China, 20 others launch World Bank rival in Asia

China has launched the $100 billion Asia Infrastructure Investment Bank (AIIB).

Australia, Indonesia and South Korea were absent following hidden pressure from Washington concerned about the new challenge to the World Bank and Asian Development Bank.

The memorandum of understanding was signed on Friday in Beijing. The development bank was proposed a year ago by Chinese President Xi Jinping, and is to offer financing for infrastructure projects in underdeveloped Asian countries. The bank is headquartered in Beijing and Chinese banker Jin Liqun, the ex-chairman of the investment bank China International Capital Corp, is expected to take a leading role.

The bank will be operational by next year and will initially be capitalized with $50 billion, most of it contributed by China. The country is planning to increase authorized capital to $100 billion. With that amount the AIIB would be two-thirds the size of the $175 billion Asian Development Bank.

Twenty more Asian countries became bank members. India is the only major world economy to join the AIIB initiative, and will be second largest shareholder of the bank after China. Among other countries participating in the project are Mongolia, Kazakhstan, Pakistan, Nepal, Oman, Kuwait, Qatar and all the countries of the Association of Southeast Asia, except Indonesia.

China AIIB World Bank rival

Chinese President Xi Jinping (C) shows the way to the guests of the Asian Infrastructure Investment Bank at the Great Hall of the People in Beijing on October 24, 2014.

Australia, Indonesia and South Korea were absent from the ceremony as the United States said it had concerns about the new rival to Western-dominated multilateral lenders. Japan, China’s main rival in Asia, which dominates the Asian Development Bank along with the United States, was also absent, but it was not expected to attend.

Indonesia refused to participate in the project at this stage, saying that the new government has not yet had time to discuss China’s proposal.

The Australian Financial Review said US Secretary of State John Kerry had personally asked Australian Prime Minister Tony Abbott to “steer clear” from joining AIIB, the Financial Review reports.

“Australia has been under pressure from the US for some time to not become a founding member of the bank and it is understood Mr. Kerry put the case directly to the prime minister when the pair met in Jakarta on Monday following the inauguration of Indonesian President Joko Widodo,” the paper said.

South Korea, one of America’s closest allies in Asia, is giving more thought to participating in the bank. Last week its finance ministry said it spoke with China to request more time to consider such details as the AIIB’s governance and operational principles.

US officials have said they do not want to support an initiative Washington thinks is unlikely to promote good environmental, procurement and human rights standards in the way the World Bank and ADB are required to do.

But Chinese officials are convinced the American opposition is an attempt to contain the global rise of China and its ambition to remain the dominant power in Asia.

“You could think of this as a basketball game in which the US wants to set the duration of the game, the size of the court, the height of the basket and everything else to suit itself,” Wei Jianguo, a former Chinese commerce minister, told the Financial Times

Matthew Goodman, scholar at the Center for Strategic and International Studies in Washington DC believes the initiatives of a BRICS Bank and AIIB “represent the first serious institutional challenge to the global economic order.”

Chinese Finance Minister Lou Jiwei said the AIIB will set high standard and feasible safeguard policies and improve some of the bureaucratic, unrealistic and irrelevant policies, according to the Xinhua news agency.