China-led infrastructure bank must live up to its pledge of 'clean and green' operation

Tuesday was the deadline for application to become a founding member of the Asian Infrastructure Investment Bank. The participation of advanced economies such as Britain, Germany, France, Italy and Luxembourg has given the project a good start.

Now, all eyes are focused on how the bank will be run: how decisions will be made and shares divided, and what the lending criteria should be.

The infrastructure bank is China's response to the perceived unfairness of the global financial order. Despite the rise of the emerging economies in the wake of the global financial crisis, reforms to the current financial architecture to reflect the rise were repeatedly blocked. China and its fellow emerging economies were left with little choice but to forge their own path.

For the first time, China will lead the operation of a multilateral financial institution. It must not squander this rare opportunity to play the role of a "responsible major country".

Unlike the World Bank and the Asian Development Bank, the Asian Infrastructure Investment Bank does not regard poverty reduction as its raison d'être. Instead, it sets out to provide funding for commercially viable basic infrastructure needed to link up the region. This reflects China's strategic vision in foreign policy: through the construction of basic infrastructure, China seeks to realise its dream of "One Belt, One Road", a new wave of globalisation serving Asia-Pacific trade.

This is a grand ambition. China has pledged to work with the bank's other founding members to create a "win-win" financing platform that is professional and efficient.

It has done a good job so far in the run-up to the bank's establishment, but many observers have expressed worries, not least that the Chinese-run bank will fail to ensure a project's labour and environmental standards meet international benchmarks. No doubt bias and arrogance have coloured such views.

However, some of the concerns are valid and should be addressed.

At the China Development Forum in Beijing recently, China's Finance Minister Lou Jiwei said: "I do not think that the regulations proposed by the West are the best there are; the current system isn't necessarily the best." The ADB is in the midst of reform, he noted. "If the system were perfect, no reforms would be needed," he said.

Indeed, it has become increasingly clear that reforms are urgently needed. Over the years, we've seen examples of expensive infrastructure investments that have failed to spur economic development, and subsidies that were meant to benefit the poor ending up in the pockets of corrupt officials. In some other projects, economic gains were made at the expense of huge costs to society and the environment.

Such shortfalls are precisely the reason why various development institutions are rolling out change and paying more attention to the recipient country's governance.

China would do well to study the experience of the World Bank, ADB and other development banks in project management, and environmental and social protection, among other areas. A finance ministry spokesman said as much, pledging that the new bank will adopt their best practices and learn from their mistakes.

The infrastructure bank may well propose a unique management framework. If so, it should clearly explain why its rules are an improvement on current practices.

How will the bank ensure the sound management of its funds and projects? At the China Development Forum, Jin Liqun, the secretary general of the bank's interim secretariat, said the bank will adopt a zero-tolerance stance towards corruption and build mechanisms that discourage corruption. He also said that the bank would place emphasis on projects that protect the environment, enhance social security and comply with internationally accepted standards.

These are worthy goals. But the proof of the pudding lies in the eating. The bank would be wise to select its first projects with care, ensuring the focus remains on those that clearly contribute to the public good, and make sure its operations remain highly transparent.

One other concern is the potential competition between the ADB and the new bank. China has given assurances that the new bank will complement the current set-up, rather than act as a rival. But the fact remains that, but for a handful of countries (such as Jordan and Kuwait), the majority of the potential founding members of the new bank are already members of the ADB. Thus, a competition for funds is inevitable. Such competition must remain fair and open.

Beijing is pushing to draw up the new bank's charter by the middle of the year, and formally launch it at the end of this year. We hope that it will truly be the "efficient, clean and green" organisation it promises.