Cover artwork: Steve Caldwell

BLOOMBERG MARKETS When you’re making the rounds at global finance meetings, what misconceptions about the AIIB drive you crazy?

JIN LIQUN “Why do we need the Asian Infrastructure Investment Bank?” Sometimes the question can even be more blunt: “What is China up to? The World Bank and Asian Development Bank have been serving this region well over the last seven decades. Why would China set up a new institution? Isn’t this a waste of resources? Wouldn’t it be more cost-effective to put money into existing institutions? Does China have an ax to grind? Is China hoping the AIIB will help it achieve geopolitical objectives?”

I’ve had to deal with all of those questions. And the difficult part is that I’m a Chinese in the first instance. I don’t think it’s possible for me to tell the whole world I’m really neutral. I cannot say that.

On the other hand, if I just represent China’s ideas, without doing my part to incorporate the ideas, comments, concerns, observations of all the people who are supposed to be part of this work, I don’t think it will be successful.

BM So tell us about the bank’s first principles and vision.

JL When China launched its opening-up and reform programs in 1978, there was absolutely nothing which could be described as modern infrastructure facilities in this country. No expressway, no electrified railway, no modern seaports or airports, no supercritical power plants, no high-voltage transmission lines or efficient distribution systems. No nothing.

Under such circumstances, the modernization of China was nothing but a wild fantasy. Then China started to invest massively in infrastructure with financial resources raised from the World Bank—and later on, the ADB—as well as from its domestic savings. Dramatic changes were beginning to take place from the mid-1990s.

It’s interesting to note that when China embarked on a borrowing program, some people thought it was crazy to put foreign money on top of dirt. Can a road give you your money back? Never heard of it! Years later, people came to understand the huge difference between borrowing to consume and borrowing to invest.

China can now stand alongside Japan and Korea to offer tangible experience in growth through broad-based economic and social development based on infrastructure investment.

In 2013, President Xi Jinping announced the Chinese government’s decision to create an MDB [multilateral development bank] to promote infrastructure investment. The purpose of this initiative was straightforward: Bottlenecks in infrastructure investment have seriously hamstrung many developing countries in their growth efforts.

The idea of making a new type of MDB inspired by China’s experience quickly began receiving positive responses—first from ASEAN countries [Association of Southeast Asian Nations] and then from South Asian countries, followed by Central and Middle Eastern countries.

BM What sets the AIIB apart from the World Bank or Asian Development Bank?

JL The strongest possible argument for setting up a new institution is its new features. It’s not intended to be a clone or a copy of existing institutions. The concept of a development bank is not abstract expressionist art, such as Jasper Johns’s ­paintings—the less comprehensible, the more charming. The world should have something different compared to the existing institutions, but with special features grounded in the learning and experience of those institutions.

BM And what are those special features?

JL The AIIB will resist being tied down by bureaucracy. We will not create fancy, flamboyant, and mostly redundant titles and positions. And we will fight against staff working in silos or bogged down in interdepartmental squabbling.

We have put in place operating policies and procedures to enhance efficiency, to promote cost-effectiveness, and to achieve measurable results that respond to our clients’ needs. We will continue to recruit professionals of the highest possible caliber. No position will be created without full justification.

BM How do you make the AIIB corruption-proof?

JL I want the AIIB to be squeaky clean. There will be zero tolerance for corruption. We take care of two important aspects, namely procurement through international competitive bidding on our projects and our own internal corporate procurement.

For the former, we will work in close collaboration with our clients to monitor the process of bidding and to make sure that all the companies tendering their bids will be treated fairly and equitably. Any companies or individuals who violate the rules and engage in bribery will be blacklisted. We are voluntarily debarring those organizations already debarred by the other MDBs.

For the latter, any corporate procurement will go through the procurement committee and be subject to close scrutiny to prevent irregularities or misappropriation of the AIIB’s funds.

