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Developing Countries See Hope in Beijing-Led Bank
With Development Bank, China Challenges Japan’s Role in Asia
Stampede to Join China’s Development Bank Stuns Even Its Founder
【布鲁金斯学会The Brookings Institution】
A special argument: The U.S., U.K., and the AIIB
Dividing the West: China’s new investment bank and America’s diplomatic failure
The Biggest Threat to America’s Future Is … America
A Bank Too Far?
The AIIB Debacle: What Washington Should Do Now
【外交官网站The Diplomat】
The AIIB: China's Just Getting Started
China’s Controversial Asian Infrastructure Investment Bank
AIIB: Not a US Loss, Not a Chinese Win
One In All In, AIIB Gains Momentum
Europeans in the AIIB: a sign of Chinese weakness
China cannot believe its luck over new investment bank
Britain Launches European Rush to Join AIIB. Now What?
The AIIB Is a Threat to Global Economic Governance
China's New Bank Offers Fresh Approach to Old Problems
What Went Wrong With U.S. Strategy on China’s New Bank and What Should Washington Do Now?
China has no aim to recreate Bretton Woods
Yuan backed on Silk Road

Developing Countries See Hope in Beijing-Led Bank
U.S. opposition to investment fund is a blow to Washington’s image in places like Vietnam

Andrew Browne, March 24, 2015 4:08 a.m. ET

HANOI—Like many Vietnamese, the economist Le Dang Doanh turns darkly suspicious when he speaks about Chinese money.

Trade and investment from Vietnam’s giant northern neighbor, says Mr. Doanh, a former top adviser to the Communist Party of Vietnam, often comes with hidden military agendas, economic subterfuge and ecological traps.

A case in point, he says, was a planned Chinese-backed tourist resort to be located at an approach to a strategic mountain pass along the coast—a potential gateway to the country for invaders. Local authorities canceled that project last year because of national security concerns. He also complains that Chinese traders are denuding Vietnam of its rare Star Anise trees by carrying off their roots along with their aromatic flowers used in medicine. China, he concludes, “is really an imperialist country.”

This is why Mr. Doanh believes that a new Chinese-led multilateral development bank is such a clever idea, because it will soothe anxieties as China deploys its vast wealth around the world. Beijing has promised to throw in an initial $50 billion.

And Mr. Doanh praises Western powers for breaking ranks with Washington and joining in to raise the bank’s standards. The Wall Street Journal reported that China helped get the U.K., France, Germany and Italy on board by offering to forgo veto power over bank decisions.

“It’s a soft approach—very flexible, very intelligent,” Mr. Doanh says.

In opposing the Asian Infrastructure Investment Bank, the U.S. has not only set itself up for a diplomatic rift with its closest Western allies, it’s also dealt a blow to America’s image in developing countries like Vietnam.

Emerging economies are desperate for infrastructure, which China can deliver in abundance, but fear being sucked too deeply into Beijing’s orbit. Even vocal critics of China such as Mr. Doanh draw the conclusion that Beijing is trying to balance these concerns with the new bank, while America is stuck in old ways of thinking.

The U.S. Congress refuses to pass additional funding for the International Monetary Fund that is a necessary step toward giving China and other emerging economies more say in decision-making—one reason Beijing has managed to gather such strong support for the infrastructure bank. More broadly, Washington’s objections support the Chinese narrative of an America trying to thwart China’s rise at every turn. On the one hand, the U.S. urges China to assume greater international responsibilities and burdens. President Barack Obama has criticized Beijing as a “free rider” on the international system. Yet when China steps up with an initiative like the development bank, Washington tries to slap it down.

All this reinforces China’s view that America takes a zero-sum approach to Beijing’s emergence as a global power. Xinhua News Agency called Washington’s resistance “petulant and cynical.”

Details of bank governance have yet to be worked out. But Washington is concerned that the lender will act as a tool of Chinese foreign policy, albeit in a more sophisticated way. And it is skeptical about the bank’s commitment to environmental and social standards.

Such worries are well grounded. Countries from Southeast Asia to Africa and Latin America are littered with environmentally damaging engineering projects supported by billions of dollars of Chinese money filtered through local elites. These sometimes saddle recipient countries with unsupportable debt, and crowd out worthier investments from the private sector.

Moreover, Chinese aid and investments are generally tied to the use of Chinese construction companies, technology, materials and workers.

But the crude use of economic tools by China to spread its global influence is backfiring. China is scrambling to salvage a massive $1.4 billion construction project it is funding in Sri Lanka as part of its strategic Maritime Silk Road initiative to revive ancient trade routes to Europe. Work on the Colombo Port City, inaugurated last year by China’s President Xi Jinping, was halted after a new government took over in Sri Lanka. Inspectors are looking into allegations of corruption and other contract irregularities.

Nowhere are the failures of Chinese economic statecraft more apparent than in Myanmar, which unlike Vietnam once welcomed Chinese investments with open arms. Under rule by military generals, China became by far the largest investor in the country. But in 2011, a nominally civilian government suspended a $3.6 billion Chinese-funded hydroelectric project after a public outcry over environmental concerns. In doing so, it sent a strong message: Myanmar is not a Chinese satellite. The government is now reaching out to the West.

By aiming to develop and work through a multilateral institution, China appears to be taking a more nuanced approach toward economic engagement.

Beijing is putting its international reputation on the line. If it really does intend to use the bank as just another vehicle for national aggrandizement, or to offload its industrial surpluses, it will pay a heavy price. So far, however, Beijing is sending all the right signals. It increasingly looks to people like Mr. Doanh, the Vietnamese economist, as though America is fighting the wrong battle.

Write to Andrew Browne at andrew.browne@wsj.com

With Development Bank, China Challenges Japan’s Role in Asia
Support for the Asian Infrastructure Investment Bank is growing, but Japan remains wary

Tom Wright, March 24, 2015 7:48 a.m. ET

China’s plans for a new development bank to fund infrastructure in Asia pose a challenge to Japan, which has been a major donor in the region and controls a decades-old institution with a similar remit.

Beijing’s efforts to gather international support for the Asian Infrastructure Investment Bank are gathering pace, with a handful of European nations signing up in the past few weeks despite U.S. opposition.

Many other Asian countries also are on board, but Japan is a notable exception. Its reticence, in part, shows its reluctance to cede influence to China over infrastructure development in the region.

Japan and the U.S. dominate the Asian Development Bank, a Philippines-headquartered multilateral lender that has been headed by a Tokyo appointee since its launch in the 1960s.

China’s push under President Xi Jinping to set up a new China-backed lender is a direct challenge to Japan’s current pre-eminence, said Curtis S. Chin, a former U.S. ambassador to the ADB. The two development banks “will be very much competitors,” Mr. Chin said.

Beijing’s move to set up the new lender comes after Japan has dragged its feet on allowing other countries to have a greater say at the ADB, he added.

Emerging nations, particularly China, complain they lack influence over the ADB, the World Bank and the International Monetary Fund, which are dominated by the U.S. and its allies.

The U.S. has a lock hold on major decisions at the World Bank and IMF. Japan lacks formal veto powers over the ADB, but together with the U.S. controls around a quarter of votes, many more than any other member. China’s voting share is about 6%.

Jin Liqun, a Chinese official picked by Beijing to set up the new bank, is a former vice president of the ADB.

On Tuesday, Japanese Finance Minister Taro Aso said he didn’t see competition between the two banks as a “zero sum” game. The region’s infrastructure needs—which the ADB estimates at $750 billion annually—are huge, he noted.

But Mr. Aso raised concerns over whether the China-backed lender will follow international best practices, including ensuring high standards of due diligence on projects. Japan will “maintain an extremely cautious stance” toward joining the bank, he said.
Jin Liqun, left, spoke to Khalid al-Falih, chief executive of Saudi Arabian Oil, in Beijing on March 22. A former vice president at the Asian Development Bank, Mr. Jin has been tasked by Beijing to set up the Asian Infrastructure Investment Bank. ENLARGE
Jin Liqun, left, spoke to Khalid al-Falih, chief executive of Saudi Arabian Oil, in Beijing on March 22. A former vice president at the Asian Development Bank, Mr. Jin has been tasked by Beijing to set up the Asian Infrastructure Investment Bank. Photo: European Pressphoto Agency

The U.S. has raised similar concerns to Japan. In recent weeks, though, the U.K., France, Germany and Italy have signed up.

