The Asian Infrastructure Investment Bank or AIIB held its first annual meeting last month, at which finance ministers of member countries agreed in a panel discussion that "the key is not capital; the key is an institution to use capital effectively and efficiently". Against the backdrop of a possibly prolonged world economic recession, they counted on the AIIB to find such a way.

There are generally three methods to mobilise capital: co-financing with peer institutions, issuing bonds in the international capital market and public-private partnerships(PPPs).

During the annual meeting, the AIIB announced its first batch of four projects - in Bangladesh, Indonesia, Pakistan and Tajikistan- totalling US$509 million (S$690 million) in loans. Three are co-financed with peer institutions, including the World Bank, the Asian Development Bank (ADB) and European Bank for Reconstruction and Development.

The AIIB will engage with, and learn from, the lead co-financiers in those projects, where the latter's environmental standards and procurement policy generally apply.

The method of PPP in infrastructure investment was discussed heatedly. PPP has the advantages of expanding funding sources as well as achieving project efficiency. Finance ministers offered prescriptions for encouraging PPP, including putting the public sector in the first tranche for project risk allocation, and having the guarantee of the government partner in place.

Bankability is the first thing investors consider in infrastructure financing. Bankability has a nature of defence, in that it gives investors the comfort that they will be able to recover their money if things go wrong. To make a project bankable, however, defensive measures themselves are insufficient. In addressing this issue, AIIB president Jin Liqun emphasised both institutional and social problems.

On the institutional side, for example, the borrowing government must abide by its contract with the bank. Bankers are wary of the government cutting off user fees following demands by citizens, because user fees provide important revenue streams for bank loan repayment.

On the social side, Mr Jin took as an example the involuntary resettlement scenario where individual interest possibly overrides public interest by demanding irrationally high compensation. He said: "Most people are rational; if 99 per cent of local households accept the compensation standard, then the 1 per cent dissenters have to pick up the money and move."

Mr Jin seemed to advocate a balanced and holistic approach for bankability on the social side. During the coffee break, I found there was general consensus among participants in favour of Mr Jin's Confucius style of collectivism.

The advocacy is consistent with Mr Jin's understanding on international best practice. "There is no best practice unless the development experiences of China, India and other Asian countries were incorporated," he argued confidently. "By such incorporation, AIIB will be able to contribute importantly to the family of multilateral development banks (MDBs)."

AIIB sets its modus operandi as "lean, clean and green", reflecting the organisation's commitment to high standards. Its Environmental and Social Framework has been well received, a good beginning for a six-month-old bank.

Many of the event participants were delegates from non- governmental organisations and civil society organisations. Some told me that although the first annual meeting was small in scale, compared with similar events for other MDBs, they appreciated the AIIB's openness to engage with them. "Some Chinese banks, like China Development Bank, generally operate in an opaque way. They should learn from AIIB."

Long observing the interaction between China and the world, I have acutely felt that AIIB standards would be enlightening for Chinese business and culture. Fifteen years ago, the World Trade Organisation embraced China as its new member; since then the organisation's rule-based culture and principles - transparency and non-discrimination - have profoundly changed the country. Now that the AIIB has opened up its business, its far-reaching impact on the cause of deepening Chinese domestic reforms will be revealed similarly.

The AIIB has made great strides both in institution-building and business operation. During the annual event, a list of 24 potential new members was announced, probably enabling AIIB membership to surpass that of the ADB by early next year.

• The writer is an assistant professor at Beijing Foreign Studies University.