A bank that will realize inclusive development

The proposed Asian Infrastructure Investment Bank is likely to boost regional development and, hence, speculation over its intention and competition is not necessary.

President Xi Jinping and Premier Li Keqiang both have proposed to establish the Asian Infrastructure Investment Bank to offer developing countries in the region financial support for their infrastructure projects. Although Beijing's initiative has been warmly welcomed by regional countries thirsty for funds for infrastructure development, it has evoked strong reactions from certain countries which allege that China is trying to reshape Asia's financial landscape.

Reviewing the rising process of Asian economies, we can see that all the emerging economies in region, including those that were once known as the "Four Asian Tigers" and the Chinese mainland, are heavily dependent on funds for high-speed growth.

The region's immature financial sector offers limited support for the development of the real economy of emerging markets in Asia. The result: their development level is still relatively low and their infrastructure far from perfect. Therefore, the AIIB should be seen as an institution that would supplement the existing regional financial infrastructure to promote interconnectivity and economic integration, which is the trend and demand of the times.

Experience shows that investment, especially that goes into infrastructure construction, is an important contributor to economic development. The United States saw a nearly 4 percent per capita GDP growth during the last 30 years of the 19th century, with investment contributing almost 30 percent to that growth. Foreign capital, which came mainly from Britain in the 19th century, played an important role in boosting the US' large-scale investment in infrastructure, which, in turn, promoted its economic growth.

Similarly, China's infrastructure investment increased nearly 158 times - from 12.6 billion yuan ($2.02 billion) to 2 trillion yuan - from 1981 to 2000, greatly facilitating the country's economic growth.

Most of the Asian economies are still in the developing stage, and their ongoing urbanization drive will create a huge demand for investment in urban infrastructure, such as roads, water and power supplies, and sewage systems. For instance, the demand for infrastructure investment in Indonesia is as high as $200 billion, but the Indonesian government can afford only a quarter of that. Even after other financing channels, such as state-owned enterprises and public-private partnership, are employed there will remain a funding gap of $33.5 billion. This is where the proposed AIIB could be of help.

The AIIB is not designed to undermine the role of Asian Development Bank or to belittle the efforts of certain countries but to channel more funds into infrastructure projects in the region. The proposed AIIB will provide an incremental capital of $50 billion without prejudice to the capital supply of the existing multilateral development banks in Asia. Like the ADB, the AIIB will also be an open platform for regional economies.

The ADB, established in 1966, is a regional development bank with 67 members. China joined it in 1986. Compared with the ADB, whose top priority is poverty reduction in the Asia-Pacific region, the AIIB, as a specialized bank, will focus on infrastructure construction in Asia to promote regional connectivity and economic cooperation, and to boost the region's long-term, sustainable economic development.

As a newly established international multilateral institution, the AIIB will be relatively less shackled by bureaucracy. It also can help improve the overall efficiency of financial institutions in Asia by introducing competition.

In short, the establishment of the AIIB will yield practical benefits for fund-raising parties. This is why many Asian countries are taking part in the talks to establish the AIIB. The proposed bank will also benefit China, whose domestic infrastructure sector is becoming saturated, because it is burdened by overcapacity in related industries.

Therefore, the establishment of the AIIB will help diffuse China's excess capacity and technology in the region and help the steady development of the Chinese economy. By establishing the AIIB, China will, in more ways than one, fulfill its commitment to inclusive development and common prosperity of Asian countries.

The author Huang Wei is a senior research fellow at the Institute of World Economics and Politics, Chinese Academy of Social Sciences.