A promise from Beijing to forgo veto power at the new institution was critical in getting these countries on board, say people involved in the negotiations. In Asia, Japan, South Korea and Australia are the major countries yet to join.

Outside of the ADB, both China and Japan have spent billions of dollars in bilateral aid and concessional financing in recent years to help poorer Asian nations build infrastructure. Such funding helps their companies, which increasingly are looking for cheaper production bases as costs rise in China.

In Vietnam, Japan has built a new airport terminal and a highway into the capital, Hanoi. Chinese state-owned companies have constructed a majority of Vietnam’s recent coal-fired power plants.

This week, Prime Minister Shinzo Abe of Japan committed to supplying ¥140 billion ($1.17 billion) in loans to build rail lines and power projects in Indonesia.

China’s moves to set up a development bank are viewed by some observers as an attempt to make its assistance program more transparent. But Japanese officials say they are concerned China might use the lender to carry out President Xi’s vision of tying Asian countries to China through a network of roads, rails and pipelines—rather than focusing on developing countries’ needs.

China and the ADB are playing down any sense of rivalry. The bank’s president, Takehiko Nakao, met Tuesday with Chinese Premier Li Keqiang in Beijing. Mr. Li said the Beijing-led bank will be complementary to existing institutions such as the ADB, according to the state-run Xinhua News Agency.

Chinese Finance Minister Lou Jiwei last week said there was an enormous need for infrastructure development in Asia and vowed the new Beijing-backed lender won’t usurp the role of existing organizations, Xinhua reported.

Mr. Nakao, in a statement, said the ADB would cooperate with the China-backed lender once it is “formally established, adhering to international best practices in procurement and environmental and social safeguard standards on its projects and programs.”

The ADB already is sharing expertise with officials looking to set up the bank, Mr. Nakao said.

ADB’s chief economist, Wei Shang-Jin, said ADB lending on infrastructure projects in 2014, including private participation, was $22 billion, much lower than the region’s needs.

—Yuka Hayashi and Tatsuo Ito contributed to this article.

Write to Tom Wright at tom.wright@wsj.com


Stampede to Join China’s Development Bank Stuns Even Its Founder

BEIJING — The sudden rush to join China’s new Asian development bank by this week’s deadline, including last-minute applications by countries hardly considered Beijing’s best friends, astonished even the Chinese.

Few in Beijing had believed that Taiwan, still considered a breakaway territory by China, would want in. Same for Norway, whose relations with the Chinese have been chilly since its decision five years ago to award the Nobel Peace Prize to a dissident Chinese writer.

But after the deadline, China announced that it had attracted 46 founding members for its Asian Infrastructure Investment Bank. Among the surprises: While China had expected to be joined by its neighbors, the final tally of countries looking to participate included 14 advanced economies of the Group of 20, many of them, like Brazil, France and Germany, from outside Asia.

“Such wide and warm support was unexpected,” said Jin Canrong, professor of international studies at Renmin University in Beijing.

The last-minute surge to join the bank was considered a major victory for China in a rare public showdown with the United States, which opposed the bank, as the two powers try to outmaneuver each other for influence in Asia. It was also a recognition of economic reality. China has deep pockets, and the institutions backed by the United States have not met the growing demands for roads, railroads and pipelines in Asia.

American officials seem to see the new institution as an effort to undercut the World Bank and the Asian Development Bank, international financial institutions dominated by the United States and Japan. Obama administration officials have also expressed concern that the new bank, under China’s leadership, would ignore lending protections created to ensure, for instance, that vulnerable populations are not pushed from their land in the rush for development.

By this week, Japan, China’s chief rival in Asia, was the only major Asian ally still standing with the Obama administration, while usually staunch allies like South Korea and Australia had pledged to join, reversing earlier decisions.

The avalanche of countries wanting to join was set off in recent weeks by Britain, one of the United States’ most trusted friends, which concluded that China was such a large export and investment market that it could not afford to stay on the sidelines of one of that country’s pet projects.

That the United States’ allies in Europe and Asia flouted Washington’s appeals not to join the bank has brought a sense of triumph to Chinese officials and scholars who say that China has now demonstrated it can construct a broad-based institution without the United States in the lead.

“This has shown China that you don’t always have to work your way with the United States, that you can work your way with the region and many others outside the region,” said Wu Xinbo, the director of the American Studies Center at Fudan University in Shanghai. “As long as people think what you are doing is beneficial and that you are providing for the public good, you don’t need U.S. approval.”

Washington basically undermined itself by failing to allow a bigger voice for China in the World Bank and the International Monetary Fund, said David Daokui Li, a former adviser to the People’s Bank of China who has a Ph.D. in economics from Harvard.

“The Americans got nervous, saying to its allies, ‘You guys can’t join, they are not dependable,’ ” Mr. Li said. “But in the end, all of America’s best allies ended up joining. We should be the ones most surprised, not the Americans.”

Washington had warned some major allies not to join. And President Obama took a hard-line stance against China’s attempts to exert power in the region in his State of the Union address this year, said Bonnie Glaser, senior Asia adviser at the Center for Strategic and International Studies in Washington.

“He said China should not be able to write the rules — the United States should write the rules,” Ms. Glaser said.

Now that the United States has lost the battle, it has softened its position, saying that it will encourage the World Bank and the Asian Development Bank to cooperate with the new bank, provided projects meet certain standards.

Treasury Secretary Jacob J. Lew flew to Beijing this week to deliver that message to Prime Minister Li Keqiang. Yet the shift to a more constructive position was viewed as late, and the repercussions of what many considered poor handling by Washington were on display at the Boao Forum for Asia in southern China last weekend, where President Xi Jinping spoke about his views on Asia to more than 1,000 delegates, many from outside China.

“I was struck by how much praise there was for China from elsewhere, and how the United States seemed to be absent,” Ms. Glaser said.

Now, the onus is on the Chinese organizers to build an institution that meets transparency, lending and environmental standards, and that fits the demands of many kinds of members with different agendas.

The interim head of the bank, Jin Liqun, who has worked at the World Bank and the Asian Development Bank, is “an experienced, savvy guy,” said Nicholas R. Lardy, senior fellow at the Peterson Institute for International Economics in Washington. “He’s hiring an able staff of about 40 people, half from China’s Finance Ministry, half recruited internationally. He says he wants to hire the best staff he can get.”

【布鲁金斯学会The Brookings Institution】
Thomas Wright, March 13, 2015
A special argument: The U.S., U.K., and the AIIB
Britain is America’s closest ally, so eyebrows were raised yesterday when news broke that it would join the Chinese-led Asian Infrastructure Investment Bank (AIIB). An anonymous White House official rebuked Britain for “constant accommodation” of China. The AIIB is one of several Chinese initiatives (including the BRICS Bank and the New Silk Road) to create new international financial institutions that stand alongside, and maybe compete with, traditional organizations like the World Bank, the International Monetary Fund, and the Asian Development Bank.

The Obama administration has been widely criticized for its response to China’s initiative. After years of calling on China to take more responsibility in global affairs, the United States is now perceived as opposing the AIIB tooth and nail. The administration has responded that they do not oppose its creation per se, but have serious concerns that it will not meet governance standards of other institutions, especially on anti-corruption and environmental grounds. However, many of America’s allies and partners have claimed that U.S. diplomacy has followed a very different track by lobbying hard against membership regardless of what assurances are given.

The U.S. approach to the AIIB has been confused and contradictory. There is also little doubt that the public rebuke by the White House of the U.K. was ill-advised. It resurrects the perception that the United States is opposed to the AIIB on principle, and not just if it is designed badly. It also suggests that all concerns about the AIIB are driven by the United States, when in fact many Asian democracies also worry about the governance standards. So, in the coming days, the Obama administration will take some criticism, much of it merited, for its approach. Hopefully, it will result in more coherent and effective economic diplomacy.

But Britain should not be let of the hook. It is extraordinary that the U.K. would join the AIIB without pre-conditions at a time when Australia and South Korea are engaged in delicate diplomacy with Beijing on their engagement with the bank. It puts Asian democracies on the back foot and helps Beijing in these negotiations. It sends a message that China can set the rules unilaterally and Britain will follow.

It appears as if David Cameron’s government took this decision because it wanted to be the first to join and to get the credit from China for doing so. Unfortunately, this would be entirely consistent with the government’s track record toward China, which has been solely based on commercial interest rather than a strategic assessment of how to promote a stable and peaceful regional order in East Asia.

