BANKING BUDDIES: Premier Li Keqiang meets with Christine Lagarde, Managing Director of the IMF, in Beijing on March 23 (PANG XINGLEI)

The AIIB will also benefit from the participation of European countries, Pang said.

With at least 35 founding members stretching across Asia to Europe, the AIIB has already secured a promising position as a global multilateral bank, Pang said.

The European economies can bring leading managerial expertise and operation experience to this new bank.

"They can help the AIIB incorporate high standards in terms of building management structure, making rules and dealing with non-performing assets. Europe's participation will raise the AIIB's credit rating, which can lower the cost of financing when it issues bonds in the future," said Yao Zhizhong, Deputy Director of the Institute of World Economics and Politics under the CASS.

However, European participation in the Asia-led initiative could result in occasional disagreements, Pang said.

Major European countries possess great weight in global financial governance. Developed and developing economies might have differing views on some issues. To address these differences, China and European founding members will need to work out a new model of cooperation to ensure the sound operation of the new bank.

Open and inclusive

As for U.S. concerns over the AIIB's governance and transparency, Chinese Foreign Ministry spokesperson Hong Lei stressed at a press conference on March 17 that the AIIB will follow the principles of openness, inclusiveness, transparency, responsibility and fairness in designing its governance structure and operation policy.

The AIIB will effectively cooperate with and complement the existing multilateral development banks such as the World Bank and the ADB to provide investment and financing for infrastructure building in Asia, said Hong.

Strengthening connectivity, especially in terms of infrastructure, is greatly needed by many developing economies in the Asia-Pacific region, said Shen Minghui, associate researcher at the Institute of Asia-Pacific Studies under the CASS.

According to the ADB, $8 trillion will be needed from 2010-20 for infrastructure construction in Asia. And according to the World Bank and the Organization for Economic Cooperation and Development, $55 trillion will be needed for global infrastructure development by 2030.

However, the annual loans from ADB can only meet 2 percent of this heavy investment demand.

The ADB and the AIIB have different aims and positions. While the former mainly addresses poverty alleviation, the latter is primarily focused on infrastructure development. The AIIB could become a useful complement for promoting regional development and bring more opportunities for investors who have an eye on Asia's massive growth potential, said Liu Zongyi, assistant researcher with Shanghai Institutes for International Studies.

The World Bank and the ADB, led by developed economies, will continue to play a leading role in conventional financial governance. The AIIB will be inclined to meet actual needs of developing economies--foremost among which is infrastructure construction financing, said Guo Tianyong, Director of the Banking Research Center of the Central University of Finance and Economics. He added that the establishment of the AIIB will help improve the current international finance system.

The Memorandum of Understanding on Establishing the AIIB, signed by 21 countries last October in Beijing, stipulates that the authorized capital of the AIIB will be $100 billion and the initial subscribed capital is expected to be around $50 billion. China's share of this total could reach 50 percent, which will eventually be diluted when more countries decide to join. The bank is poised to begin operations by the end of this year under a set of rules and regulations agreed upon by all participating members. 

Copyedited by Joseph Halvorson

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