China, India, Russia largest shareholders in China-led bank

The BRICS Post | June 29, 2015

Fifty countries on Monday signed the articles of agreement for the new China-led Asian Infrastructure Investment Bank, the first major global financial instrument independent from the Bretton Woods system.

Seven remaining countries out of the 57 that have applied to be founding members, Denmark, Kuwait, Malaysia, Philippines, Holland, South Africa and Thailand, are awaiting domestic approval.

“This will be a significant event. The constitution will lay a solid foundation for the establishment and operation of the AIIB,” said Chinese Finance Minister Lou Jiwei.

The AIIB will have an authorized capital of $100 billion, divided into shares that have a value of $100,000.

BRICS members China, India and Russia are the three largest shareholders, with a voting share of 26.06 per cent, 7.5 per cent and 5.92 per cent, respectively.

Following the signing of the bank’s charter, the agreement on the $100 billion AIIB will now have to be ratified by the parliaments of the founding members.

Asian countries will contribute up to 75 per cent of the total capital and be allocated a share of the quota based on their economic size.

Chinese Vice Finance Minister Shi Yaobin said China’s initial stake and voting share are “natural results” of current rules, and may be diluted as more members join.

Australia was first to sign the agreement in the Great Hall of the People in Beijing on Monday, state media reports said.

The Bank will base its headquarters in Beijing.

The Chinese Finance Ministry said the new lender will start operations by the end of 2015 under two preconditions: At least 10 prospective members ratify the agreement, and the initial subscribed capital is no less than 50 per cent of the authorized capital.

The AIIB will extend China’s financial reach and compete not only with the World Bank, but also with the Asian Development Bank, which is heavily dominated by Japan.

China and other emerging economies, including BRICS, have long protested against their limited voice at other multilateral development banks, including the World Bank, International Monetary Fund and Asian Development Bank (ADB).

China is grouped in the ‘Category II’ voting bloc at the World Bank while at the Asian Development Bank, China with a 5.5 per cent share is far outdone by America’s 15.7 per cent and Japan’s 15.6 per cent share.

The ADB has estimated that in the next decade Asian countries will need $8 trillion in infrastructure investments to maintain the current economic growth rate.

China scholar Asit Biswas at the Lee Kuan Yew School of Public Policy, Singapore, says Washington’s criticism of the China-led Bank is “childish”.

“Some critics argue that the AIIB will reduce the environmental, social and procurement standards in a race to the bottom. This is a childish criticism, especially because China has invited other governments to help with funding and governance,” he writes.

The US and Japan have not applied for the membership in the AIIB.

However, despite US pressures on its allies not to join the bank, Britain, France, Germany, Italy among others have signed on as founding members of the China-led Bank.

Meanwhile, New Zealand and Australia have already announced that they will invest $87.27 million and $718 million respectively as paid-in capital to the AIIB.

The new lender will finance infrastructure projects like the construction of roads, railways, and airports in the Asia-Pacific Region.

Iran, 49 states sign Asia bank charter

Press TV June 29, 2015

Iran on Monday joined 49 countries in signing up to the Asian Infrastructure Investment Bank (AIIB), bringing Asia’s largest financial lender a step closer to existence.

Finance and Economy Minister Ali Tayebnia put Iran’s signature to the bank’s articles of association at a ceremony in Beijing’s Great Hall of the People, which capped six months of intense negotiations.

In April, China accepted Iran as a founding member of the Asian Infrastructure Investment Bank being seen as a rival to the US-led World Bank, the International Monetary Fund (IMF) and the Asian Development Bank.

With the signing which amounted to the creation of AIIB’s legal framework, China’s Finance Minister Lou Jiwei said he was confident the bank could start functioning before the end of the year.

Seven more founding members would ink the articles after approval by their respective governments.

The bank will have a capital of $100 billion in the form of shares, each worth $100,000, distributed among the members. Beijing will be by far the largest shareholder at about 30%, followed by India at 8.4% and Russia at 6.5%.

China will also have 26% of the votes which are not enough to give it a veto on decision-making, while smaller members will have larger voice.

Singapore’s Senior Minister for Finance and Transport Josephine Teo said the bank will provide new opportunities for its members’ businesses and promote sustainable growth in Asia.

Seventy-five percent of AIIB’s shares are distributed within the Asian region while the rest is assigned among countries beyond it.

Germany, France and Brazil are among the non-Asian members of the bank despite US efforts to dissuade allies from joining it. Another US ally joining AIIB is Australia but Japan has stayed away from it.

Countries beyond the region can expand their share but the portion cannot be bigger than 30%. Public procurement of the AIIB will be open to all countries around the world.

But the president of the bank will have to be chosen from the Asian region for a maximum of two consecutive five-year terms.

The bank will be headquartered in Beijing and its lean structure will be overseen by an unpaid, non-resident board of directors which, architects say, would save it money and friction in decision-making.

Earlier this month, former Federal Reserve chairman Ben Bernanke rebuked US lawmakers for allowing China to found the new bank, which threatens to upend Washington’s domination over the world economic order.

He said lawmakers were to blame because they refused to agree 2010 reforms that would have given greater clout to China and other emerging powers in the International Monetary Fund.