I have empowered the chief internal auditor to check the expenditures of the bank to make sure that nothing irregular happens. No resistance or obstruction will be tolerated. Minor problems must be nipped in the bud so that they will not fester. We must guard against any callous disregard for cost-effectiveness or intentional misuse of financial resources. A Chinese sage said thousands of years ago, “Felonies thrive where misdemeanors are tolerated.”

BM Making the best possible loan decisions, free of political bias, is always a challenge at multilateral development banks. How does the AIIB avoid that trap?

JL Sustained success comes from a decision-making process which must be democratic, rational, and free of impulsive and emotional reactions to external factors. Such a process is not possible if challenging views are frowned upon or hushed, candid and frank exchanges of ideas not allowed, or suggestions from the staff ignored.

At the AIIB, no decisions will ever be made and then handed down without thorough deliberation and ­consensus-reaching at the executive committee meeting. Staff can speak up and challenge their supervisors. This practice applies all the way to the top.

I place great importance on democratic decision-making. I have followed a number of interesting cases of the rise and fall of great business empires. Without exception, an empire was built up by an individual with extraordinary vision. But an ­individual’s wisdom is limited, and even pioneers and trailblazers may not be able to keep abreast of everything at all times. Disasters loom large when the empire builder refuses to listen. Empire builders only see this when, at the denouement, the empire collapses in their hands.

They say people never learn from history. I am one who loves to read history and will learn from history.

BM How has China’s development path shaped your thinking about the AIIB’s operations and goals?

JL I would say that, based on the development experience of China over the last few decades, plus my personal experience, we believed it was important to have a new multinational development bank focused on infrastructure development.

First of all, China itself has benefited from the World Bank and bilateral support from many governments. We came to understand the importance of multilateralism.

Secondly, as I said, infrastructure is key to fast economic growth. Finally, we wanted to create a bank with modern technology expertise, managerial expertise, and very good governance. Each and every one is important, but they only work when they work together in unison.

BM You’ve been very careful to create some space between the AIIB and China’s huge international infrastructure program, the “One Belt, One Road” initiative. Why?

JL “One Belt, One Road,” proposed by the Chinese government, is a kind of platform, inviting all the participating countries to work together. President Xi has proposed the program guided by the principles of broad consultation, joint construction, and shared benefit.

We are talking about 60 to 70 countries. The broad goal is to improve regional connectivity in Asia, eventually even global connectivity, thereby benefiting the people who have been left behind.

This isn’t just about China. There’s a serious misconception that the program is about benefiting Chinese companies and labor. Some of these projects may actually not have Chinese participation at all. China’s idea is to promote international cooperation.

BM And how does the AIIB fit into all of this?

JL “One Belt, One Road” and the AIIB are certainly initiatives proposed by the Chinese government. But they have their respective functions and roles. One is a broad China-led ­initiative for all the countries to work together. The other is this multilateral development institution that operates by its own standard of practice.

If countries involved in the “One Belt, One Road” programs would like to work with us [at the AIIB], we will be very happy to consider them. But we need to look at the financial sustainability of the projects. We need to look at environmental protection and the sentiment of the local people. We have our own standards to process.

I believe we will be actively promoting those programs, given our capacity and being responsive to the needs of countries. But we cannot cover everything.

Photographer: Giulia Marchi for Bloomberg Markets

BM We understand the AIIB is considering launching a ­dollar-denominated bond offering in the international markets this year. How significant is this for the bank?

JL We’ve been granted top-level ratings from the three major rating agencies. This is due to the strong support of all the major shareholders, including China and some European countries.

The bank’s management operates independent of any government. We make decisions guided by our own standards and our board. So internal governance, risk control, rigorous financial management, high-quality staff are key. And our team, from the very top to staff out in the field, looks at every investment with the integrity of the bank in mind.

All of this should give assurance to the rating companies that this bank deserves the highest rating. With this rating, the bank certainly can go to the market when the time is ­appropriate.

BM Where does the AIIB fit in the larger financial evolution of Chinese financial markets?

JL I welcome China’s market being more open to the outside, and I think China will continue to be more open because we have more financial talent and know-how. Our [country’s] leadership wants to open up the Chinese financial markets, but to do so without creating chaos. We have learned from the experience of the U.S. and European countries during the 2008 financial crisis.

