Abstract

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From China’s perspective, its participation in the New Development Bank (NDB) and establishment of the Asian Infrastructure Investment Bank (AIIB) will contribute not only to global development financing, but also to improving the international financial system. The two multilateral development banks (MDBs), the AIIB, in particular, demonstrate China’s disappointment at the slow pace of reform in global financial governance, and its determination to promote so-called “incremental reform” in the global financial system. This paper considers questions such as whether China can forge a high-standard and transparent governance model in the AIIB and convince skeptical Western developed countries of its willingness to improve the existing international financial system without seeking radical changes and reforms of the system. The future of the AIIB and the NDB depends largely on whether China can operate them as high-standard MDBs in terms of governance structure, finance, debt sustainability, and environmental and social policy. It will also depend on whether China can maintain a delicate balance between pursuing its national interests and promoting real high-standard MDBs. Specifically, it must determine how to convince the world that the AIIB is not a tool exclusively serving China’s grand strategy, the One Belt, One Road Initiative, and that China’s development under the initiative will benefit all countries in the region of Asia and Europe.