Beijing, September 2

China’s new international development bank will offer loans with fewer strings attached than the World Bank, sources said, as Beijing seeks to change unwritten rules of global development finance.

The Asian Infrastructure Investment Bank (AIIB) will require projects to be legally transparent and protect social and environmental interests, but will not ask borrowers to privatise or deregulate businesses for loans, four sources with knowledge of the matter said.

By not insisting on some free market economic policies recommended by the World Bank, the AIIB is likely to avoid criticism levelled against its rivals, who some say impose unreasonable demands on borrowers.

It could also help Beijing stamp its mark on a bank regarded by some in the government as a political as much as an economic project, and reflects scepticism in China about the virtues of free market policies advocated in the west.

“Privatisation will not become a conditionality for loans,” said a source familiar with internal AIIB discussions, but who declined to be named because he is not authorised to speak publicly on the matter.

“Deregulation is also not likely to be a condition,” he added. “The AIIB will follow the local conditions of each country. It will not force others to do this and do that from the outside.”

The AIIB was not available to comment for this article.

A reduced focus on the free market could give the AIIB greater freedom to run projects, said a banker at a development bank who declined to be named.

For example, development banks that finance a water treatment plant may require price of treated water to be raised to recoup costs, even if local conditions are not conducive to higher prices.

The AIIB, on the other hand, could avoid hiking prices and rely instead on other sources of financing, such as government subsidies, to defray costs, he said.

The bank, to which some 50 countries have signed up to join, also aims to have a simpler internal review and risk assessment system for projects compared with its peers to hold down costs and cut red tape, sources said.

For one, the AIIB is not expected to delay some project approvals by months to allow all parties to do due diligence, a practice in place at other development banks, said a source familiar with the matter.

The bank will also minimise expenditure by having only a handful of field offices and a staff strength of between 500 and 600, about a sixth of the size of the Asian Development Bank (ADB) and five per cent of the World Bank, he said.

A successful AIIB that sets itself apart from World Bank would be a diplomatic triumph for China, which opposes a global financial order it says is dominated by the US and under-represented by developing nations.

In its infancy, two sources said the AIIB, with authorised capital of $100 billion, would concentrate on securing its credit rating, implying a more cautious approach.