BM When Western and Chinese policymakers exchange ideas and positions, is there something important that gets lost in translation?

JL For China, I think English writing and communication skills are really important. I think that I will never relax on my efforts to improve communication. We are really lacking in senior-level people in China who can communicate effectively with the outside. I think it’s important to have a real understanding of other cultures. That’s why I try very hard to communicate with the people in Western countries. I don’t want to have a war of words. I want a reasonable discussion.

BM You’re not a princeling who comes from a powerful family.

JL I was born into a family that had seen better days before World War II. My great-grandfather on my paternal side was a scholar who gave lectures in a local traditional school. As his parents died early, my grandfather left home as a young man, trying to make a living on his own in Shanghai and in neighboring cities.

He was a self-made engineer enjoying a very high income. But he did not think much of money, and his dream was that the family should return to its old glory days, with his offspring brought up as men of letters. He could afford to provide my father with a good education, even hiring for him a private English tutor.

Things all changed when the Sino-Japanese War destroyed virtually everything and their financial situation deteriorated quickly. But the traditional love for learning carried on. My parents’ hobby was reading, and we followed suit.

While still a kid, I happened to find some English books in the attic. From my vague memory I recall them being hard-covered books, and one was Aesop’s Fables. There were also some periodicals, such as Reader’s Digest, published in the 1940s.

My interest in the English language and literature was aroused and was quickly reinforced when I was introduced to the English-language course as a fifth-grader in elementary school. It was hard to believe that elementary school offered an English-language course in the 1950s, but that did happen.

BM And, not surprisingly, your initial career ambition was to become an English professor.

JL As a high school student in the early 1960s, I started to work very hard on the English classics. Summer and winter vacations were the best seasons for me to concentrate on my books without having to bother about some other subjects at school.

I struggled with classics—mostly fiction and poetry—as I had no access to works of contemporary writers in the English-speaking world. I read authors who would sound unfamiliar to the young students today. I was fascinated with the prose of great essayists, such as Charles Lamb and Mary Lamb, William Hazlitt, Joseph Addison, and Richard Steele. I still flip through the pages of the works of Shakespeare, John Milton, and Chaucer.

As for authors across the Pacific Ocean, I loved Washington Irving, Ralph Waldo Emerson, and Nathaniel Hawthorne. I worked on these authors, all in the original.

My efforts never discontinued—even during the ­Cultural Revolution or while working on the farm. What I learned in rural China in the ’60s and ’70s, however, is not English and American literature. Rural life is not fiction—it is reality. The experience of those years has shaped, to a great extent, my mental world and nourished my sense and sensibility to the mission of development.

Photographer: Giulia Marchi for Bloomberg Markets

BM How so?

JL My daily contact with the villagers helped me understand their dreams and aspirations for themselves and their children and their children’s children. The pattern of their life cycles has repeated itself generation after generation without much variance. A big breakthrough would be if one of their kids would go to college and get an urban job with a higher income and social security. As the saying goes, a golden phoenix has flown out of the poor village.

Our village was connected to the electric power grid only in the early 1970s. A two-storied farmhouse with electricity and running water, a flushing toilet, a telephone, and storage of sufficient grains and other foodstuff was what they had been dreaming about. Their dream was still considered something very remote, if not a wild fantasy, during the ’60s and ’70s when I was over there.

BM How did the Cultural Revolution and your time in rural China shape you?

JL All this toughness belied the rural attractiveness for me. The redeeming feature of this life is that I could have some spare time reading without disturbance in my thatched cottage, especially in slack seasons.

The villagers could make neither head nor tail of my pursuance. But they were such nice people and never bothered me. Perhaps they wondered whether I had my head screwed on the right way.

I was outfitted with a worn-out Remington typewriter and a copy of Webster’s Third New International Dictionary of the English Language, Unabridged—both purchased ­secondhand—plus a number of English books. These books had come into my possession at a small cost, having miraculously survived the bonfires of the Cultural Revolution.

