China’s initiative for an Asian Infrastructure Investment Bank (AIIB) has been gaining momentum with more governments indicating interest and in-principle support.

Yet reports have emerged that the United States opposes the idea and is leaning on allies to stay out. With China hosting the Asia-Pacific Economic Cooperation summit in November, this issue is coming to a boil.

American objections should not surprise. The AIIB proposal runs against the established regional and global order, in which the Americans dominate the World Bank while the Japanese traditionally head the Asian Development Bank. Yet such arrangements, based on history, fail to reflect the reality of China’s current and still-growing economic weight. The existing banks also seem unable to meet the real needs for infrastructure across Asia, both presently and into the future.

Estimates are that from now to 2020, Asia needs some $8 trillion for infrastructure. Indonesia alone is said to need $230 billion. The Greater Mekong Subregion, linking less developed parts of Vietnam, Laos, Cambodia and Thailand, is estimated to need $50 billion.

Beijing’s proposal for the AIIB, with an initial startup capital of $50 billion, is therefore important and necessary. Indeed, its funding to neighboring countries is already dominant.

Yet many bilateral projects have faced accusations that China is buying political influence and gives insufficient consideration to social and environmental protection. Construction of the China-supported Myitsone Dam in Myanmar, for example, has been stopped because of such fears.

Compared to this, an AIIB could provide a better way forward. The new bank could take on rules and processes that are fairer and more transparent. Although China will take the majority stake, the interests of different countries can be accommodated to create a bank for Asia, not just China’s plaything.

But this depends on which countries participate and help make the rules to govern the AIIB. As such, American efforts to keep countries out could be counter-productive. It would be better if countries like South Korea and Australia took part and weigh in on the rules to govern the new bank.

Similarly Japan must consider participation. While Sino-Japanese tensions have risen over territorial and other issues, both are economically interdependent. Both are deeply engaged with the 10-member Association of Southeast Asian Nations (ASEAN) and the wider region. There are, moreover, precedents for Sino-Japanese cooperation on economic issues.

One is the ASEAN-plus-three Macro-economic Research Office (AMRO) — a small but key institution to monitor regional financial stability. This followed the ASEAN-plus-three currency swap agreements under the Chiang Mai Initiative for Multilateralization — now with some $240 billion pledged, the bulk from China and Japan equally.

Another key to making a better AIIB is to float public bonds and other market instruments for infrastructure funding. Such a move would bring two benefits:

(1) The deep pockets of private savers across Asia could be mobilized, on top of government funds.

(2) Since private investors seek returns, there would be greater market disciplines and due diligence in determining what projects get the green light.

At present, the best-placed financial centers to take up this role would be Hong Kong and Singapore, both of which can tap regional and global capital, and are renminbi currency clearing centers.

Why should China take this path? Creating a more multilateral AIIB would show Beijing can go beyond seeing the bank as their domain, and support ASEAN centrality — as Chinese leaders say they do. This can be anchored in several ways.

One way is to allow ASEAN collectively a special recognition, even if some poorer members cannot contribute much to the AIIB’s share capital. Another marker would be to situate the bank headquarters in an ASEAN capital. The precedent of AMRO, already mentioned, is headquartered in Singapore.

What about American objections?

Some will remember how, back during the Asian crisis of 1997-98, the U.S. persuaded Japan and others not to support calls for an Asian Monetary Fund. However, the reality today is that, given the real needs for infrastructure, a simple No will no longer suffice.

China can and will very likely go ahead. But if American allies — and even the U.S. — would join this initiative, Beijing could not dominate as some fear. Instead, all could join to create a truly Asian bank to help build not just infrastructure, but cooperation across the region.

Simon Tay is chairman of the Singapore Institute of International Affairs and an associate professor teaching international law at the National University of Singapore.

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