Just what sort of animal will the China-sponsored Asian Infrastructure Investment Bank (AIIB) turn out to be?

The United States suffered a major, largely self-inflicted defeat in its opposing its allies’ membership of the China-sponsored Asian International Investment Bank. It is now backing gingerly away from outright opposition, saying that perhaps the World Bank and the Asian Development Bank might have a role in co-financing the new institution.

Indeed, now that Britain and a slew of major western European countries have signed up to join, it seems only a matter of time before South Korea and Australia, which had both held out because of US pressure, doing so, which would leave Japan with little choice but to do likewise.

The US – and particularly its radically conservative Congress – largely has itself to blame for pushing China to initiate the AIIB by its resisting either more money for, or a great Chinese say in, existing international institutions including the Asian Development Bank, where China has fewer than half the votes of Japan and the US.

The ADB president is invariably from Japan and India also plays a major role. The US Congress has repeatedly denied new funds for institutions long led by the US, and funds and voting reform for the IMF which, though run by a European, is heavily influenced by the Washington where it resides. The US has now been forced to back away from its hostility to the AIIB. While not indicating any intention to join, it is now suggesting that the World Bank and ADB could be involved in co-finanacing with the new bank.

However, China’s diplomatic success in breaking through US opposition must be tempered by doubts about how the bank will function and whether it will in practice be able to dispense significant amounts of money. Although Asian infrastructure needs are gigantic – US$8 trillion by 2020 according to the Asian Development Bank – the planning and implementation of projects is very often a bigger problem than finding the money, even for projects with dubious economic returns. The ADB and World Bank both sit on vast sums in approved but undisbursed loans because of lack of local implementation capacity or lack of local funds.

Thus far at least the financing and operating procedures of the proposed bank remain in the formation stage. The more members who join, the more likely it will be that China will have more difficulty in controlling it than has so far been assumed. As things stand, as expressed by a Memorandum of Understanding the AIIB has an authorized capital of US$100 billion with initial subscribed capital of US$50 billion. The MOU was signed by 21 members, and since then another 11 have joined or announced intention to do so.

At present, China is understood to have 36 percent of the capital, but this could quickly be diluted depending on how many others join and how much capital they provide. Originally it was expected that this would be almost entirely an Asian bank, but the adhesions of the Europeans – even if they do not contribute much capital – has already altered that. In any case it already also includes countries in the Middle East – Qatar and Oman – which fall outside the ADB’s definition of Asia. Indeed, if other countries in the Middle East with large external surpluses – Saudi Arabia in particular – were to join, the picture would change again.

India’s role will also prove interesting. Unlike China, it is seriously short of capital so does not have a weight of money behind its influence. But it surely will work to limit China’s influence over policy and particularly loans which may be thought to have strategic purposes – such as ports on the so-called maritime Silk Road between China and countries to the west.

Central Asian states Kazakhstan and Uzbekistan have joined, which leaves the question of whether Russia will want to sign up, whether as a gesture of solidarity with China, or to expand its own influence.

Each state has its own reasons for joining. The British departed from their usual subservience to the US to curry favor with China to protect London’s financial center interests. The rest of Europe hurriedly followed suit for similarly commercial reasons. Japan will eventually do likewise.

But no one knows yet what sort of bank it will really be. The ADB and World Bank are bureaucratic institutions that are much involved with policy issues and social development as well as the big-ticket infrastructure projects which China likes best. But the presence of the old rich countries will surely mean demands for close scrutiny of project returns and tendering processes. China itself may see the merit in governance issues given that it is on the way to recording tens of billions of dollars of losses on politically inspired loans to countries such as Venezuela.

Another issue to be resolved include whether it will have a “soft loans” window, as do the ADB and World Bank – for lending to the poorest countries. Yet another is how far it uses its initial capital to make loans or use this as backing for borrowing in financial markets, as do the ADB and World Bank. China should be able to use the bank to enhance the role of its currency in international lending. But China’s sense of being very rich thanks to its US$3 trillion in reserves may not be so durable given that it also has large debts and many irrecoverable loans.

Looking around the region, lack of money is the least of most nations’ problems. The Philippines, India and Indonesia are all countries where badly needed infrastructure development is held back mainly by institutional problems. Others, like Thailand, have grandiose projects which have scant economic justification.

Of course, in the future money itself may become tighter and more expensive, giving a renewed role for all multilateral lending institutions including the AIIB – and the Islamic Development Bank, which makes few waves but is lending US$10 billion a year. But for now it is a political actor in search of a commercial role.