Decades later, some people thought that this crazy young guy, as D.H. Lawrence would say, “had a strange prescience, an intimation of something yet to come.” That I flatly deny. I had no foresight, no vision. What I had is nothing but passion—passion for learning, for hard work.

BM So how did a lover of English literature end up in banking?

JL In 1978, I was enrolled as a postgraduate student on a national competitive basis and thus could go on to pursue full time my English and American literature studies under the supervision of one of the most renowned professors at the Beijing Institute of Foreign Languages, now Beijing Foreign Studies University.

As a graduate student, I was already a staffer on the editorial team of a new magazine, Foreign Literature. My papers on William Faulkner’s fiction were published in the first-class academic journal in China, and they were to secure my job in my alma mater’s faculty right upon graduation.

An academic life that I had so coveted was just beginning to unfold when I was urged to join the Ministry of Finance.

I was not aware that President [Robert] McNamara of the World Bank met Deng Xiaoping in Beijing in 1980. The PRC [People’s Republic of China] government took over Taiwan’s representation at the IMF and the World Bank, and it was imperative to have some senior government officials posted to the executive director’s office in the World Bank, for which the Ministry of Finance was the lead agency. Young staff were desperately needed for that purpose.

My academic supervisor, Professor Xu Guozhang, said to me, “I’m sure that about 200 professors of English literature would suffice for China. But there is an imminent and acute shortage of professionals in the economics and finance field, particularly those who are at home with English. You can shift to economics for a good reason.” Seeing I was bewildered, he assured me that should I find it difficult to be in my element after such a shift, I would always be welcome back.

BM Your rise up through the Chinese bureaucracy also took you to the U.S., right?

JL I was encouraged by the ministry to apply to the Hubert Humphrey Fellowship Program sponsored by the U.S. Information Agency, and I was selected and assigned to the economics department of Boston University as a Humphrey fellow in ­1987-88. Immediately upon completion of the program, I went back to the World Bank as the alternate executive director to serve a four-year term.

And from 2003 through 2008, I served as vice president for operations in the Asian Development Bank and delved into a host of development issues confronting both the developed and developing countries.

My five years of service [from 2008 to 2013] as chairman of the board at China Investment Corp., China’s sovereign wealth fund, gave me the opportunity to manage a company, albeit a quasi-SOE [state-owned enterprise]. And serving as chairman of China International Capital Corp. Ltd. [from May 2013 to October 2014] provided me with a different perspective, as I could deal with the managerial challenges faced by a private company.

BM Getting back to your current job, what can you tell us about the AIIB’s loan portfolio and projects?

JL First of all, by agreement we cover infrastructure and private-sector projects. So right now, much of our loan portfolio is focused on power, energy, and transportation.

India is the biggest borrower at this stage. This is a country with strong capabilities and big needs. In India, Pakistan, ­Bangladesh, there is an acute shortage of power. In Myanmar, where we are involved in the development of gas-firing power plants, two-thirds of the people have no access to electricity.

So this is an area of focus, as is transportation. I would highlight our work supporting, say, a mass transit system like a Mumbai or Bangalore subway. It’s so important. You don’t want to encourage everyone to drive to work in congested urban centers. You encourage them to take mass transit. This is another approach to dealing with climate change.

BM Have you set your sights beyond Asia?

JL We’ve done our first project in a non-Asian country: Egypt [where the AIIB is providing up to $210 million for a renewable-energy project involving 11 greenfield solar power plants]. Oman has an idea to move away from excessive dependence on fossil fuels. They want to develop a port and alternative sources of energy. We helped Oman to develop broadband so they would have better access to modern telecommunication service. I think it’s so important to help middle-income countries in the Gulf area to be prepared for a low-carbon global economy.

In the future, probably—if we are successful over the next few decades—gas might be the raw material for chemical fertilizer, and the oil could be the material for chemical products rather than being burned. The transition might be very abrupt.

I met the new finance minister of Saudi Arabia in Davos, and he is very much interested in working with us. I think in Gulf countries, railway development is important. It can reduce the cost of transportation.

