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World Bank urges China to embrace basic financial reforms

Delegates from 57 countries gathered in Beijing to witness the signing of the Asian Infrastructure Investment Bank (AIIB) agreement. And while the World Bank’s cumbersome board costs over $70 million a year, the AIIB will have a lean, non-resident board. As implied under Beijing’s rules, Taiwan might have to join under the title of “Taipei, China”, the name that was forced upon it at the Asian Development Bank. Hence the need for the AIIB.

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For some development experts, AIIB’s rise underscores two things: China is serious in its attempt to legitimately gain global leadership status, and the worldwide development landscape is steadily evolving.

Without naming the DPP, the council said that those who allege the government would compromise the nation’s sovereignty to apply to join the AIIB by going through China have denigrated themselves.

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 worldwide responsibilities for the economic development of Asia and the world at large”. But she also noted that Beijing has a long way to go as it “still needs to withstand real world challenges”, particularly transparency and corruption issues.

Japan and the USA, which oppose the AIIB, are the most prominent countries not to join. They have until December 2015 to sign on. “Institutions like the World Bank and the ADB essentially never have a default, so the AIIB has to make sure that its loans will be repaid”.

Beijing’s appetite for reform has wavered as the economy has weakened and equity markets have gyrated this year, economists said.

Among the provisions in the 34-page document is a shareholder clause opening up only 25 percent of stocks to nonregional members.

Earlier in May this year, the prospective members of the bank after deliberations had finalized the articles of agreement for the AIIB as a result of a three-day policy meeting.

This 70:30 ratio eschews traditional shareholding breakdowns at other multilateral institutions.

The voting shares are based on the size of each member country’s economy and not contribution to the Bank’s authorised capital. China holds the largest share with $29.8 billion (30.34 per cent stake). The ADB has less than $80 billion as capital.

The bank will also have to manage its risks well.

Amid moderated economic growth, China’s efforts to transition to a more balanced growth trajectory are being closely watched, with a World Bank report suggesting the country strikes a balance between ongoing reforms and managing short-term demand. But its voting share alone already gives it de facto veto power.

A supermajority vote is needed to choose the president of the bank, provide funding outside the region and to allocate the bank’s income, among other decisions.

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The key to the bank’s success, he added, will be in its human resources: how it plans to attract top talent to ensure high standards of professionalism. The establishment of the AIIB carries great significance as it is the first global financial institution led by China.

China's three-decade economic boom which has transformed cities such as Shanghai is at risk the World Bank warns urging reform of state-dominated financial sector