The formation of the Asian Infrastructure Investment Bank in 2016 was a China's challenge to the West: Since you don't want to reform governance in the existing multilateral financial institutions to better reflect the shift in global economic power, we will create our own development bank. In the process China has provided us with an interesting laboratory. New multilateral institutions are rare, and the whole world can learn from AIIB's short history.

A first lesson to be drawn is that setting up a new institution is indeed possible. When new multilateral banks were proposed in the past, the standard response was always to prioritize fixing existing institutions — because setting up new institutions takes too long. AIIB is still in the build-up phase and will remain so for several years to come. But in the grand scheme of things, it has come quite far in a very short time.

Second, building on existing institutions is likely to generate quicker results. In establishing the new institution, the founders took the basic designs of the World Bank and only tweaked them here and there to fit their needs. As a result, the new bank has been able to draw not only from the wisdom of the original founders, but also on decades of accumulated experience. Importantly, copying basic designs also makes it easier for others to understand the bank.

Third, founders must proceed step by step. One concern in setting up new institutions is that in the beginning they are very inefficient and prone to missteps. AIIB's gradual approach to capacity building mitigates many of these risks. The first two years of the AIIB have certainly been less turbulent than were those of the European Bank for Reconstruction and Development, another more recently established institution.

Fourth, engage with existing institutions in a cooperative manner. Another fear has been that newcomers would encourage wasteful competition between publically funded entities. AIIB has co-invested with others in most of its important projects and sent a signal that it wants to play cooperatively. It is fostering the consensus approach of the G20 and has often applied the policies of other institutions.

Fifth, don't start a race to the bottom. Most notably, AIIB has agreed to adopt others' environmental and social safeguards, thus mitigating another risk that it would undermine the role of multilateral development banks to establish basic standards that spread to other development institutions and sectors. This is part of its catchy credo "lean, clean and green".

Sixth, experiment with new governance structures. Unlike most other multilateral financial institutions, AIIB does not have a resident board —a board with directors sent by shareholders to oversee management on a daily basis. The new bank has instead opted for more direct contacts between management and shareholders and supplemented governance with an advisory panel that brings in a broad range of experience and independent private sector representatives on its audit committee. A resident board has its pros and cons, but AIIB allows us to better understand the alternative.

What about the challenges going forward? AIIB has to decide what kind of presence it wants in key markets. So far it is very centralized – understandable given its short history. But many of its peers have shifted much of their operations out from headquarters and into the field. The complexity of infrastructure and the need to understand the local context are likely to force decentralisation. But this also means employing more staff.

Finding enough competent staff is a major concern when starting a new institution. After all, structuring complex development projects is a relatively rare skill. AIIB has indeed recruited a lot, and extended the shelf life of many retirees from other development institutions. But it is also offering opportunities for new staff members to learn on the job. Unlike the other international financial institutions it has not required staff to be of shareholder nationality (though it has a cap on the share of Chinese nationals on its staff.

Still, finding high-quality employees has not been easy, and anecdotal evidence suggests that its banking department has not yet achieved the standard of its peers. Even if these are still early days, this challenge must be addressed so as not to undermine the achievements of other parts of AIIB. Perhaps the incentives to join the organization have to be sweetened.

One reason AIIB may have had problems recruiting bankers is its heavy reliance on short-term contracts, typically three years. While this practice deals with a common problem of dispirited and cynical employees who have overstayed their "best-before" date, it does affect the incentives to join the organization and invest in developing skills specific to it.

Quality of employees is critical if AIIB is to live up to its ambitious slogan – and especially if it is not working with its more-established peers. Employee competence matters, particularly for productive innovation. Furthermore, AIIB has not yet recruited a chief economist or set up a research department – important prerequisites for a mature innovative institution.

But AIIB's infancy teaches us that it is possible to build new institutions, at least if their sponsors have the economic and political will and clout and a long-term outlook. On the whole, this newcomer organization has taken a careful, gradual and collaborative approach, though it must now show that it can deliver and innovate more deeply. AIIB has to become known less for what it is, and more for what it does. What will be its distinct value proposition and Chinese characteristics?

The author is Director of the Institute of Global Affairs at the London School of Economics and Political Science. The views do not necessarily reflect those of China Watch.

All rights reserved. Copying or sharing of any content for other than personal use is prohibited without prior written permission.