BM Is there pressure on the bank to make sure the basic infrastructure projects it funds are environmentally friendly?

JL To be green is of critical importance to our mandate. Promoting sustained economic development through infrastructure investment without leaving an environmental footprint is our sacred mission.

A green approach will ultimately contribute to long-term growth of those developing countries which are grappling with poverty and other economic and social challenges. They need a helping hand. A stitch in time saves nine. People in dire poverty have to survive.

Conserving natural resources is crucial, but being green does not conflict with growth. For instance, there is an ever-increasing demand for electric power. Power outages, blackouts, or brownouts, are very common, and a large segment of the population in low-income countries has no access to power at all.

Wherever possible, instead of building greenfield dams or power plants, we will make a big push for upgrading the existing power grid and thus helping to reduce systemic loss in transmission and distribution. This is equivalent to building numerous new power plants.

We will help with construction of mass transit systems to reduce the traffic of individual cars on the road. Adopting new technologies in constructing infrastructure facilities also contributes toward a green economy. We’re proactively working with our members to help them reach their commitments in implementing the Paris Agreement.

BM Do you think the general public understands the positive role that multilateral banks have played in postwar economic development?

JL I remember when I read The Battle of Bretton Woods, a very detailed history of post-World War II issues. In those days there were difficult challenges to address, such as the transfer of the economic power from the U.K. to the United States. The other challenge was rebuilding European countries after a world war. But looking at that and looking at the way we set up the AIIB, I’m so happy to see we are all on the same page even from Day One.

History is history. What happened 70 years ago is very different from what happens today, but over the last seven decades we humans have come a long way in understanding the importance of promoting peace and development.

So when I look at this book and other books about the creation of Bretton Woods institutions, I’m so happy that both developed countries and developing countries, as well as European countries, are involved.

BM A lot was at stake back in the early postwar years.

JL Those negotiations were really a matter of war and peace. If you fail, you can have a repeat of the situation of the First World War. If you succeed, you can have peace.

I think that, starting from 1980, I was involved in this whole process of China opening up to the world. It gave me an opportunity to see the world, to tour the world, to understand other parts of the world. That experience was unique among Chinese. I know the poverty issue. I know the miseries of some people still suffering. As a result, I developed a sense of a mission.

BM You’ve worked at the World Bank. What was that like for a Chinese national in those days?

JL I have the passion for development. I was very lucky to have the opportunity to serve in the Chinese Ministry of Finance after I finished my graduate programs. My assignment was to be posted to the executive director’s office of the World Bank in 1980, and I started to learn about economic development in China. I certainly learned economics before then, but it was more along the lines of Das Kapital by Karl Marx. But in 1980, I was exposed to Western economics for the first time, and it was a whole new picture.

BM So has the international financial community come to terms with the AIIB?

JL I think China has achieved quite a lot in projecting this idea, but still there’s some way to go to bring more and more people to understand why China set up this bank, how China set it up, and how this is going to be operated with China as the major shareholder.

BM Neither the U.S. nor Japan initially showed much interest in participating in the AIIB. Are President Donald Trump and Prime Minister Shinzo Abe rethinking that stance?

JL From Day One, China was very sincere in inviting Japan and the United States to participate in the setting up of this bank. Whether to join or not is the decision of a sovereign government. And I don’t think it’s appropriate for me to comment.

We certainly have faced a lot of skepticism and questions about why China decided to set up this bank. Were we going to cut the ground from under the feet of the World Bank or the ADB? Is this bank going to push for infrastructure projects to the neglect of environmental protection and human rights? I remain very calm in facing all those critical, sometimes very hostile questions.

I don’t find anybody in the United States who is negative about us. Americans are very straightforward. They’re very honest. If they’re suspicious, they tell you. But if you show that’s not the case, they say, I believe you. That’s something I like.

BM What about Japan?

JL Japan’s corporations have come to see me, former political leaders, too. They’re all very keen and believe Japan should be part of this institution. But I tell them, regardless of the inclusion of the U.S. and Japan, we can work together. And I have Japanese nationals working here [at the AIIB].