The idea that Britain believes it can better influence the governance of the AIIB from the inside seems unlikely—does anyone serious believe this U.K. government, with its focus on commercial opportunity, would walk away from the AIIB if it was dissatisfied? In any event, it would have been better for democracies to bargain collectively with Beijing. One would hope that Asian democracies are privately expressing their concern to the U.K. government today.

Looking forward, the United States needs to move beyond obstructionism and figure out a better strategy for dealing with China’s competitive economic diplomacy. This includes working constructively to shape institutions of Chinese origin and figuring out which institutions really endanger a stable regional order in East Asia. It should also be a wake-up call for Congress to support the Trans-Pacific Partnership and a pro-active economic strategy in the Pacific.

Philippe Le Corre, March 17, 2015
Dividing the West: China’s new investment bank and America’s diplomatic failure

Last week’s decision by Britain to join the China-backed Asian Infrastructure Investment Bank (AIIB) came as a big surprise to a number of Washington observers.

As my colleague Thomas Wright wrote on this blog, Britain is America’s closest ally and it is rather unusual for the two governments to disagree publicly. An anonymous White House official even rebuked Britain for its “constant accommodation” of China.

But yesterday, news reports confirmed that three large European countries –France, Germany and Italy- had also agreed to join the AIIB, which was launched by Chinese President Xi Jinping last year. They will probably be followed shortly by two close American allies, Australia and South Korea, making the $50 billion new bank what the United States feared most: a rival to the World Bank, the International Monetary Fund, and the Asian Development Bank, and ultimately, a financial institution that will help China raise its international profile and influence.

Although it initially seemed a miscalculation, the British decision to become an AIIB founding member without precondition has turned into a small diplomatic success for London, which tried to gain first mover advantage (other European nations, such as France, were about to make their own announcement).

Already the largest recipient of Chinese investment in Europe since 2014 (£10 billion), Britain now appears in a stronger position than some of its European neighbors to befriend China. Prime Minister David Cameron has spent much time cozying up to China; “No country in the world is more open to Chinese investment than the U.K.," Cameron said in December 2013.

China has said it intends to further invest in British infrastructure, including railways, energy and water. It has already purchased nearly 10 percent of Thames Water, the country’s largest water company, as well as 10 percent in the firm that owns Heathrow International Airport. In addition, the City of London wants to become the world’s largest international exchange platform for the yuan, China’s currency. Several large Chinese banks such as China Merchant Bank and China Minsheng Bank have recently opened subsidiaries in London.

Having tried to lobby its allies against joining AIIB for the past few months, the Obama administration—which said it was concerned about the new bank’s governing structure—now appears to be the main loser. On the other hand, China, which just completed the annual session of its parliament on Sunday, seems to have won the show.

This once again demonstrates that China’s ability to divide Western nations among themselves is stronger than sometimes assumed. It also shows that U.S. interests increasingly diverge from Europeans who have—regrettably—little stake in the geopolitical situation in the Asia-Pacific. Since President Barak Obama was elected six years ago, the United States has insisted it wants to remain a global player in the region through its economic, political and military presence (the well-known “pivot to Asia” has been renamed “a rebalancing”), but the White House’s message on the AIIB has been confused and contradictory. It did not handle the situation well, and must now try to get back to the center stage.

Europeans, for their part, are mainly concerned with trade and investment issues. Their governments are now competing among themselves to attract Chinese investors. David Cameron, who is facing a general election on May 7, has so far been the best player in that game, but the French and the Germans should certainly not be discounted. Both countries have long-standing relations with China. 

Meanwhile, the AIIB—soon to be based in Shanghai, Asia’s economic capital—will likely become a key tool of China’s new international strategy, and others—including Japan, which is the main country behind the Asian Development Bank—will have no choice but to accept it.

The Biggest Threat to America’s Future Is … America
John Cassidy, March 17, 2015

Britain, France, Germany, and Italy have decided, over the objections of the United States, to join the Asia Infrastructure Investment Bank, a new international-development institution, set up by China, that is poised to become a potential rival to the World Bank.    Britain, France, Germany, and Italy have decided, over the objections of the United States, to join the Asia Infrastructure Investment Bank, a new international-development institution, set up by China, that is poised to become a potential rival to the World Bank.    Credit Photograph by Takaki Yajima-Pool / Getty

Britain, France, Germany, and Italy have decided, over the objections of the United States, to join the Asia Infrastructure Investment Bank, a new international-development institution, set up by China, that is poised to become a potential rival to the World Bank.
Britain, France, Germany, and Italy have decided, over the objections of the United States, to join the Asia Infrastructure Investment Bank, a new international-development institution, set up by China, that is poised to become a potential rival to the World Bank.

On a day when much of the world’s attention is turned to Israel and its elections, I’ve been thinking about another foreign story that has been receiving less coverage but could, in the long run, turn out to be equally significant: the news that Britain, France, Germany, and Italy have decided, over the objections of the United States, to join the Asia Infrastructure Investment Bank, a new international-development institution, set up by China, that is poised to become a potential rival to the World Bank.

Who cares about a new development bank, you may ask? By way of an answer, let me engage in a bit of historical analysis. It may seem like a pointless detour at first, but I promise to circle back to the news.

Many years ago, after the stock-market crash of 1987, an acquaintance of mine who works on Wall Street told me, “Don’t bet against the U.S. of A.” It turned out to be good advice. Despite forty years of income stagnation for many middle-class Americans, a glaring rise in inequality, the Great Recession and its aftermath—despite it all, the American economy is still the world’s most advanced. It represents the “production frontier” that other countries are working toward.

Productivity is higher in the United States than in Europe or Asia, which reflects the country’s deep reservoirs of natural endowments, skilled labor, and technology. American scientific research leads the world, and, according to one U.K.-based survey, fifteen of the world’s top twenty universities are American. U.S. financial markets are deeper and more liquid than financial markets elsewhere, and, despite advances in places like the United Kingdom and Hong Kong, there is not yet a real competitor to Silicon Valley and Wall Street when it comes to incubating innovation.

To those who argue that the American Century is over, I say: look around. If you do, chances are you’ll be using an American-built search engine and an American-designed Web browser, and arriving at American-produced content. Over the past half century, many countries around the world have closed some of the economic gap with the United States, but with the exception of Norway—a special case because of its tiny size (population: five million) and vast oil reserves—none of them have moved ahead in terms of G.D.P. per capita.

This picture may change over the next thirty or forty years, but I wouldn’t bet on it. History, economic theory, and common sense all suggest that it is possible to copy the economic leader’s methods, but far harder to overtake it. During the seventies and eighties, Western Europe learned this lesson. In the nineties and aughts, it was Japan’s turn. If China keeps expanding at the rates of the past couple of decades, it will eventually face the same dilemma.

Of course, as other countries, especially Asian ones, continue to develop, the U.S. share of global trade, G.D.P., and wealth will diminish. But that won’t necessarily reflect any failing on America’s part. It is the inevitable consequence of globalization and the development of a single worldwide market economy. Until around 1990, many big countries had cut themselves off from global capitalism and the opportunities it provides for the transmission of capital and knowledge. Today, Eastern Europe, China, India, and, increasingly, parts of Africa are all active players. As a result, the U.S. economy looms less large, in relative terms, than it once did, even as, by almost any measure, America is still number one.

One of the reasons these developments matter is that, in the long run, military power and strategic power reflect economic power. The Roman Empire, like other ancient hegemons, was built on an extensive slave economy. Portugal, Spain, and Holland, in their imperial heydays, were great trading nations. The British Empire, which at one point covered almost a quarter of the world’s land, was built on cotton, coal, iron, and steel—the industries of the industrial revolution. As other countries, notably Germany and the United States, caught up, the British were eventually forced to retreat, with the Second World War serving as the decisive blow.

Absent an unforeseen catastrophe, Pax Americana won’t suffer the same sudden end that Pax Britannica did. But over time it will be challenged, which raises a key question: Can the American psyche, and the American political system, adapt to a new reality in which the United States retains its position of leadership but no longer enjoys unquestioned dominance? So far, some of the signs are encouraging, while others are worrying.

The good news is that the American people, although patriotic and, on occasion, nationalistic, are not by their nature jingoistic imperialists. To the contrary, many of them are instinctively isolationist. Even though the United States maintains scores of military bases around the world, spends more on defense than all the other major powers combined, and is engaged almost constantly in wars somewhere on the planet (officially declared or otherwise), most Americans would object to the idea that they have an empire, whether formal or informal.

