First, let's get past the histrionics over the Asian Infrastructure Investment Bank (AIIB). Beijing undoubtedly has scored a symbolic diplomatic win over Washington, whose stance increasingly looks churlish. The Chinese have prevailed in what may become an epic saga of skirmishes over the outmoded Bretton Woods system.

They were always going ahead with their overseas investment efforts, with or without Washington's support. It is understandable that other countries should now reconsider 'getting inside the tent' when the AIIB initiative has gained so much momentum. Many American experts recognised early that opposing AIIB was a strategic error, especially when Congress had blocked attempts to reform the IMF. Their Chinese counterparts now supposedly gloat over Washington's 'petulant and cynical' sulking.

Look more closely at this situation and it gets even stickier. Development banks are unwieldy politically driven bureaucracies that submit even the most honourable objectives to a soul crushing ritual of arbitrary decision-making, petty infighting, endless red tape, shelved reports and, frequently, corruption. I should know; I worked as adviser to a major multilateral lending agency some years ago in the Indian energy sector. Well-paid delegates would arrive from everywhere on lavish travel budgets, bearing no apparent relevance to a given project, which after two years would run full circle, ending where it had started. Apparently this wasn't an unusual experience, either then or now. Lou Jiwei, China's finance minister, rightly queries why international standards should be his aspiration: 'I don't acknowledge best practice. Who is the best?'

Although influence and power are what's at stake, the battle over the AIIB is technically about governance. In theory, making this Chinese-led institution a multilateral one should improve transparency and objectivity.

A major gripe about existing institutions is that they bestow veto rights upon incumbent hegemons (the US and Japan, notably) who hold under 20% of the equity capital. China intends to own 49% of AIIB. Its offer to surrender the veto is an empty gesture; practically Beijing's will could only be blocked if every other shareholder opposed it. And when it comes to building infrastructure, Beijing thinks best practice is Chinese practice: brusque, efficient, decisive. 'Bureaucratic procedures and tedious methods' such as public consultation or EIAs are spurned. As Lou says, 'we need to consider (developing countries') needs and sometimes the West puts forwards some rules that we don't think are optimal.'

Another complaint about today's development institutions is that they prioritise the preferences of the sponsor. Examining the Asian Development Bank's (ADB) disbursements against a range of geopolitical criteria, Christopher Kilby showed that 'both Japan and the US have systematic influence over the distribution of ADB funds.' Two other academics, Edward Lincoln and Karen Mingst, have even documented American (!) complaints about Japan's outsized role in the ADB. China may exert similar influence in favour of its pet projects, its allies and its own contractors, just as the Japanese did. According to one estimate, locals in Vietnam got only 3% of the money doled out by ADB there during the last fifty years.

Development banks underwrite risks that a huge and capable global private sector is not coordinated or motivated to take on. That means making non-commercial lending as commercial as possible, so politics inevitably is involved. No doubt China earnestly wishes to improve its neighbours' transport linkages, for example, and that is a win-win outcome. But when AIIB's tenders come in for the bullet-train line through Cambodia or Kyrgyzstan, we can be sure which country will oversee, manage, supply and construct the railway.

Roughly 30 countries have signed on, but it is telling that recent Western joiners, such as Australia and Britain, have overtly emphasised their commercial interests. These countries think they see a giant money pot. Their wishes are forlorn. Concessionary lending makes poor business, and Chinese contractors and suppliers can easily undercut foreign companies.

Still, the AIIB is good news. There is no shortage of need in the world, and different institutions can complement each other. Just as the World Bank targets poverty and public health, the AIIB is aimed at regional infrastructure building, where the ADB reckons there is a US$800 billion annual shortfall. This happens to play to China's industrial strengths and it is encouraging that, at least, the AIIB is inviting others for the ride. Alternative Chinese initiatives are far more parochial, like the colossally unaccountable China Development Bank or the mercantilist Silk Road Fund.

In fact a chastening experience in Sri Lanka or Venezuela might lead Beijing to better appreciate the advantages of good governance. Because for all the yelping about the 'riven west' choosing between 'accommodation or appeasement', there is a serious practical issue of rules here. Put simply, does the world trust China to do the right thing? If Beijing builds a parallel geo-financial order, will others have a voice? How fair will it be? In this regard, the AIIB has been challenged to match other multilateral agencies. It should aim higher.

Photo by Flickr user The Climate Group.