Prime Minister John Key says New Zealand played an "instrumental" role in ironing out governance concerns for a new Chinese infrastructure bank.

New Zealand today confirmed has agreed to become a founding member of the Asian Infrastructure Investment Bank, investing capital $125 million over five years.

"Increased infrastructure investment will enhance the Asian region's growth and that will be good for New Zealand," Finance Minister Bill English said in a statement.

"New Zealand was the first western developed nation to join negotiations to set up the Bank and our membership will enhance our already strong economic, trade and investment links with the Asian region."

The Bank of China led initiative has promoted itself as a means of making up the infrastructure gap between Asia and other parts of the world, however it has led to a diplomatic struggle.

The United States has reportedly lobbied countries not to join, raising concerns about its governance. Privately diplomats have claimed that the bank could be used to expand China's influence.

But Key said today that New Zealand had taken the view that the bank was likely to be established so had worked to make sure it was run properly. Key discussed it with Xi Jinping during the Chinese president's visit to New Zealand in 2014.

"We could see the logic in the idea, we could see the need for it...but we also wanted to make sure that there was good governance in place because there's New Zealand taxpayer dollars here that will be invested in these projects," Key said, claiming New Zealand's role in efforts to improve governance had been "instrumental".

Asked if the AIIB was intended as something of a "counterweight" to the US led World Bank or the Trans Pacific Partnership, Key said "we didn't see it that way".

Cabinet agreed in December that New Zealand would join negotiations to establish the founding articles of agreement for the new bank and to agree on acceptable governance arrangements.

Foreign Minister Murray McCully said there would be a formal signing ceremony in Beijing later this month, with the bank expected to begin operations "before the end of the year".

McCully said Asia was "important to New Zealand's future" meaning it made sense to invest in the region.

"Asia is driving global growth and it is full of opportunities for New Zealand. This new bank will be a welcome addition to existing institutions and it stands to make a significant contribution to infrastructure in the region."