This self-deception sometimes borders on the pathological, but from a strategic point of view it is an advantage. It suggests that if the transition to shared world leadership could be managed peacefully, and in a manner that didn’t insult U.S. pride, most Americans would probably accept it. Already, we hear calls from U.S. officials for the country’s allies in NATO to beef up their defense spending and take on more of the burden. In Iraq, the United States is now relying on an enemy, Iran, to take the fight on the ground to the Islamic State in Iraq and al-Sham, which in the grand scheme of things is a nuisance to the United States, rather than an existential threat. If Americans object to this arrangement, they are keeping strangely quiet about it.

Unfortunately, the widespread recognition that America can’t do everything coexists with a set of outdated presumptions and practices, which still dominate many policy discussions in Washington and are already doing considerable harm to the U.S.’s standing. If these nostrums and patterns of behavior aren’t updated, they will end up doing far more damage. Indeed, it’s barely an exaggeration to say that the real threat to American power and influence comes from within America itself, specifically from its increasingly dysfunctional political system.

Take the transatlantic diplomatic row over the Asia Infrastructure Investment Bank. In itself, it isn’t a huge story, but it is a straw in the wind.

In June of last year, China announced that it was expanding its plans for a new international-development bank, which would be based in Beijing and would lend money for infrastructure investments across Asia. This happened after the Chinese were repeatedly rebuffed in their efforts to play a larger role in the World Bank and the International Monetary Fund, the two big Washington-based lending institutions that were set up after the Second World War, and in the Manila-based Asian Development Bank, which was founded in 1966.

Since their establishment seventy years ago, the World Bank and the I.M.F. have played an important role in stabilizing and legitimizing the U.S.-dominated global economy, directly furthering U.S. interests in the process. In many other countries, indeed, they have long been viewed as conduits for the Treasury Department and the White House. At least a decade ago, as Asia’s importance to the world economy increased, smart officials in Washington came to realize that this situation couldn’t continue indefinitely, and that if the Bank and the I.M.F. were to maintain their influence they would have to be reformed, with China, India, and other Asian countries playing bigger roles. In November, 2010, after years of tortuous negotiations, a package to reform the I.M.F. was agreed upon: the Fund’s resources would be doubled, and China, in particular, would get more of a say in its internal deliberations.

That seemed like a step in the right direction, but Congress refused to go along with it. Following the 2010 midterm elections, the Republicans repeatedly sidelined legislation approving the I.M.F. reforms, and early last year they blocked them again, seemingly for good. This provided the Chinese the perfect backdrop against which to pursue their own initiative, the Asian Infrastructure Investment Bank, and market it to other Western countries, who are themselves keen to attract Chinese business deals and inward investment. Now, despite objections from the Obama Administration, four of the U.S.’s closest allies have agreed to join the new institution as founding members. Speaking on Capitol Hill on Tuesday, the Treasury Secretary, Jacob Lew, seemed resigned to the new reality. “It’s not an accident that emerging economies are looking at other places because they are frustrated that, frankly, the United States has stalled a very mild and reasonable set of reforms in the I.M.F.,” he said.

International finance is far from the only area in which Congressional intransigence and wrongheadedness are undermining U.S. interests. The open letter to Tehran that forty-seven G.O.P. senators signed last week comes to mind. What was jarring about the letter wasn’t just the sight of one branch of the U.S. government telling the leaders of a rival nation that the President, with whose representatives the leaders were negotiating a nuclear deal, would be gone in a couple of years. It was the suspicion that this unprecedented communication was, at root, a poorly thought through political gesture. In this area, as in many others, domestic politics had trumped the national interest. Immigration reform, infrastructure investments, environmental initiatives, health-care reform, servicing the national debt, and, now, appointing a new attorney general to oversee the U.S. legal system—in all of these areas, the same story can be told over and over.

At any one time, it is easy to dismiss dysfunction in Washington as meaningless; believe me, I do it all the time. When political paralysis and political role-playing become institutionalized and extended over time, however, they can end up sapping a nation’s vigor. Constant palace intrigue (sometimes accompanied by civil war) helped to undermine imperial Rome. In the fifteenth century, China’s Ming dynasty, after another bout of infighting, took the fateful decision to turn inward and ignore the outside world. France, a superpower of the seventeenth and eighteenth centuries, could never reconcile the financial demands of the Bourbon monarchy and near-constant war with the power of the local appellate courts, which resisted imposing higher taxes.

In a country of plentiful resources and vast acreage, America’s decentralized political system was, for a long time, a major advantage. It allowed policies to be tailored to local needs and prevented the emergence of an overweening state, while still enabling the mobilization of sufficient resources to develop extensive transportation and public-education systems, as well as the hydrogen bomb, the space program, the Internet, and much else besides.

Today, however, it is hard to make the argument that the U.S. political system is serving the country well. With heightened competition and new global challenges, such as the rise of China, the United States badly needs to acknowledge the new realities and improve its game. Despite the country’s enduring economic strength, its conception of its role in the world is outmoded, its infrastructure is crumbling, and its test scores are lagging in math and other areas, despite its impressive performance in cutting-edge research. At the very least, it needs to preserve some of its old techniques of maintaining power, including fostering institutions through which it can exercise “soft power” and serving as a magnet for talented and hard-working immigrants, who provide it with invaluable skills and entrepreneurship.

Rather than accomplishing any of these things, Washington seems to be trapped in a never-ending back and forth, in which sloganeering substitutes for analysis and political point-scoring is elevated above policymaking. It’s a dismal spectacle, and if it goes on indefinitely it will exact an increasingly high price. Not the sudden collapse of Pax Americana, perhaps, but the gradual undermining of it.

【美国外交关系协会(Council on Foreign Relations, CFR)】
Interview, March 17, 2015
A Bank Too Far?
Interviewee: Robert Kahn, Steven A. Tananbaum Senior Fellow for International Economics
Interviewer: Eleanor Albert, Online Writer/Editor

The Asian Infrastructure Investment Bank (AIIB) has gained a boost with the announcement that at least four Group of Seven countries have agreed to become founding members, drawing surprise and alarm from Washington. The Beijing-backed bank appears to be gaining momentum for its expressed goal of addressing wide infrastructure gaps in Asia. But the bank also reflects Beijing’s dissatisfaction with existing global institutions and its desire to play a leading role in the Asia-Pacific, says CFR's Robert Kahn. Though it would be a positive step for Washington to join the bank, Kahn says that there is little chance that Congress would approve U.S. participation.

What is the Asian Infrastructure Investment Bank and what are its goals?

The AIIB is a regional international financial institution originally proposed by the Chinese government in 2013 and launched in October 2014. The objective of the bank is to finance road, rail, port, and other infrastructure construction projects. More than twenty countries joined the AIIB at the start, but leading G7 economies, as well as South Korea and Australia, initially declined to join. Over the past several months, more countries have signed on, and with the decision of the UK and three eurozone economies to join, there are now about thirty members. The bank was established with $50 billion in capital, making it roughly one-third the size of the Asian Development Bank (ADB), but that capital is expected to grow to $100 billion as more countries join. The AIIB expects to make its first loan late this year.

"The AIIB is a challenge to the existing global economic order."

While there is broad agreement that there is a critical need for additional infrastructure globally, it is hard to do it. The World Bank and ADB are often criticized for being slow moving and overly bureaucratic. But there is no denying that infrastructure investment in Asia, as elsewhere, is constrained by environmental, social, and economic challenges. Private-sector projects also appear constrained by legal and commercial considerations. Though there is a clear case for public provision of infrastructure—“public goods”— budgets are stretched and standards, including important environmental ones, limit governments’ capacity to respond.

The Chinese-led AIIB hopes to do infrastructure better, while also pledging to work closely with other institutions. Still, there is little doubt that the initiative also exposes Chinese frustration with global institutions, the failure of these institutions to reform to provide a greater voice to emerging powers, and the United States’s inability to pass International Monetary Fund (IMF) quota reform. From this perspective, the AIIB—along with its companion BRICS bank [comprising Brazil, Russia, India, China, and South Africa]—is a challenge to the existing global economic order and a clear statement of intent from China that it desires to play a leading role in defining new rules of the game for investment in Asia.

Why is the decision by four G7 economies to join the bank significant?

