Last week, 21 founding members including China, India and Singapore signed a Memorandum of Understanding on establishing the Asian Infrastructure Investment Bank (AIIB), marking a key stage of the preparatory work for the bank.

Preparations to establish the AIIB started a year ago. Asian countries need huge amounts of capital for infrastructure. AIIB aims to support investments in infrastructure and other manufacturing fields in Asian economies in order to promote regional economic development and cooperation. Based on the modus operandi of a multilateral development bank, AIIB is an intergovernmental multilateral development organization. China advocates open regionalism. AIIB should first be promoted in Asia to the benefit of the regional economy. It should subsequently be developed into a platform for cooperation between countries throughout the world and benefit world development as a whole.

The ASEAN Economic Community and the rising Chinese economy are regarded as the main drivers for further economic development in Southeast Asia. Helped by the increasing economic scale of the Southeast Asian economy, Southeast Asia will become one of the fastest growing consumer markets in the world. According to United Overseas Bank (Singapore), if the average growth rate is even 2/3 of the rate from 2001 to 2013, the combined ASEAN economy will surpass USD 4 trillion in 2020 and will surpass USD 9 trillion in 2030. Based on these expectations, the combined ASEAN economy scale will surpass that of Japan in 2025.

In the newly released Asian Development Outlook by Asian Development Bank (ADB), expected growth in Gross Domestic Product (GDP) in 2014 will be 6.2 per cent and it will reach 6.4 per cent in 2015, both higher than last year (6.1 per cent) . As to capital demand for consistent economic growth in Asia, ADB estimates that Asia needs USD 8 trillion to support its infrastructure up to 2020. Indonesia alone needs USD 230 billion and the Greater Mekong Sub-region may demand USD 50 billion.

Meanwhile, taking advantage of regional interconnection, Asian countries hope to improve their regional economic integration and to develop potential markets. In the next 10 years, Asia will invest nearly USD 300 billion in 1,077 interconnected programs.

In view of this enormous expenditure, the establishment of the AIIB is essential, especially when global economic downturn is still a powerful threat. USD 1 billion could create 180 million jobs in Asia. Some take the view that infrastructure fever will continue in Asia in order to generate new economic growth and to drive sustainable economic development.

As a new regional multilateral development bank, the focus of AIIB is different from organizations such as the World Bank (WB) and ADB. AIIB is complementary to other such banks and not a competitor. WB and ADB focus on poverty relief but AIIB will focus more on infrastructure. Jim Yong Kim, President of the World Bank, said that AIIB will be a good partner for investing in global infrastructure.

The establishment of AIIB is a win-win move. However, in view of the tradition of high saving rates in Asia, Asia needs to face the challenge of converting high savings to high investments.

The article is edited and translated from《金台观察：亚投行是个多赢选择》, source: People's Daily Online, author: Sun Yuan