Initiated by China only last October, it is already being touted as a potential competitor to established financial institutions such as the World Bank, the International Monetary Fund (IMF) and the Asian Development Bank (ADB).

Headquartered in Beijing, the Asian Infrastructure Investment Bank (AIIB) - for which China is set to provide up to 50 percent of its $50 billion initial subscribed capital - is expected to finance infrastructure projects in areas such as energy, transportation, and communication in Asia, the world's fastest-developing region.

The rationale behind the bank, the founding charter of which was signed this June 29, in Beijing, is that given Asia's rapid economic expansion, the existing global financial institutions can no longer satisfy the region's needs due to their limited capital and adoption of different priorities.

China's response

But there is also a political element to the initiative, as many analysts view the institution - which is expected to become operational later this year - as a further means of spreading Beijing's "soft power." While rapid growth has transformed China into the world's second largest economy, its ability to play a proportionate role in development finance through the World Bank has been constrained by the low voting rights currently allocated to the country.

This is why over the past couple of months, Beijing has played a key role in launching initiatives such as the New Development Bank (NDB) and the new Silk Road Fund, which are designed to increase infrastructure financing for developing countries. But while the AIIB is just one of these initiatives, it seems to be rapidly gaining global traction.

A total of 57 countries - from Asia, Oceania, Europe, Latin America and Africa - have joined the Chinese-led effort as prospective founding members of the bank which will have an authorized capital of $100 billion. While 50 founding members signed the agreement, the remaining seven - Denmark, Kuwait, Malaysia, the Philippines, Poland, South Africa and Thailand - said they will do so by the end of the year, after completing domestic evaluation procedures, according to state media.

Germany - with a 4.1-percent stake - will be the fourth largest shareholder in the institution after China, India and Russia.

Closing the financing gap

But why is the bank receiving so much international support? The reasons for this are both financial and political. First and foremost, the huge needs for infrastructure in Asia have pushed many countries around the world to join the AIIB so that they can contribute to the development of the region.

In Asia alone, the overall need for infrastructure investment is estimated to be about $8.22 trillion for the period between 2010 and 2020, according to the World Resources Institute (WRI). But current international finance is insufficient to meet these infrastructure needs. For example, in the 2014 financial year, the World Bank's overall spending on infrastructure was $24.2 billion, and the Asian Development Bank's total spending across all sectors was $21 billion.

While exact infrastructure needs vary by region and country, economists agree that Asia needs increased infrastructure investments across the board, including in energy, water, and transportation. The rapid growth of a number of Asian cities has also put pressure on existing infrastructure, necessitating expansion and increased efficiency.

Vying for influence

Secondly, there are political reasons. Amongst developing countries, there had been increasing dissatisfaction with the governance structure of the IMF and World Bank, particularly due to the dominant position of the US and Europe in their respective voting structures.

"The AIIB is expected to provide a bigger role for Asian developing countries in managing multilateral development financing flows for Asia," as Rajiv Biswas, Asia-Pacific Chief Economist at the analytics firm IHS, told DW.

Out of the total voting rights, at least 75 percent are expected to be held by Asian countries. The bank's lean structure will be overseen by an unpaid, non-resident board of directors who are set to meet regularly in Beijing.

By giving money for infrastructure projects through the AIIB, member countries hope to improve their image in the region and gain political benefits. This is particularly important for the European countries, as Nicola Casarini, a senior fellow for Asia at the Rome-based Istituto Affari Internazionali, explains: "The EU is trying to gain admission to the East Asia Summit. By helping to fund infrastructure projects in the area - in particular in Southeast Asia where they are most needed - the EU hopes to improve its image and increase its political presence in a part of the world where it has huge economic interests."

Moreover, Dr. Sandra Heep, head of the "Economic Policy and Financial System" program at the Berlin-based Mercator Institute for China Studies (MERICS), points out that China - as the world's second largest economy, its largest saver and one of the largest exporters of capital - will inevitably come to play a major role in the global financial architecture.

"Most countries recognize this, and they appreciate the fact that China is willing to exercise its growing influence at least partially through the establishment of a multilateral development bank that will operate according to standards agreed to by its members," Heep told DW.

Critics

Nevertheless, there are critical voices. The United States and Japan - the world's largest and third-largest economies, respectively - have notably decided to stay out of the venture, with Washington even leading an unsuccessful attempt to dissuade other countries from joining the institution. Both nations have cast doubts on governance and transparency issues regarding the bank and raised concerns that China could misuse its dominant role in the bank for pushing its own geopolitical agenda.

However, not everyone agrees with Washington's stance. Some economists, including Paolo Mauro, senior fellow at the Peterson Institute for International Economics, argue the US' reluctance to join is a mistake.

"Asia's emerging economies will double in size over the next two decades, and spending on transportation will quadruple. In exchange for US participation in the institution, the Obama administration should insist that the AIIB focus on financing infrastructure projects that reduce carbon dioxide emissions and meet the highest environmental standards," wrote Paolo.

Beijing's clout

But just how much say will Beijing have in the bank? The main issue here is to which extent China will own the institution and provide resources for it. According to a recent report by The Wall Street Journal, China will ultimately have veto power over major decisions within the AIIB. The Journal quoted people close to the bank as saying its voting structure will give Beijing the "upper hand" as the largest shareholder, and that the Chinese are expected to have between 25 to 30 percent of total votes.

The articles of the agreement released by China's finance ministry on Monday show that the country will have 26.06 percent of voting rights in the AIIB. Beijing would therefore be able to block major decisions at the lender that require three-quarters approval.

This is why many analysts believe the bank may undoubtedly serve as an instrument for increasing China's political and economic clout.

Fredrik Erixon, director of the European Centre for International Political Economy (ECIPE), told DW: "China can boost the AIIB by capital and by leadership, but it can also erode its significance by making it too much an arm of China's foreign or economic policy. It remains to be seen where, how and to whom it will borrow money for investment, but its success or failure depends very much on China's intention with the bank."

The AIIB most certainly fits with China's grander aspiration to leave an imprint on regional economic leadership. This is why the institution will also be regarded as a major test for China's ability to contribute to regional and global governance. "If successful, it will create a precedent and help support China's claims for a profound reform of the international economic and monetary system," said Casarini.

A new financial architecture?

So what overall impact is the bank likely to have? Analysts agree that given the rising infrastructure needs, the AIIB will to play an important role in terms of closing the widening gap in regional development financing.

MERICS analyst Heep says she believes the establishment of the AIIB is a step towards a multi-polar financial architecture that is no longer only shaped by US-dominated institutions. Not only does it reinforce the already existing trend to a regionalization of international financial governance, but it also puts increased pressure on the World Bank and the IMF to implement internal reforms, she stated.

In terms of development financing, economists such as Biswas believe that as a brand new institution, the AIIB is likely to be relatively cautious with its new lending activities once it is operational, and will be keen to demonstrate its high governance and decision-taking standards when it makes lending decisions in the short to medium-term. "This could create the platform for a significant further enhancement of its lending activities over the medium to longer term," said Biswas.