In the fall of 2014, the U.S. government caught many by surprise when it made an aggressive and public effort to persuade countries not to join the Beijing-led institution. The United States clearly had concerns about the economic and political implications of a new multilateral lending agency led by China, and in any event, it was highly unlikely that the U.S. Congress would approve a financial contribution allowing the United States to participate. The Obama administration’s efforts led a number of countries to hold back from signing on the the AIIB. The decision by the UK, and subsequently, France, Germany, and Italy, to participate is therefore significant not only because they will be major shareholders, but also because the decision by traditional U.S. allies signals that Washington is increasingly isolated.

What motivated these countries to back the AIIB?

The decisions by these European governments reflect the belief that it would be better to be a participant in the Beijing-backed bank to ensure that its operations are consistent with the work of other international organizations rather than remain outside the tent. It also signals a growing hope that the new institution could spearhead collaborative projects with other multilateral organizations and that some of the initial concerns about the AIIB's internal governance have been addressed. Nonetheless, the United States first expressed disappointment with the UK decision, stating: “We are wary about a trend of constant accommodation of China, which is not the best way to engage a rising power.” But on Tuesday, Washington played down its tough stance and stated that each government was free to make its own decision vis-à-vis the bank.

The bank is now composed of about thirty member states, yet the United States, Japan, and South Korea—all prominent actors in the Asia-Pacific—are not among them. What are their reservations?

There has been broad concern that the AIIB would have lower standards for projects or would choose to invest in projects based on Chinese political objectives, something the Chinese government has denied.There has been additional concern that the new funding agency represents a challenge to existing institutions and a fraying of global governance. But now there is little doubt that the United States is in the minority in its opposition to the bank.

Does China’s guiding role give it an effective veto over the bank’s decisions?

The AIIB's voting structure, like that of other regional banks, gives China a strong voice as its leading shareholder. The United States has argued that China will have an effective veto on decision-making, a charge denied by the Chinese government.

What are the implications of the establishment of the AIIB for other multilateral financial institutions?

The jury is still out whether the AIIB will be complementary to or competitive with other existing international financial institutions. Initially, it would make sense for the AIIB to cofinance projects with the World Bank and ADB, if agreements can be reached. The World Bank endorsed the creation of the AIIB despite initial reservations, and in October 2014 it created a new global investment facility (GIF) to boost funding opportunities for developing nations in a bid to fill infrastructure gaps. The GIF could make partnering with institutions like the AIIB easier.

"The jury is still out whether the AIIB will be complementary to or competitive with other existing international financial institutions."

While there is a great deal of energy behind the AIIB, it’s hard to imagine it scaling up quickly without risking a major weakening of standards, poor project selection, or capture by borrowing countries. A successful AIIB will require in-house expertise, on-the-ground capabilities, and a strong-enough governance structure to resist pressures in the borrowing and investing countries to support favored projects. We will have to wait and see if the AIIB can collaborate effectively with the World Bank and ADB while avoiding fragmentation.

Might Washington reconsider its staunch opposition?

My colleague Elizabeth C. Economy has an excellent blog post on the issue, making a compelling case that it’s time for the U.S. government to shift course. While I agree with her on substantive grounds, I have a great deal of concern about the consequences of heading down the path toward membership.

First of all, it’s extremely unlikely that Congress would approve U.S. participation in and a financial contribution to a Chinese-led bank. To date, Congress has been unwilling to approve a much less controversial IMF reform package, and the Obama administration's efforts to negotiate a Trans-Pacific Partnership will require whatever political capital the administration can muster on international economic issues.

Even if Congress were to consider the bill, there would be a substantial risk of congressional add-ons, such as enforcement of penalties against countries found to manipulate their curriencies for competitive advantage, that would make the bill unacceptable to the Obama administration. It would be a black eye for the administration for to the United States were to join the bank and then not deliver on its commitment.  The best course for the United States is to back away from opposition to the AIIB, allow others to join, and let the bank rise or fall on its own merits.

The AIIB Debacle: What Washington Should Do Now
U.S. strategy on China’s new bank has been flawed from the start. Time to step back and regroup
Elizabeth Economy, March 16, 2015

It is time for Washington to take a step back and regroup. Its Asian Infrastructure Investment Bank (AIIB) strategy, ill-considered from the get-go, has now taken a major hit with the announcement this past week by the United Kingdom that it plans to join the Chinese-led AIIB. Washington’s concerns over the AIIB are well-established: the competition the AIIB poses to pre-existing development institutions such as the World Bank and Asian Development Bank; concern over the potential for weak environmental standards and social safeguards within the AIIB; and the opportunity for China to use AIIB-financed infrastructure for greater leverage in the region. From all accounts, the Obama administration has expended serious energy trying to dissuade its allies from joining the bank at least until greater clarity is offered as to the decision-making structure of the institution. With the defection of the U.K., however, it appears likely that Washington’s carefully constructed coalition will gradually unravel—both Australia and South Korea are apparently reconsidering their earlier reluctance to join the bank and could well use the U.K.’s decision as political cover for deciding to join the bank.

At this point, therefore, Washington has three choices:

1)      Continue to press its allies not to join the AIIB until governance procedures for the bank are assured;
2)      Join the AIIB itself; or
3)      Drop the issue.

Option one is clearly a losing proposition. There is no sense expending further political capital trying to persuade regional and other actors not to join the bank. It is a small-potato issue that is making the United States look weak at a time when U.S. influence in the region is otherwise quite strong.

Option two, which I—along with virtually every other China analyst outside the U.S. government—supported back in October is that the United States join the AIIB. There are several reasons why this is a good idea. It would allow the United States a seat inside the tent where it could be both a positive force for best governance practices and an internal critic if things go awry. It also would likely help ensure that U.S. companies have fair access to the bidding opportunities that will arise from the AIIB’s investment financing. Joining now will be hard to accomplish in a face-saving manner, but the United States could begin by publicly recognizing the need for the financing capabilities in Asia that the AIIB can provide and by moving quickly to work with Australia, South Korea, and Japan to work out common principles of accession.

Option three is for the United States to back away from the AIIB, release other countries from any pressure they might feel from the United States not to join, and let the AIIB rise or fall on its own merits. Chinese-led resource and infrastructure investment has encountered significant difficulty in a number of countries, including Zambia, Myanmar, Vietnam, Brazil, and Sri Lanka, among others. If the AIIB does not do a better job than China’s own development banks, it will be a stain not only on Beijing but also on all the other countries that are participating. If it does operate at the same standard as the World Bank and Asian Development Bank, then it will be a welcome addition to the world of development financing. The United States does not have to be in every regional organization in the Asia Pacific; it is not in the Shanghai Cooperation Organization, for example, and it is only an observer in the Conference on Interactions and Confidence-Building Measures in Asia. It can sit out the AIIB or assume observer status as well.

Washington’s priority should be on advancing U.S. ideals and institutions through the pivot or rebalance rather than blocking Chinese initiatives unless absolutely necessary. (Let’s not confuse China’s effort to develop the AIIB with its push to implement an Air Defense Identification Zone, for example.) Opposition to the Asian Infrastructure Investment Bank has become a millstone around Washington’s neck. It is time to remove it one way or another.

【外交官网站The Diplomat】

The AIIB: China's Just Getting Started
The AIIB’s success doesn’t mean that China has deposed the US — but the game has only just begun
By Jin Kai, March 20, 2015

As more U.S. traditional allies such as the United Kingdom, Germany, France, and Italy decide to join the China-led Asian Infrastructure Investment Bank (AIIB), people may start to wonder: Is this a sign that the U.S. is in irreversible decline?

The AIIB: China's Just Getting Started

Actually, the AIIB issue does not necessarily indicate a setback for the U.S. in the overall power game, played with an increasingly ambitious China. For one thing, we’ve yet to see a true power parity (in both the economic and military senses) between these two rivals. For another thing, as the AIIB demonstrates, China is still a regional power. However, we should start thinking about the possibility of China taking a truly leading role in a global institute (for example a “World Infrastructure Investment Bank (WIIB)” or something similar) in the future. That would truly pose a substantial challenge to U.S. predominance in the world financial system built by the U.S. after WWII.

Meanwhile, joining AIIB does not necessarily mean that these U.S. allies truly trust China’s financial skills and experience, much less Beijing’s possible political intentions. But the significance of these Western economies’ involvement is obvious to AIIB and China. And the Europeans seem to have good reasons for their decisions. As Kay Swinburne, economics spokesman for the European Conservatives and Reformists (ECR), said to Xinhua, “Being able to influence the way in which the AIIB operates will help shape infrastructure investments across Asia and ensure that the new bank encompasses high principles of governance and transparency in investment decisions.”

