Instead, Beijing is offering to share the benefits of its development with the rest of Asia as Japan once did with Singapore, Hong Kong, South Korea and Taiwan, which subsequently became the high growth “Asian tigers.” Ironically, there was similar hesitation in the 1960s when Tokyo moved to establish the ADB.

Third, U.S. Treasury Department has argued that the proposed bank would not meet environmental standards, procurement requirements and other safeguards embraced by the World Bank and the ADB.

This argument is flawed because it presumes that the proposed bank would (or could) extend the adverse side-effects of past Chinese industrialization across the entire region. It is also seen as hypocritical in Asia. The existing multilateral institutions are dominated by the advanced West, which continues to cause 4-5 times more pollution than the emerging Asian nations on a per capita basis.

Time to walk the talk

Left on the devices of the World Bank and the ADB, the populous nations of emerging Asia would not be able to complete their industrialization. What these two mighty institutions have failed to deliver in the past half a century, the proposed AIIB could galvanize in a decade.

Today, the ADB has an estimated $78 billion in capital, including retained earnings and borrowings. It is dominated by Japan and the U.S. which have larger shareholding than China. ADB has begun to restructure its operations, while seeking greater funds from the West. But even a highly efficient and recapitalized ADB could offer only a fraction of the real needs in Asia.

What about the World Bank? It is, in theory, owned by 188 member countries that have subscribed to $223 billion of subscribed capital (paid in capital plus callable capital). In practice, the bank can loan some $50 billion per year, which barely covers the annual financing gap for Indonesia’s infrastructure requirements alone between 2015 and 2019.

The distribution of loans, in turn, rests on the distribution of power within these institutions, which are controlled by the advanced West. Since its birth, the chief of the World Bank has been an American, while the ADB has been led by the Japanese (and the IMF by Europeans). The three financial institutions are ridden by a moral hazard. They are led, owned and controlled by Western nations, which enjoy high living standards but low growth that no longer justifies those prosperity levels.