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Banking & Finance

With the AIIB, China is ready to rewrite Asia's financial order

BEIJING   With the launch of the Asian Infrastructure Investment Bank, China has taken the first step toward building a new financial order in Asia, part of its quest to become a global power rivaling the U.S. Beijing is hoping to pull new members into the AIIB by dangling funds for badly needed infrastructure in front of developing countries. 

     China is the biggest contributor to the AIIB, chipping in around 30% of the bank's $100 billion in capital and holding 26% of the voting rights. That gives Beijing effective veto power over the bank's decisions. It managed to get the bank up and running a little more than two years after President Xi Jinping first proposed setting up a new international lender to finance infrastructure projects in October 2013.

CHINA IN CHARGE   The AIIB was established in December with 57 countries signing on as founding members. The bank held its formal inauguration ceremony on Jan. 16 at the Diaoyutai State Guesthouse in Beijing. Its first general meeting and the first meeting of its board of governors took place the same day.

     Speaking at the ceremony, Xi said the bank will succeed if it remains committed to its mission. He also announced China will contribute about $50 million to a separate fund designed to ensure a smooth start to the AIIB's operations.

     Both the U.S. and Japan have remained aloof from the institution, citing concerns about transparency. The AIIB is headquartered in Beijing and headed by President Jin Liqun, who previously served as China's vice minister of finance. 

     The inauguration ceremony was stage-managed by the Chinese government, according to an AIIB official. Beijing's aim was to create a conciliatory atmosphere to avoid alarming Washington. Immediately before the bank's launch, China announced it had joined the European Bank for Reconstruction and Development.

     At the ceremony, videos of World Bank President Jim Yong Kim and Asian Development Bank President Takehiko Nakao lauding the opening of the AIIB were shown. The bank hopes to extend its first loan in mid-2016, possibly as a joint effort with partners such as the World Bank and the ADB.

     Some 30 countries are waiting to join the AIIB, according to the bank. Xi expressed confidence that the AIIB would become a leading international lending institution and an agent of change in global development finance. "The opening of the AIIB for business has great significance for the reform and improvement of the governance of the world economy," Xi said at the opening event.

     Indonesia and other countries are already showing interest in borrowing from the AIIB, according to a source close to the bank. The bank looks set to become not just the principal rival of the ADB, led by Japan, but also a key tool in China's battle with the U.S. for economic leadership in Asia.

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