Nevertheless, the growing popularity of the AIIB could give China the opportunity to take a more proactive role in its intended plan to build new multilateral world institutions. In fact, the U.S. inadvertently helped facilitate such an opportunity, through its de facto containment attitude in its diplomacy toward China (especially regarding the regional territorial disputes), combined with a negative or even exclusionary policy in current multilateral economic frameworks like the International Monetary Fund and the Trans-Pacific Partnership.

In an ideal scenario, China has the money, while the U.S. has the necessary management skills and experience. Shouldn’t this combination pave the way for the two countries to cooperate regarding the reform of world financial system? But yet again, we see political differences rule over political rationality.

Still, it’s too early to conclude that China has already taken predominance in the world financial system from the United States. Both sides should not overreact to the expansion of AIIB’s prospective founding members. AIIB is a regional institute, unlike the IMF and the World Bank, in which the U.S. still acts as the leader.

However, quantitative change may eventually lead to qualitative change; the process has just begun. Could the success and possible expansion of AIIB lead to the birth of a “WIIB” or some other global scale institute in which China truly dominates? That would be more consequential for global financial leadership in the long run.

China seems to be determined and confident enough to carry out its plan of building new global institutions. The question is: what’s next?

China’s Controversial Asian Infrastructure Investment Bank
The U.S. has been very quick to make an issue of China’s new bank
Sara Hsu, March 20, 2015

China is leading the creation of the Asian Infrastructure Investment Bank (AIIB) in an attempt to improve infrastructure in Asia. A move by the U.K., and soon after Germany, France and Italy, to join the AIIB as founding members has been viewed by the United States as folly, and the U.S. warned other nations on Tuesday not to join the organization without considering China’s governance of the institution. Germany, France and Italy have pledged to ensure proper governance.

China’s Controversial Asian Infrastructure Investment Bank

Currently the AIIB has 31 founding members, including the new European members, and is supposed to be a development bank similar to the World Bank and Asian Development Bank. China’s President Xi Jinping announced the proposed creation of the bank just before the APEC meeting in Bali in October 2013. While the specific plans for governance of the bank are unclear, Xi has noted that management of the AIIB would be less bureaucratic than the Asian Development Bank, which has been touted as inefficient and redundant.

The AIIB, along with the New Silk Road initiative, which is also led by China, is designed to improve infrastructure throughout Asia. China’s pockets are bursting with foreign exchange, which the nation intends to use in part for these endeavors. Chinese companies have also proven their ability to build infrastructure (albeit excessively in recent years) through construction of the world’s largest dam (although controversially displacing millions of citizens), the longest bridge, and the largest express road network. Employment of Chinese construction companies in these multilaterally funded projects would boost China’s gross national product.

Good governance of the AIIB would help to ensure that infrastructure projects maximize their humanitarian impact and are carried out efficiently. Some of China’s infrastructure projects remain controversial, including construction of the Three Gorges Dam and the South to North Water Transfer Project. The Three Gorges Dam has come under fire for its displacement of local residents, extremely negative impact on the environment and climate, and adverse impact on water availability in surrounding areas; the South to North Water Transfer Project has been viewed by some as unnecessary, wasteful, and environmentally damaging. Infrastructure companies have also been accused of corruption, funneling money away from construction of these projects. In recent years, local governments have been increasingly wasteful in building up so-called “ghost towns,” entire urban areas devoid of residents.

If Germany and other European nations are to help oversee governance of the AIIB, better planning may occur, but this is not guaranteed. German federal transportation projects are notorious for their long delays and inefficiencies. Italy is only just improving its infrastructure, from relatively low levels. However, while European nations may not boast exemplary efficiency in the construction of infrastructure projects, certainly their human rights record is better than that of many nations in the AIIB, including China, Laos, Uzbekistan, and Myanmar. Hence active participation by European nations may prove essential in ensuring proper governance.

Washington’s negative stance on European enthusiasm for the AIIB has been rightly criticized by Robert Zoellick, former president of the World Bank. Zoellick faulted the Obama administration for taking an unfavorable position on the AIIB in advance of knowing the details of its governance. Strangely, this relatively uncontroversial institution has become a point of contention between the U.S. and Europe, even before the rules of the organization have been established.

AIIB: Not a US Loss, Not a Chinese Win
The China-led AIIB does not necessarily challenge U.S. financial hegemony; it could be a golden opportunity for cooperation
Dingding Chen, March 22, 2015

Too much ink has been spilled over China’s seeming success in wooing away the United States’ traditional allies to the China-led Asian Infrastructure Investment Bank (AIIB). Many analysts (here, here, and here) see it as a ‘China winning, U.S. losing’ story, thereby implicitly highlighting the confrontational nature of Sino-U.S. relations. Such a view is not only too simplistic, but also dangerous for moving Sino-U.S. relations forward. While to some degree it is true that China has scored a political victory by successfully attracting some of America’s traditional allies to the AIIB, there are three things we need to consider before we bandwagon with the cliché that China is rising while the U.S. is declining.

AIIB: Not a US Loss, Not a Chinese Win

The first thing to bear in mind is that the AIIB is an economic institution that may or may not carry strategic implications. While many might be tempted to view China’s AIIB move as a direct threat to the U.S.-led global financial order, in reality the AIIB’s goals are much more limited. It is very important for the U.S. not to view the AIIB as a new signal of strategic rivalry between China and the U.S.; such a distorted view would assign unnecessary strategic significance to the AIIB which is in reality is first and foremost about development. It is about funding more roads, railroads, airports, and pipelines for many developing countries in Asia. If the U.S. becomes hypersensitive to China’s every effort in global governance, then it is possible that the U.S. might reach the wrong conclusion that China indeed is trying to overthrow U.S. hegemony and start taking countermeasures to curb China’s rising influence. That would be a tragedy. In actuality, China cannot and will not challenge U.S. hegemony.

Another thing that is worth remembering, as many have already pointed out, is that the AIIB’s future is still uncertain. For one thing, it is the first time that Beijing has tried running a multilateral economic institution. Some internal challenges will not be fixed easily, and some external challenges are even harder to overcome. It is not clear how democratic and transparent the decision-making structure will be within the AIIB, especially now that many major economies like Germany and the U.K. have decided to join the bank. What is more likely is that Beijing’s preferences will be constrained by such major players, which is not necessarily a bad thing. The reason is that these more experienced players can help Beijing make better decisions when allocating funds and thus ultimately improve the quality and reputation of the AIIB in the future.

More importantly, a more democratic structure in the AIIB will reduce the suspicions and worries of smaller Asian countries that are already wary of China’s future intentions. By delegating more power to other players, Beijing can send a strong and reassuring signal to countries like Vietnam and the Philippines thereby moderating tensions between these countries, stemming from maritime territorial disputes. Beijing must make a serious effort to show that the AIIB is not just another weapon to help China dominate Southeast Asia. Failing to do so would jeopardize not only the AIIB’s goals but also China’s project of a peaceful rise.

Finally, it is misleading to claim that the U.S. is a loser in the AIIB project. While it was unwise for the U.S. to prevent its allies from joining the AIIB earlier, it would be equally unwise to underestimate the potential influence of the U.S. on the AIIB and development in Asia in general. Whether or not the U.S. eventually joins the AIIB remains to be seen. If the U.S. does join the AIIB, then we could very well see a different structure for the bank. Even if the U.S. chooses to stay outside of the AIIB in the future, competition between AIIB and the U.S.-led world bank and International Monetary Fund (IMF) will ensure that American standards and will continue to dominate the global financial order in the foreseeable future.

Needless to say, the China-led AIIB poses some challenges to U.S. influence in Asia. It is imperative for leaders from both China and the United States to avoid falling into a confrontational trap. Healthy competition between different global financial institutions is good for Asia and the world as a whole. To that end, analysts should stop the “China vs. the U.S.” hype and pay more attention to how the quality of the AIIB as an institution can be improved.

One In All In, AIIB Gains Momentum
Even with the South China Sea disputes, ASEAN countries insist they are committed to China’s new development bank
Luke Hunt, March 23, 2015

Plans for a China-led Asian Infrastructure Investment Bank (AIIB) have proved divisive. As a potential competitor to the World Bank and the International Monetary Fund (IMF) it has not been welcomed by the United States, which still dominates both institutions.

