Asia Summit 2015 - AIIB and the Evolving Multilateral Lending Landscape

Event Overview and Context

• The event was a Milken Institute discussion focused on the Asia Infrastructure Investment Bank (AIIB), explicitly clarifying that while the initiative originated from President Xi Jinping's 2013 Bali speech, the institution is designed as an international, not solely a Chinese, project.
• The AIIB operating budget was approved on August 24 in Tbilisi, Georgia, with 57 provisional founding members signing the Articles of Agreement, 51 of whom had finalized government approval by late June.
• Mr. Jin Li-chun was selected as President-designate by the chief negotiators, a decision set to be confirmed by the Board of Governors upon the bank's inaugural meeting, expected either before or shortly after Christmas.
• Mr. Jin Li-chun, a former Vice Minister of Finance and President-designate of the AIIB, possesses a background as a scholar who has translated English poetry from Chaucer to modern times, including the works of Lord Byron and Ted Hughes.
• The AIIB aims to operationalize by the end of the current year, with the first batch of projects scheduled for the second quarter of the following year.

AIIB Governance, Values, and Strategy

• The bank's core operational philosophy is defined by three pillars: "lean" (maintaining minimal bureaucracy and avoiding redundant positions), "clean" (implementing rigorous anti-corruption policies with an independent integrity head immune from presidential removal without cause), and "green" (promoting energy efficiency and renewable energy while acknowledging the continued reliance on fossil fuels for the foreseeable future).
• To ensure the "clean" pillar, the bank mandates that all contractors must report staff bribery attempts or face a blacklist, and all expenditures are subject to auditing by international accounting firms even prior to formal establishment.
• Regarding financial leverage, the Articles of Agreement permit a gearing ratio increase from 1:1 to 2.5, allowing the bank to potentially reach $250 billion in lending capacity once a solid asset base of $100 billion is established.
• Mr. Jin Li-chun clarified that the AIIB will not clone existing institutions but will differentiate itself through flexibility, offering financing at any project stage (greenfield, brownfield, or distressed assets), including guarantees and mezzanine financing, whereas the World Bank and ADB traditionally focus on greenfield projects.
• The AIIB's mandate is exclusively infrastructure investment, operating on the premise that broad-based economic progress driven by infrastructure will naturally reduce poverty, unlike the World Bank's broader poverty reduction mandate.
• The bank intends to complement existing Multilateral Development Banks (MDBs) like the World Bank and ADB by co-financing projects to share risks and enhance cost-effectiveness, particularly in politically complex environments.

Global and Regional Perspectives on AIIB

• The United States has not explicitly refused to join the AIIB, despite initial hesitancy; Mr. Jin expressed a personal aspiration for the US to join and China to join the TPP (Trans-Pacific Partnership) after the US presidential elections.
• Japan has not ruled out membership but cites concerns regarding the bank's business model, specifically the need to clarify how it will mobilize private funding and prevent "mission drift" similar to the EBRD's reliance on the Russian Federation.
• The World Bank Group, represented by Jin Tong of the IFC, views the AIIB as a strategic partner rather than a competitor, noting a global infrastructure financing gap of approximately $2 trillion annually against current MDB provision of $140–$150 billion.
• Private sector representatives, including Clive Kerner of Clifford Capital, see the AIIB as a complementary partner that can act as a "credit enhancer" to mitigate risks (e.g., regulatory, FX, contract termination) that typically deter private investment in infrastructure.
• Standard & Poor's, represented by Elena Ochorincko, noted that 40% of the 27 rated supranationals hold AAA ratings, supported by preferred creditor treatment and high capitalization, and emphasized that the AIIB's high 20% paid-in capital ratio is a significant comfort for rating agencies.
• Tadashi Maeda of the Japan Bank for International Cooperation highlighted that the "preferred creditor status" of MDBs can sometimes hinder private sector syndication, suggesting the AIIB should act as a junior tranche or loss absorber to make projects "bankable" for private capital.

Future Outlook and Market Dynamics

• The global infrastructure demand gap is estimated at $8 trillion in Asia alone by 2030, requiring significant mobilization of private sector capital and institutional investors such as pension funds and insurance companies, which currently lack standardized, rated infrastructure products.
• Mr. Jin Li-chun warned rating agencies to treat the AIIB fairly, stating that the bank could rely solely on the Chinese domestic market to raise $20–$30 billion annually if international ratings were unfairly withheld.
• The IFC highlighted that private sector creation of 90% of global jobs presents a significant opportunity, yielding LIBOR + 400 to 450 in project financing compared to OECD returns.
• Urbanization trends show a rapid shift, with Singaporeans identified in a 32-nation study as the fastest walkers on Earth (18 meters), and sub-Saharan Africa's urban population rising from 28% in 1980 to 40% currently.
• The discussion noted a global health crisis where obesity now equals undernutrition as a leading risk factor for illness, with life expectancy in Southeast Asia increasing by 70% over two generations.

Trivia and Audience Engagement

• The event included a quiz for the audience where the correct answer to "Which city has the second fastest walkers after Singapore?" was Tokyo, and the nation with the largest Boy Scouts membership was the Philippines.
• A final question revealed that for every 8 boys in school, there are 7 girls, and obesity was identified by the World Bank as the social burden with the greatest direct economic impact worldwide.
• Indonesia was confirmed to have approximately 40% of its mammals native to the country, correcting a misconception that the figure was 20%.