China to Have Veto Power Over All Strategic AIIB Decisions

According to details recently made public regarding the organizational structure of the Asian Infrastructure Investment Bank (AIIB), China will effectively have veto power over all strategic decisions made by the institution.  Voting power within AIIB is reportedly to be distributed according to a formula that includes each member‘s capital contribution, the size of its economy and a base level of votes allotted for all countries.  Founding members also receive an additional 600 votes, decreasing the potential influence of future members.  China is, by far, the largest contributor and is providing almost $30 billion of the total $100 billion capital base of AIIB, giving it between 25% to 30% of the total votes.

Under AIIB‘s Articles of Incorporation, the organization decisions regarding structure, membership, capital increases and other significant issues will require at least 75% of share votes.  This allows China control over all such decisions.  Another governing principle being adopted by the bank is that 75% of share votes be reserved for members in the Asia-Pacific region.  This includes significant contributors, such as India, Russia and South Korea, who, along with China, make up four of the top five contributing countries.  It would not include, however, founding members from outside the region, such as the United Kingdom, Germany, France and others (a list that includes a number of countries that China may regard as less reliable in terms of the status of their bilateral relationship and their commitment to the overall enterprise).

The vote distribution of every member country has not yet been released, but it is almost certain that China will be able to garner enough votes amongst its allies in the bank to control its most significant functions ‘‘‘ even those outside of the category with the 75% required threshold.

In a departure from the Asian Development Bank (ADB), AIIB will also permit non-member countries to bid on AIIB projects, giving Beijing flexibility in terms of how to deploy this new soft power projection ‘‘‘coup‘ (as most observers regard it to be).   Of course, from a straight economic perspective, it also expands the potential for the AIIB to create more opportunities for Chinese construction and other infrastructure companies abroad, as growth in China‘s domestic real estate sector slows.  Over the medium-term, this AIIB decision could lead to companies and politicians from non-member states (such as Japan and the United States) putting pressure on their respective governments as they seek to participate in AIIB projects, despite their country‘s political decision not to join as founding members.