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China’s proposed Asian Infrastructure Investment Bank is causing a stir as the majority of Group of 20 leading economies sign on as founding members, while the U.S. and Japan remain on the sidelines.

This outcome for a Chinese initiative that challenges the U.S.-led global financial framework for development seems to represent a stunning victory for China in its struggle against U.S. dominance.

The Japan Times examines how the situation came about and what it implies.

Why is China proposing the new development bank?

Experts point to frustration the Chinese have felt about the existing international monetary system. This centers on the World Bank and the International Monetary Fund, and, in Asia, the Asian Development Bank, bodies that are dominated by advanced economies and, in China’s eyes, do not properly support the interests of developing countries.

Governance reforms at the IMF have been up in the air for over two years because of opposition from the U.S. Congress. If the reforms take effect, China’s stake in the institution would rise from sixth place to third, after the U.S. and Japan.

China’s voting power in the ADB is 5.47 percent, compared with 12.75 percent and 12.83 percent for the U.S. and Japan, its biggest shareholders.

Jin Liqun, would-be AIIB chief, said the entity complements the World Bank and ADB and does not aim to replace them. But experts believe China wants to create a new framework in which it plays a central role in the global monetary system, and this initiative is one way it can achieve that.

For example, responding to a criticism that the AIIB may lack transparency in its governance, Chinese Finance Minister Lou Jiwei said Western rules are “not necessarily the best,” a comment Japan Economic Research Center adviser Junichi Arai sees as criticism of the existing institutions controlled by advanced economies.

In his newsletter dated March 27, Tatsuhiko Yoshizaki pointed out that the AIIB is also a means by which China seeks a productive investment for its foreign reserves of almost $4 trillion, roughly the equivalent of Japan’s gross domestic product.

Investing this fund in infrastructure needs in Asia — the ADB estimates such needs total $8 trillion from 2010 to 2020 — could bring China a better yield than just letting it sit in the dollar with record-low interest rates, while handing business to domestic companies, Yoshizaki, chief economist of Sojitz Research Institute, wrote.

Where does the bank’s creation stand right now?

Chinese President Xi Jinping first proposed an “Asian infrastructure bank” in his address to the Indonesian parliament in October 2013, positioning it as an institution to finance infrastructure and to promote regional connectivity and economic integration, according to China’s official Xinhua News Agency.

In October 2014, a total of 21 countries expressed an intention of joining as founding members, signing a memorandum for the establishment of the AIIB. The formal launch was eyed by the end of 2015, with Beijing planned as the location of its headquarters.

Besides China, these countries included India, Kuwait, Malaysia, Myanmar, Pakistan, the Philippines, Qatar, Singapore, Thailand and Vietnam. By January 2015, the number had risen to 26, with additions including New Zealand and Saudi Arabia.

So far the members comprised developing countries. But as the March 31 deadline for registration as a founding member neared, things took an unexpected turn. On March 13, Britain said it would join, becoming the first major Western economy and close U.S. ally to do so.

This created diplomatic tension with the U.S., which has been openly suspicious of the new institution’s governance and transparency. One senior U.S. official was quoted by the Financial Times as saying, “We are wary about a trend toward constant accommodation of China, which is not the best way to engage a rising power.”

The bilateral spat was followed by embarrassment for the U.S. when other major allies, including Germany, France and Italy, quickly followed suit.

Applications for membership now number more than 50, with even Australia, Brazil, Finland, and South Korea on board.

What is Japan’s response?

As the March 31 deadline expired, the media blasted the Japanese government for failing to board the bus and have a say in the AIIB’s development, not to say missing out on infrastructure opportunities across Asia.

The day after the deadline expired, Japanese Communist Party chief Kazuo Shii urged the government to join the AIIB, arguing that the Chinese initiative highlights the fact that the existing financing framework based on the IMF, World Bank and ADB is inadequate in addressing Asia’s enormous infrastructure needs.

The following day, Kenji Eda, leader of Ishin no To (Japan Innovation Party), criticized the government, saying failure to join the AIIB while key advanced nations were leaping over each other to do so was a “victory for Chinese diplomacy and a rout for Japanese diplomacy.”

But as a close U.S. ally, Japan has remained skeptical about the initiative all along, snubbing Chinese entreaties to join. Its reservations center on insufficient clarification from the Chinese side about the AIIB’s governance structure, accountability and transparency, concerns which echo the U.S. stance.

Finance Minister Taro Aso told an April 3 news conference that Tokyo has pressed the Chinese side repeatedly about the AIIB’s planned governance structure, standards for lending, membership of the board of governors, and to whom lending would be made and when.

“We’ve kept asking the same things all along. . . . Unless it has a solid governance structure, we couldn’t even hope to join,” Aso said.

Tokyo has also been asking whether Beijing plans to have the AIIB adopt the same level of rules the ADB and World Bank employ when screening projects, including an environment impact assessment.

“We never get a response,” Aso said.

What could Japan do in the future regarding the bank?

Japan could yet join the AIIB before the end of June, by which time the bank aims to agree on governing rules and investment ratios. But Sojitz Research Institute’s Yoshizaki thinks that is unlikely.

“I think it’ll take a long time before the bank goes into operation, and Japan still doesn’t need to hastily decide its course of action,” he said.

Yoshizaki, who was invited earlier this month to explain his view on Japan’s possible response to the AIIB during a meeting of ruling Liberal Democratic Party officials, said financial ministers and central bank governors of G-20 countries are likely to discuss the AIIB when they meet in Washington on Thursday. However, it was not expected to be a key issue.

“Again, it’s not an urgent topic because we have until the end of June before the AIIB nails down its articles of incorporation,” Yoshizaki said.

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