On Oct 24, at the Great Hall of the People in Beijing, Chinese President Xi Jinping laid the foundation for an institution whose advent might one day be seen as the birth of modern China's economic empire.
If the Asian Infrastructure Investment Bank (AIIB) takes hold, the vast transport network it is slated to fund would place China at the hub of a massive trade and economic web. It would also expand Beijing's strategic influence throughout Asia, reaching across Central Asia to Europe. However, the plan could falter if China refuses to modify its aggressive posture along its borders and in the East and South China Seas.
Apart from China and India, most of the AIIB's founding members are small regional players, but Australia, Indonesia and South Korea are likely to join before long. The United States, which has cautioned allies against taking part in a China-dominated institution lacking transparency and sound lending policies, will be under pressure to relent.
China has long sought to boost its share in the International Monetary Fund (IMF), in line with the rise in its economic power. Washington agrees, but Congress has blocked the proposal. Meanwhile, the US has announced a "rebalancing" to Asia and sought to develop the Trans-Pacific Partnership, which excludes China.
In a way, the AIIB is the logical outcome of China's surging wealth and the obstructions faced in the exercise of its power at established global financial institutions. After nearly four decades of double-digit annual growth, China has not only built world-class infrastructure and industry but also amassed a mountain of foreign exchange reserves. With growth tapering off and funds held in reserve earning minimal returns, it needs to find new investment vehicles and create demand abroad for its industry and services.
In the meantime, Asia is starved of capital to build much-needed infrastructure. The Asian Development Bank (ADB), so far the only regional resource, says Asia needs at least US$8 trillion (S$10.3 trillion) worth of infrastructure in the next decade; India alone needs US$1 trillion and Indonesia US$300 billion. The ADB lends just US$10 billion a year for infrastructure. The AIIB will be capitalised with US$50 billion initially, largely by China, with the figure set to double.
Mr Xi's promise to create a Silk Road Economic Belt both on land and at sea has sparked interest in the region. China has talked of laying a pan-Asian high-speed rail from Kunming to Singapore, which would run through Laos, Vietnam and Thailand. Another plan is to build a Central Asian Line from Urumqi all the way to Turkey and Germany. A third proposal involves a road link between Kunming and Kolkata. It is fair to expect that such a network would facilitate investment.
China's ageing population and rising labour costs make relocation of its manufacturing and the laying of infrastructure in neighbouring states a logical course. And Mr Xi's vow to lend money with "no strings attached" - a dig at the conditionalities attached by the World Bank and the IMF - is attractive. In fact, the lack of clearly articulated terms and conditions has led the US to warn that the AIIB could be engaging in a "race to the bottom" in environmental, governance and other international standards.
Asian countries being wooed by the AIIB might be less concerned about the absence of such conditionalities. What could still give them pause about taking Chinese loans is the potential impact on China's military behaviour. As long as China refuses to sign a code of conduct for the South China Sea and settle its border dispute with India, its Asian neighbours can be forgiven for looking a gift horse in the mouth and closely examining the AIIB.
The writer is editor-in-chief of YaleGlobal Online, published by the MacMillan Centre, Yale University.