Treasurer Joe Hockey has formally signed Australia up to the $100 billion Asian Infrastructure Investment Bank (AIIB), a Chinese initiative aimed at improving living standards for millions of people across the region.
Australia will be the sixth-largest shareholder in the bank and will contribute about $930 million as upfront capital over five years.
The new bank will work with the private sector and alongside a range of other international entities such as the World Bank and the Asian Development Bank, and will invest in dams, ports, roads and other capital works in Asia.
Transparency and governance concerns delayed Australia's formal support for the bank, but Prime Minister Tony Abbott said any remaining worries over its structure have been eased after intense negotiations.
"We looked long and hard at the proposal that there be an Asian Infrastructure Investment Bank, and we looked long and hard at the invitation to join," he said.
"We decided that, as always, the best way to proceed was on the basis of principle, and what we've always done is been ready to join international organisations which had good and transparent governance arrangements and which were not controlled by any one country.
"On that basis, we were happy to be a part of the World Bank and the IMF."
China's President Xi Jinping has welcomed Australia's inclusion in the bank, saying the founding of the AIIB is a major step forward.
"I also believe the signing ceremony today is a step of historic significance towards the establishment of the bank, and we are happy to see what we've achieved so far," he said.
The head of the Swiss Federal Department of Economic Affairs, Johann Schneider-Ammann, praised the bank as a multilateral institution and welcomed its establishment.
However he stressed the importance of compliance with international standards.
"Let me also highlight the great importance that Switzerland attaches to the compliance with international standards in terms of governance, transparency and best practices," he said.
China is the largest shareholder in the AIIB with a 30 per cent stake, which many say will project the country's growing soft power.
Australia will join 56 other countries in supporting the bank's formation, but the United States and Japan - the word's largest two economies - have declined membership.
The opening of the AIIB comes just weeks before the US led Trans-Pacific Partnership (TPP) is likely to come into being.
That deal would result in seamless trade and investment across 12 nations, accounting for 40 per cent of global income.
"My hope is that, once it becomes more and more obvious that this bank is a very valuable addition to the world's global institutional architecture, that countries like America might reconsider and might decide to come in," Tony Abbott.
Under President Barack Obama, the United States has shifted its global focus from Europe and the Middle East towards the Asia-Pacific, as China's dominance grows.
Boih the United States and China deny the two competing blocs indicate colliding interests in the region, even though neither has joined the other's institution.
Tony Abbott said Australia is able to maintain good relationships with both nations while belonging to both trading groups and hopes they can join forces one day.
"I think it's possible for Australia to have a very strong relationship with the United States without in any way preventing us from having a strong and growing relationship with China," he said.
"Now, I accept that America was a little ambivalent, to put it mildly, about the Asian Infrastructure Investment Bank.
"My hope is that, once it becomes more and more obvious that this bank is a very valuable addition to the world's global institutional architecture, that countries like America might reconsider and might decide to come in."
The former deputy general of the World Trade Organisation, Alan Stoler, says there is no intention from the United States to use the TPP to contain China's growing power in the region.
In fact, Mr Stoler said, the TPP would be stronger if China agreed to participate.
"What's going on right now is not an attempt to contain China - it's an attempt to get a good agreement negotiated that others can then want to join," he said.
"And China's not the only one. As I say, the Koreans have already put up their hand and say they want to be in the TPP, but they've been told, 'Wait until the deal is done'.
"Now the Chinese will probably only eventually join the TPP if they see that it is useful for them in helping them bring about further reforms to their domestic economy."
While there is no date for the TPP agreement to be finalised, it is considered likely before the end of July.
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