Most of the Asian economies are still in the developing stage, and their ongoing urbanization drive will create a huge demand for investment in urban infrastructure, such as roads, water and power supplies, and sewage systems. For instance, the demand for infrastructure investment in Indonesia is as high as $200 billion, but the Indonesian government can afford only a quarter of that. Even after other financing channels, such as state-owned enterprises and public-private partnership, are employed there will remain a funding gap of $33.5 billion. This is where the proposed AIIB could be of help.

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Asia banking on expansion

The AIIB is not designed to undermine the role of Asian Development Bank or to belittle the efforts of certain countries but to channel more funds into infrastructure projects in the region. The proposed AIIB will provide an incremental capital of $50 billion without prejudice to the capital supply of the existing multilateral development banks in Asia. Like the ADB, the AIIB will also be an open platform for regional economies.

The ADB, established in 1966, is a regional development bank with 67 members. China joined it in 1986. Compared with the ADB, whose top priority is poverty reduction in the Asia-Pacific region, the AIIB, as a specialized bank, will focus on infrastructure construction in Asia to promote regional connectivity and economic cooperation, and to boost the region's long-term, sustainable economic development.

As a newly established international multilateral institution, the AIIB will be relatively less shackled by bureaucracy. It also can help improve the overall efficiency of financial institutions in Asia by introducing competition.

In short, the establishment of the AIIB will yield practical benefits for fund-raising parties. This is why many Asian countries are taking part in the talks to establish the AIIB. The proposed bank will also benefit China, whose domestic infrastructure sector is becoming saturated, because it is burdened by overcapacity in related industries.

Therefore, the establishment of the AIIB will help diffuse China's excess capacity and technology in the region and help the steady development of the Chinese economy. By establishing the AIIB, China will, in more ways than one, fulfill its commitment to inclusive development and common prosperity of Asian countries.

The author is a senior research fellow at the Institute of World Economics and Politics, Chinese Academy of Social Sciences. The opinions expressed on this page do not necessarily reflect those of China Daily.