One In All In, AIIB Gains Momentum

And for good reason. China is not a democracy and it’s expansionist policies from the South China Sea to Central Asia and Africa have hardly endeared Beijing to its neighbors near and far. It also wants a 49 percent stake in the bank, leaving 30-odd not-so insignificant countries with minority holdings and a minor say.

Nevertheless momentum is building ahead of its March 31 deadline for founding members, particularly after Britain said it would join the AIIB along with France, Germany and Italy, claiming that it was in the national interest. Other European countries are expected to follow suit.

Australia, a staunch U.S. ally with historical ties to Britain, is likely to follow suit after Prime Minister Tony Abbott noted in the Australian media that “the UK has indicated an intention to sign up for the negotiations, the New Zealanders before Christmas signed up for the negotiations, the Singaporeans likewise, the Indians likewise.

“We’re looking very carefully at this and we’ll make a decision in the next week or so.”

Malaysian Finance Minister Ahmad Husni Mohamad Hanadzlah is also insisting the 10-members of the Association of South East Asian Nations (ASEAN) will fully co-operate with Beijing’s desire to take it’s foreign lending capacity to another level.

The united front followed an inaugural meeting of ASEAN finance ministers and central bankers over the weekend, but given the extent of animosity between China, Vietnam and the Philippines any shared regional vision will be strictly financial.

Vietnamese sources have stressed they have serious reservations about the AIIB and any involvement should not be construed as approval by Hanoi for projects it does not see as fit for its own foreign policy agenda.

It’s an antagonism that Beijing has always attempted to maneuver around by claiming that it lends and gives without any political strings attached – unlike Western institutions where foreign aid and soft loan diplomacy are traditionally tied to good governance.

But the standard Beijing boast is a well-established fallacy within diplomatic circles – particularly in countries like Cambodia – and hardly relevant in shoring-up AIIB membership.

Fear of missing out is a powerful force behind closed doors, where big companies will lobby for AIIB contracts ranging from railways and bridges to dams, highways and electricity grids. Four years ago the Manila-based Asian Development Bank estimated Asia needed about $750 billion a year until 2020 for its infrastructure requirements.

As a comparison the World Bank lent about $25 billion in 2011 for infrastructure spending, representing about half of its lending capacity.

This was point not lost on the Australian Industry Group, which is lobbying the federal government to push ahead with joining the AIIB, saying it would make Australia an active participant in a changing economic landscape within the region as opposed to being just another bystander.

That leaves the U.S., Japan and South Korea as the lone major countries opposed to the $50 billion bank and its promises of funding major infrastructure projects around the region and beyond.

Following the decision by European countries to sign up, Washington urged countries – perhaps in a message to a wavering Australia – to think twice before joining.

“I hope before the final commitments are made, anyone who lends their name to this organization will make sure that the governance is appropriate,” U.S. Treasury Secretary Jack Lew said.

One genuine concern will be standards of governance, construction and human rights when big contracts are awarded. It’s a theme ASEAN countries tend to ignore, but it has been cited by Australia and the Europeans. Of course, whether their voices will be heard among the many minority stakeholders is another matter entirely.













Europeans in the AIIB: a sign of Chinese weakness
Alan Beattie, Mar 26 09:34

The decision of several European countries to join the China-inspired Asian Infrastructure Investment Bank has created a widely believed narrative as follows. Beijing, frustrated by its exclusion from the centres of power in existing international economic institutions, creates its own. The accession of the UK to the bank, followed by (to date) five other European countries, is a powerful testament to China’s role as a rising hegemon.

This narrative is not wrong, but is far from the whole story. First, China’s decision to bypass multilateral institutions and go it alone with development lending was hardly forced on it. Second, Beijing’s willingness to allow western nations to join the AIIB is also an admission that its bilateral efforts have often not worked well.

On the first point, the notion that China tried valiantly to play the maximum role possible in existing institutions such as the IMF and World Bank would be a serious overstatement. For example, it is frequently (and correctly) stated that the US has undermined emerging markets’ confidence in the IMF by failing to get through Congress a change in “quota” contributions that would give middle-income countries more power on the fund’s executive board. As the same time the US, along with other advanced economies, pointlessly resisted the fund getting in ad hoc contributions from the emerging markets: Treasury officials at the time even fiercely denied that such talks were even going on.

Less often remarked upon, although widely reported by those actually involved in the negotiations, is that China fought hard to restrain the increase in its own voting share on the IMF executive board below that of Japan. Beijing did not want the prominence – and the responsibility for the IMF’s actions – that would have come from having the second most votes on the fund’s board. (Nor, incidentally, did it play any significant role in the Doha round of trade talks beyond helping to strangle the ailing creature at the death.)

To be fair, it should be noted that the Fund and Bank have hardly acted throughout their lifetimes as dispassionate promoters of the common weal. The US used the IMF and the World Bank to prop up Cold War client governments and sometimes prioritise the interests of western investors. China may well have considered such institutions so tainted by western neoliberalism that becoming actively involved would have inflicted too much political damage on itself within the developing world, particularly given the transparency and salience of their decisions. The short-sightedness of the US Congress with regard to the IMF contribution has given it an excellent excuse to strike out on its own, but it is not true that it exhausted all multilateral possibilities before doing so.

On the second issue, while the participation of European governments is testament to China’s economic power – the UK reportedly wants London to grab business in offshore renminbi trading – it comes at a cost to China’s control of the institution. Reports that China will give up veto power in return for European involvement suggest Beijing recognises it needs political legitimacy and is prepared to make concessions to get it.

By doing so, Beijing has in effect now invited western countries with their active and vocal NGO communities to do to the AIIB what they have done to the World Bank – continuously badger it to impose restrictions on its own lending because of environmental and human rights concerns, and loudly publicise breaches thereof. Whether Beijing itself cares about such pressure directly is not clear, but if it wants the political cover of European countries being involved it may be forced to take note of it at one remove.

This being the case, why would Beijing want advanced economies involved in the first place? The reality is that its experiences with bilateral lending have been sobering. Through its various agencies, including the China Development Bank and the China ExIm Bank, in effect lending out its vast foreign exchange reserves, Beijing years ago surpassed the World Bank as the largest global provider of development finance to middle-income countries.

However, the attempt to use that lending to buy political allegiance and to secure imports of natural resources and export markets for its own goods have increasingly come a cropper. It transpires that opaque lending to unstable regimes is no guarantee of either a commercial or a geopolitical return. Inviting in more experienced lenders will reassure borrowers that this is not just old Chinese lending practices in new clothes.

The conclusion that emerges from the enlargement of the AIIB is that China is neither as hegemonic nor as independent as it appears.

Popular belief is that the narrative of China’s role in global governance goes something like this:

    China becomes economic superpower
    China is excluded from leading role in existing multinational institutions

  1. China goes it alone

  2. China creates rival to World Bank

  3. China is triumphant as western countries join in

In fact it would be more accurate to regard the sequence as follows:

    China becomes economic superpower
    China shies away from leading role in existing multinational institutions
    China starts unilateral development lending
    China finds that debt diplomacy is harder than it looks
    China switches resources to new development bank
    China accepts it needs western countries to give the bank legitimacy

European countries joining the AIIB is a fascinating development for global governance wonks, but the idea that this is an unalloyed triumph for China is a considerable overstatement.
















































China cannot believe its luck over new investment bank
Tom Mitchell in Beijing, April 6, 2015

China scored a diplomatic coup by enticing almost 50 countries including key US allies to join its new development bank

The Chinese government can scarcely believe its own luck. Heaping Asian insult upon Capitol Hill injury, last week Benjamin Netanyahu committed Israel to join Beijing’s new Asian Infrastructure Investment Bank.

While there is no love lost between the Israeli prime minister and US President Barack Obama, who was embarrassed by Mr Netanyahu’s congressional address on March 3, Beijing could not have expected to attract such a longstanding American ally to the AIIB when it first conceived of the institution at least two years ago.

What began as a seemingly quixotic defection to the AIIB by the UK — the first US partner to turn a deaf ear to American protestations about the bank — has turned into an unalloyed strategic triumph for Beijing.

More than 50 countries, including traditional US military allies such as Australia and South Korea, have signed up. Only Japan has — so far — stood by Washington’s side, echoing the Obama administration’s concerns about governance and transparency standards at the new bank.

