Beijing // The World Bank and the Asian Development Bank (ADB) have completely overturned their initial reservations about the China-sponsored Asian Infrastructure Investment Bank (AIIB) and actually begun participating in the development of the new bank.

The World Bank Group president Jim Yong Kim yesterday signed the first co-financing deal with the AIIB president Jin Liqun for US$1.2 billion.

This is despite the fact that the United States and Japan have publicly distanced themselves from the AIIB, which now has 57 members including some US allies such as the United Kingdom and South Korea.

“I think the new deal is going to raise the profile of AIIB. The agreements show that the two multilateral agencies are willing to co-operate in an area where there is huge demand for infrastructure investment,” Wang Huiyao, the president of the Center for China and Globalisation, and an advisor to the Chinese government, told The National yesterday.

Officials at both the World Bank and ADB had previously expressed concern over the banking and project evaluation standards of the AIIB during the long months in 2013 and 2014 when the Chinese president Xi Jinping travelled the world trying to persuade state leaders to join his project.

The bank’s opening late last year with countries such as Germany, France and India contributing to its US$100 billion equity pot brought about a seachange in its image.

Yesterday, the ADB took another major step in aligning itself with the new bank by allowing Hamid Sharif, its country director for China, to become the AIIB’s first director general of the compliance, effectiveness and integrity (CEI) unit. Mr Sharif, who hails from Pakistan, currently handles a major ADB portfolio worth $10bn.

The new position reports to the AIIB’s board of directors.

The CEI unit’s mandate includes monitoring and evaluating the bank’s portfolio, ensuring policy compliance, and overseeing internal and external grievance procedures.

“I am sure other multilateral banks would now be interested in collaborating with the AIIB,” Mr Wang said, “It will draw the attention of the US and make a lot of people in the financial sector excited about the bank.”

Although the AIIB board has experts from countries across the world, most observers expect that the new bank will finance some of the projects along the One Road, One Belt programme or the Silk Road plan, being implement by China.

“The main risks lies in whether China would use the AIIB to push forward its own favourite projects in different countries,” Paul Haenle, founding director of the Charnegie-Tsinghua Center of Global Policy, said yesterday at a conference organised by the Asia-Pacific Council of American Chamber of Commerce in Beijing.

“There is also some worry over whether the bank would give greater importance to Chinese construction companies in infrastructure projects across Asia,” he added.

Still, many of the fears about China dominating it to support its domestic economy have been relieved with the World Bank joining it in co-financing.

One of the reasons European countries have agreed to become AIIB members, ignoring warnings from US officials, is that they expect a share of the business the new bank will throw up.

The AIIB is expected to begin financing projects in Asia in the coming months.

It has set a target of $1.2bn for financing in 2016, of which joint projects with the World Bank will account for a sizeable share. The World Bank and the AIIB are now engaged in assessing nearly a dozen projects that can be co-financed in sectors that include transport, water and energy in central Asia, south Asia and east Asia.

The World Bank also agreed to prepare and supervise the co-financed projects in accordance with its policies and procedures in areas like procurement, environment and social safeguards.

This means the new bank has agreed to implement the World Bank’s stringent standards, a significant development because there were fears in the west that China would push the AIIB to finance Asian projects that are driven by political means and could violate international standards on issues such as environment.

business@thenational.ae

Follow The National’s Business section on Twitter