The China-led Asian Infrastructure Investment Bank (AIIB) will hold its inaugural meeting of its Board of Governors on January 16 and 17, signalling the commencement of the bank’s operations. China’s involvement in the AIIB can be considered as an indicator of Beijing’s growing ambitions as a multilateral leader.

China is on the rise and on the move internationally. In recent times, Chinese diplomacy has made the conceptual leap from the combative retrenchment policies of the Mao era to a stance of confident engagement with the outside world. Since the mid-1990s, China has joined or co-founded a range of multilateral institutions, including the World Trade Organisation and the Shanghai Co-operation Organisation, respectively. The 2014 founding of the BRICS New Development Bank (NDB) and the establishment at the end of last year of the AIIB, both institutions in which China will play a leading role, suggests that China is seeking increased recognition for its capacity for global economic leadership. Most importantly, the application of a significant portion of the international community for membership in the AIIB indicates greater acceptance of, and support for, China’s leadership initiative.

Unlike the BRICS Bank, the AIIB has global legitimacy due to its expansive membership, which includes large European national economies and around two-thirds of the membership of the G20. Although the US and Japan have not applied for membership, the list of the AIIB’s founding members is a coup for China. Furthermore, China is set to provide the greatest share of funding to the AIIB and will receive a concomitant level of influence in the bank’s governance. The AIIB’s Articles of Agreement make it clear that China will hold an effective veto over issues central to the bank’s operation, including the level of capitalisation, admitting new members and suspending existing ones. This raises the obvious question of China’s intentions for the AIIB. As China’s international position continues to evolve, what is the likelihood that the Chinese government will change its stance toward the AIIB? Will the AIIB be allowed to act as a relatively independent provider of public goods in Asia, or will China seek to use the bank as a foreign policy tool, much as US policymakers view the World Bank and IMF?

Uncertainty over this question can be linked to continuing tension between internal and external narratives regarding China’s development curve, position within the international system and future definition of its national interests. Internationally, China narratives often express concern about China’s outsized economic influence, growing military spending, unrepresentative government and provocative territorial claims. Domestically, however, narratives centre on President Xi’s concept of a “China Dream”. China’s “dream” is an ambiguous concept expressed in vague terms so as not to detract from the sense of progress and raised ambitions. It is an all-encompassing affirmation of China’s rise that can essentially mean anything to anyone. When speaking to domestic audiences, President Xi refers to the “people’s dream”, suggesting higher living standards, a cleaner environment and greater material wealth. At the international level, however, the ambitions contained in the dream are much grander in scale – to ‘gather the courage, wisdom and strength of millions upon millions of people to… realise the dream of the Chinese nation’s mighty revival’.

The AIIB can be seen as a vehicle for projecting China’s revival internationally. With the AIIB likely to be regarded as ”China’s development bank” by many, China has an opportunity to be seen using its wealth and economic influence for global benefit, consequently allowing the country’s leaders to build reserves of global political capital and soft power. Firstly, the AIIB will serve as a form of risk management for China’s sovereign investments. China’s foreign currency reserves have been used to invest primarily in US dollar-denominated assets and US government bonds, bringing those two economies closer but also increasing political friction.

Infrastructure investment in Asia’s developing economies provides another avenue of investment for China’s capital reserves, although this is unlikely to reduce conflict with the US over global economic and governance issues in the short term.

Secondly, by building a new multilateral forum in partnership with many of the OECD countries, China has at one stroke side-stepped continued wrangling over the lack of reform in the IMF and World Bank and, with the decision of the US not to join, has provided itself with an international platform to make its voice heard clearly. However, the lack of US involvement in the AIIB is a double-edged sword for China. Although assuming a leadership role within the AIIB will bring a considerable boost to China’s international prestige, the AIIB’s effectiveness in delivering its goals of economic development, improved infrastructure connectivity and deeper intra-regional cooperation for Asia, will impact either positively or negatively on China’s credibility as a leader of the global economy. An AIIB perceived as a responsible, proactive and generous sponsor of regional economic development would improve China’s standing and serve to refute the suspicious and derogatory narratives of China’s rise circulating in the West. Should an AIIB without the US come to be seen as unbalanced and subject to the whims of Beijing, China will face a much more difficult task in persuading the international community that it is a willing and responsible leader in multilateral situations.

Thirdly, the AIIB is a significant step in the process of China defining its own role within the international community. As such, it is an indication of a growing revisionist challenge to the current US-led system of institutions. The success of that challenge will depend largely on China’s demonstrated leadership of multilateral fora such as the AIIB. Lacking political credibility among other states, any future attempts by China to re-imagine the global institutional order are likely to fail.

Thane Bourne is currently teaching English in China while on leave from the Master of International Relations program at the University of Melbourne. This article is an edited extract of ‘Regional Rivalry or Regional Development? China’s intentions for the Asian Infrastructure’ in the Australian Institute of International Affairs’ publication Quarterly Access.