China Secures Veto Power as Members Sign Up to New Bank

China will have veto power in its $100 billion Asian Infrastructure Investment Bank.

With 26.06 percent of voting rights in the Beijing-based lender, according to the articles of agreement released by the Ministry of Finance on Monday, China would be able to block major decisions that require three-quarters approval.

The AIIB gives China another platform to expand regional influence and augment its “New Silk Road” trade initiative. China’s companies will get fresh opportunities in countries from Indonesia to Kazakhstan to counter the impact of slowing growth at home and sluggish demand for exports in Europe.

Major decisions for which China can exercise veto power include electing AIIB’s president, increasing or decreasing the authorized capital stock, determining reserves, amending the agreement, and approving major operational and financial policies. Other matters will be decided by a simple majority.

“The areas on which China preserves veto power are limited but important,” said Zhu Jiejin, associate professor at Fudan University’s School of International Relations and Public Affairs. “This approach can both ensure efficiency and alleviate concerns about its power.”

China is the biggest shareholder with its initial capital subscription of $29.8 billion. India, Russia, Germany and South Korea round out the top five.

Founding Members

Fifty of the 57 founding members signed the agreement, while the remaining seven -- Denmark, Kuwait, Malaysia, the Philippines, Poland, South Africa and Thailand -- will do so by the end of the year, after they complete domestic evaluation procedures, according to state media.

Chinese President Xi Jinping, who met representatives from the founding nations in the Great Hall of the People, said the signing was “an embodiment of the concrete action and efforts made by all countries in the spirit of solidarity, openness, inclusion and cooperation.”

The World Bank would work with China and others to help the new lender “hit the ground running,” World Bank Group President Jim Yong Kim said in e-mailed statement, adding that the two institutions share the important goal of ending poverty. The developing world’s infrastructure needs are too huge for any single institution to fulfill, Kim said.

The AIIB will be led by a president with a five-year term and one or more vice presidents. The president may be re-elected once. A board of governors will run the bank, while a 12-member board of directors will oversee operations, according to the document.

Asian Character

To keep the bank’s regional focus, the agreement stipulates that nine directors should come from Asia while the remaining three can be non-regional members. The president must come from a regional member country.

The articles didn’t say who would be president. Jin Liqun is secretary general of the Multilateral Interim Secretariat for establishing the AIIB.

While the bank’s headquarters will be in Beijing, it may establish offices elsewhere, according to the agreement.

The member countries also agreed to set up an oversight mechanism in line with the principles of transparency and openness, to address areas including audit, fraud and corruption

The new lender will offer an alternative to bodies like the World Bank, International Monetary Fund and the Asian Development Bank in financing building of bridges or dams. The U.S. and Japan aren’t among the founding members, citing concerns over standards among reasons for not joining.

“Xi Jinping would like to see an early harvest from his One Belt, One Road project,” Zhu said. “The AIIB provides a conduit for that. His reputation is now tied with the project.”

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