To my knowledge, there are some Japanese media people who are so curious about me. They went to my hometown and interviewed a huge number of people. They were so curious about me. And the reporting was positive. I would take this as a kind of encouragement. Also, it’s a warning that you need to keep it up.

If you do a good job, people give you recognition. I think this is the beginning. You may need 10 or 20 years to come to the conclusion that this is a good institution.

BM Do you want to do more projects with the World Bank and Asian Development Bank?

JL By its very nature, an infrastructure project is large. ­Co-financing in my view would be the norm for multilateral development institutions as we go forward. The World Bank has maintained its presence in so many countries with reduced funding for each and every project. And we can chip in.

Particularly for mammoth projects, when you have more institutions, you diversify your risks, and you have better communication with the government when it comes to policy dialogue. I am still very keen on co-financing with the World Bank.

BM You also are a big believer in keeping the AIIB lean and mean, correct?

JL We will continue to recruit professionals of the highest possible caliber. We practice merit-based recruitment and international competitive bidding. Restrictions are imposed neither on the nationality of the job seekers—nor the origins of the companies tendering their bids for contracts under the projects we finance.

This is the way to get the best talent and to provide the highest-quality capital goods and services to our clients at the lowest cost. The staff on our payroll, about 140 in total at this stage, come from 36 countries. We have American and Japanese nationals taking on important positions, regardless of the fact their countries aren’t members of the bank. We need to be open and transparent.

BM What kind of legacy do you hope to achieve at the AIIB?

JL The board has limited liability with regard to the performance of projects but has a big responsibility in ­policymaking and supervision of the management. Without the “nuclear umbrella” provided by the board, the management can be truly exposed to the consequences of their judgment and decision.

Any reform is painful for the reformers and conservatives alike. Reform is not a party. Reform is a serious matter, which means breaking from that part of tradition which is no longer relevant to the present-day world.

Frankly speaking, I could change nothing and continue as president of the AIIB if I choose to, and I could simply serve as the gatekeeper of projects to the board. I am not that kind of person. I am every inch a man of principle, with a strong sense of financial and social responsibility to our shareholders, with a deep faith that the governance and operational patterns of a time-honored institutional system is ready for change.

It takes time to convince the world that this is a great institution operating by the highest standard. I have reiterated on numerous occasions that we should not expect trust from the outside world without earning it. The whole world will judge us by how we perform, not by what we claim. Therefore, I do not mind if the jury is still out. The jury may linger outside the court as long as they see fit. But I am confident that we are already building up our credibility. The AIIB is now a well-recognized MDB with a high level of integrity from the very beginning.

The daunting challenge is to keep it [that way]. I have made it an overarching priority to develop an ethics-based corporate culture. Adherence to our basic principles of professional and ethical integrity will ensure that this bank will produce meaningful and measurable outcomes and results.

You cannot talk people into believing you. Credibility has to be earned. Trust has to be earned. If people don’t understand you, don’t trust you, do not bear any grudge against them. You can bring other people around. So this whole process, lasting four years, as a Chinese national, I’m proud to say this is a process of developing mutual understanding with the rest of the world.

BM Any regrets about leaving the life of letters for the world of global finance?

JL My life in the Ministry of Finance spanned three decades, with 11 years overlapping my period of respective service at the World Bank and ADB, and was a continuous involvement in the opening-up and reform process. Apart from the domestic budgetary responsibility, I was always engaged in the multilateral and bilateral dialogues on economic and financial issues.

I have over the years developed my deep understanding of international issues, global concerns over environmental, social problems, and the approaches to addressing conflicts of national interests related to trade and cross-border investment.

When I was given the task to work toward establishing a new multilateral development bank, I came to understand that all those years of academic pursuance, hard labor in rural China, and experience of development work at the World Bank and the ADB were just years of apprenticeship for my responsibility in the AIIB. And this is life. Our life cannot be predicted, but it can certainly be prepared for.

Bremner is a Bloomberg News executive editor in Tokyo. Han covers economy and trade in Beijing.