in AIIB. US President Barack Obama feels AIIB loans will be used to meet political or strategic considerations instead of the economic. As such, AIIB loans will have lower lending status than existing multilateral institutions like the World Bank (WB) and Asian Development Bank (ADB) and is thus potentially capable of undercutting their effectiveness. It is believed by many quarters that the US views the WB as a political tool. Same is for Japan in respect of ADB.

The US and Japanese stand on the AIIB is not because of the issue of its credibility but the growing Chinese clout in the international financial system that the new bank will further reinforce. The unexpected success of the new bank represents a major turning point in an undeclared fight for global financial influence between Washington and Beijing.

The Chinese discontent against the West in general and the US, in particular, is not new. The US has been persistently obstructing the voting rights reform in the IMF blocking the Chinese voice in global economic governance. After thirty years of stupendous growth in the Chinese economy, the delegation of power in those institutions no longer reflects the reality of the global economic landscape. That is precisely why, China has created its own bank largely driven by frustration over the denial of influence in the big global financial institutions like the WB and the IMF.

Surely, the AIIB will give China greater authority within the region and beyond. Chinese Finance Minister Lou Jiwei clearly spelt out China's intention to play a stronger role in Asia. With the injection of about $ 30 billion of the authorised $100 billion capital, China will have every right to have a major say in policy formation and functioning of the AIIB. But it is also viewed that widespread agreement and compromise will dominate the day to day AIIB operation. In an article published by the Wall Street Journal, it is argued that China's decision to forgo veto power in the AIIB was the key factor in having the European countries with the bank. However, China denied any changes on the voting procedures of the AIIB

There are many differing points of views about how the bank would function, especially about its role in the global economic system. The AIIB has been established to fund the infrastructure investment gap in Asia. According to an ADB estimate, there is a gap of $ 8 trillion between 2010 to 2020. This is because the region is home to the world's fastest growing economies which calls for huge investment needs in hard infrastructure such as roads, energy, railways telecommunication, bridges etc. There is also an overwhelming support and widespread view that the AIIB is much needed if significant growth is to take place across the entire Asia-Pacific region.

Despite the visible suspicion of the US and Japan about China's hegemonic intention to implement its own policy through the AIIB, almost all developed countries, except the US and Japan, have joined the bank. The AIIB will symbolise China's rise as a financial superpower leading the world's biggest financial institution.

China’s rise as a financial superpower is now widely accepted. With its huge foreign reserve China definitely has the clout to influence the global financial scene. But China will possibly not behave the way the US and Japan deal with the WB and IMF and ADB. This has been reflected in the signing up of so many countries with the AIIB who are not worried about AIIB's lending standard as well as any fear of using veto by China. While they acknowledge the emergence of China as a financial powerhouse, they also want a share of the economic dividends financed by it.

The emergence of AIIB despite the strong barriers put up by the US and Japan indicates that time has come for a change in the governance of international financial institutions. The sooner the US accepts the notion the better. -

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