Japan, along with the United States, stayed out of the China-led initiative to create the Asian Infrastructure Investment Bank (AIIB) as delegates from 57 countries that signed up as founding members attended a ceremony in Beijing on Monday to ink an accord specifying the initial capital and other details of the new regional lender. The government has cited questions over transparency in its governance and lending rules as key reasons to opt out of the new bank, but Japan should still consider future participation if it wants to influence the AIIB’s operations so that it will be run in accordance with international norms.

During the ceremony, Chinese Finance Minister Lou Jiwei hailed the AIIB, to be launched by the end of the year with initial capitalization of $100 billion, as an “important initiative proposed by China to uphold more international responsibilities for the economic development of Asia and the world at large.” The initiative — first proposed by President Xi Jinping in October 2013 — has been viewed as an attempt by China, which became the world’s second-largest economy in 2010, to challenge the postwar U.S.-led international financial order.

Beijing has long been frustrated with the failure of existing institutions such as the International Monetary Fund and the World Bank to give more say to emerging powers led by China in line with their growing economic clout. Washington has been wary of the AIIB because it represents China’s bid for greater influence in the global economic architecture long dominated by the advanced industrialized economies, and Tokyo went along by staying out even as Britain, Germany, France and Italy signed up to become founding members.

China indeed is set to occupy a dominant presence in the new bank, which is designed to meet the robust appetite for infrastructure investments in Asia’s growing economies that are not fully covered by existing institutions, including the Manila-based Asian Development Bank. With its roughly 30 percent stake in the bank, China will hold 26 percent of the AIIB’s voting rights, giving Beijing an effective veto over important issues such as changes to its capital base and the board of directors, which need to be decided with at least 75 percent of the voting rights. While 57 nations including Southeast Asian countries, India, South Korea, Russia and Australia have signed up as founding members, no other state will have a stake of more than 10 percent. The bank is set to be headquartered in Beijing and a former Chinese vice finance minister will likely be tapped as its first president.

The AIIB is viewed as a vital tool to financially back China’s “one belt, one road” strategy — a grand scheme unveiled by Xi at the Asia-Pacific Economic Cooperation summit in Beijing last year to build a contemporary version of the Silk Road economic sphere through an overland economic belt connecting China to Europe and a maritime route that connects China to Southeast Asia, the Middle East and Europe.

But China’s prospective dominance in the new institution has raised concerns that Beijing may use its influence to control the AIIB’s lending to suit its national interests, possibly resulting in loans to development projects that ignore environmental standards, lending to countries that face international economic sanctions or lending discrimination against countries that have political problems with China.

While opting out of the new bank, the Abe administration has announced that Japan will provide $110 billion in investment funds to Asia over five years, including loans through the ADB, of which Japan is the largest stakeholder. But calls among politicians, bureaucrats and business circles for Japan to join the AIIB continue, in part out of concern that Japanese firms could be left out of the infrastructure investment business in the region. Many also argue that Japan needs to become a member to have a say in the new bank’s operation. There won’t be much that Japan, or the U.S. for that matter, can do to influence how the AIIB will be run and to make sure that its lending practices will conform to international norms if it does not join. Since a large part of the AIIB’s shares will be distributed basically in proportion to the economic power of each member, participation by Japan and the U.S. would likely reduce China’s stake and make it difficult for it to hold a veto over key operations issues.

China has urged Japan and the U.S. to join the new institution. It reportedly welcomes Japan’s participation because it would add credibility to the new bank. Japan can also contribute its know-how in running an international financial institution through its experience with the ADB and in development finance through its history of economic aid to Asia.

The World Bank and the ADB have said they are willing to cooperate and coordinate with the AIIB. If there is indeed the need for massive funding in Asia to meet its demand for infrastructure building, there would be no reason for the institutions to compete with each other. If Japan has concerns about the AIIB’s governance and lending standards, it should try to fix the problems from the inside, not the outside.

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