The Chinese government’s success with the AIIB is not just luck, however, it is the fruit of a very smart policy adjustment.

From its declaration of an air defence identification zone over the East China Sea in November 2013 to its deployment of an oil rig near Vietnam last May, Beijing’s assertion of “hard power” appeared to be putting it on a collision course with almost all of its regional neighbours.

The nadir came on May 26, when a small Vietnamese fishing vessel harassing the oil rig was run down and sunk by a much larger Chinese trawler. The incident, which arguably amounted to attempted homicide on the high seas, has since been immortalised on YouTube.

In private, Chinese foreign policy experts acknowledge that the violent protests that erupted across Vietnam after the over-reach in the South China Sea provided a powerful wake-up call. With the annual Asia Pacific Economic Co-operation summit scheduled to be held in Beijing just six months later, the Chinese government decided to ditch hard-power projection for soft-power persuasion.

At APEC, the Chinese government backed down from a looming confrontation with Japan over the contested Senkaku or Diaoyu islands; signed unexpected environmental and military accords with the US; and unveiled a $40bn fund to support an infrastructure-focused “New Silk Road” linking Asia to Europe. The AIIB will contribute at least another $100bn to this initiative in which Beijing intends to assume the role once held by Venetian bankers along the old Silk Road.

China’s strategic volte face has benefited from an almost comic series of mis-steps by its great geopolitical rival. US congressional reluctance to sign off on reforms giving China and other developing nations a greater role at the World Bank and International Monetary Fund has been compounded by the Obama administration’s inability to, as they like to say on Capitol Hill, “count the votes” on the AIIB.

It is one thing to oppose an institution behind-the-scenes and fail quietly; it is quite another to do so brazenly. Worse for Mr Obama, his standing in the Asia-Pacific region will deteriorate even further if he cannot secure congressional “fast-track” authority to seal the deal on the Trans-Pacific Partnership trade talks, which pointedly exclude China.

Should TPP fail, then the economic component of the US president’s “pivot” towards Asia will — to Beijing’s surprise and delight — have completely unravelled.

Chinese President Xi Jinping cannot, however, celebrate just yet. While 2015 may have started out as an annus mirabilis for Beijing, an evolving diplomatic mess in Sri Lanka is a reminder of how quickly geostrategic momentum can change.

China’s crisis in Colombo is largely of its own making, having bankrolled some $5bn-worth of infrastructure projects on the assumption that Mr Xi’s erstwhile ally there, Mahinda Rajapaksa, had as firm a grip on power as the Chinese Communist party does.

Mr Rajapaksa’s shock election defeat in January has exposed China’s Sri Lankan infrastructure investments — and related lending packages — to unwelcome scrutiny from the new government in Colombo. If proven, the accusations there of a lack of transparency and worse will perfectly illustrate Washington and Tokyo’s worst fears about potential governance lapses at the AIIB.

Beijing’s challenge now is to ensure that the mistakes in Sri Lanka are not repeated under the auspices of its popular new bank.

中国安邦集团研究总部 2014年07月17日










戴维•皮林 2014年08月04

13年前,Brics还是时任高盛(Goldman Sachs)首席经济学家吉姆•奥尼尔(Jim O'Neill)设想出的一个营销策略。现在它是一家银行。你很快就会知道,它将拥有自己的设计师手袋系列。

上个月,在巴西福塔莱萨(Fortaleza),巴西、俄罗斯、印度、中国和南非这5个金砖国家同意创建一家开发银行。他们还设立了一个规模达1000亿美元的货币互换协议——正式名称是“应急储备安排”(CRA),该协议将让各国央行在紧急时期获得外汇供应。借用俄罗斯财长安东•西卢安诺夫(Anton Siluanov)的话来说,金砖国家正努力创造一个迷你版的世界银行(World Bank)和一个迷你版的国际货币基金组织(IMF)。

金砖国家的计划有利于世界,尽管你从西方的轻蔑态度看不出这一点。有两个默认的立场。一个是对5个国情迥异的国家有条理地组建机构并坚持运行的想法嗤之以鼻。另一个是担心世行和IMF所象征的世界秩序即将崩溃。世行和IMF是1944年在布雷顿森林(Bretton Woods)会议上建立起来的由美国主导的两家机构。



相比之下,金砖5国将按照自身规模为CRA出资,其中出资额最高的是中国410亿美元,最低的是南非50亿美元。这个应急储备是金融紧张时期的安全网,比如当一国货币遭受投机性攻击的时候。CRA以“清迈倡议”(Chiang Mai Initiative)为模型。“清迈倡议”是1997年亚洲金融危机之后亚洲各国签署的规模达2400亿美元的货币互换协议,当时亚洲创立自己等同于IMF的机构的提议被华盛顿否决。



在金砖国家看来,全球金融体系对它们不利。印度央行行长拉古拉姆•拉詹(Raghuram Rajan)指责富国追逐自私自利的政策,不考虑这些政策对新兴经济体的影响。美联储(Fed)在没有警告的情况下就宣布“逐步退出”其债券购买项目,这表明它愿意开关货币政策“龙头”,即便这会引发穷国市场的动荡。

欢迎金砖银行的一个理由是,它将会带来竞争。中国在非洲的放贷活动引发了合理的批评,即这种放贷没有与良好治理或环境标准挂钩。然而中国为非洲提供替代资金来源,总的来说是一件好事。考虑到大量的道路、电厂和下水道系统需要资金,新的金砖银行同样应该具有积极意义。印度央行副行长尔吉特•帕特尔(Urjit Patel)表示:“任何新的机构只要增加长期资本,都必然有利于世界。”

金砖银行并非万灵药。正如批评人士指出的那样,其规模相对较小。美国外交关系委员会(Council on Foreign Relations)的本•斯泰尔(Ben Steil)和黛娜•沃克(Dinah Walker)指出,中国、印度和巴西加起来仅从世行就借款660亿美元,比金砖银行的全部认缴资本还要多。同样,尽管“有条件放贷”的理念可能强调过头,但如果金砖银行不分青红皂白地向有意掠夺本国自然资源的独裁者放贷,那将不是一件好事。金砖银行也不像它吹嘘的那么民主。该行的章程确保了创始国的投票权永远不会降至55%以下,无论以后有多少国家加入。


Britain Launches European Rush to Join AIIB. Now What?
Daniel Runde, March 17, 2015

Last fall, China launched the Asia Infrastructure Investment Bank (AIIB). Britain is the first major Western ally to sign up as a donor/member. This may be the break in the dam (sorry for the infrastructure reference!), as France, Germany, and Italy have now agreed to join, while other key allies including Switzerland, Australia, and South Korea are supposedly on the fence.

As the AIIB builds momentum and accrues members, our best response would be to ensure that our existing institutions — the IMF, the World Bank, and regional development banks — are better, more flexible, and adequately funded. It also means we will have to work harder to provide developing countries with what they want, including financing for the energy choices they make.

With Britain as a member, British companies will get favorable treatment on big infrastructure deals funded by this new bank. Those companies whose countries are not members will not be able to bid, or will be at a disadvantage. Prime Minister David Cameron has made international development a major part of his governing program, and now faces an election in May where the economy will be the top issue. In response to U.S. reservations regarding British membership in the new bank, a Cameron spokesman simply said: “we think it’s in the U.K.’s national interest.”

The United States should accept some blame for China’s decision to create the AIIB, because of our slowness to act on IMF Quota reform — in essence, giving poorer countries marginal increases in their ownership shares at the expense of a small amount of U.S. and European votes, while keeping our unique veto on anything we don’t like. Washington should also be willing to take some of the blame because of its lack of action on meeting the needs of our donor partners. We are now at a point where it is impossible to tell China — or others — “We think you should not create a new infrastructure bank.”

The United States and Japan rightly see this new bank as a direct competitor of the World Bank and the Asian Development Bank, a regional version of the World Bank that is largely owned by the United States and Japan.

It is true that the cost of the infrastructure that needs to be financed in Asia each year is in the hundreds of billions of dollars, and that the Asian Development Bank and the World Bank contribute amounts in the low tens of billions each year. Most infrastructure is not fully financed by these banks, but they do provide some money, offer best-in-class standards, an additional good housekeeping seal of approval, and provide advice. There is a debate in international development that says because developing countries are awash in tax dollars and because many developing countries can access the global capital markets, there is no shortage of money, but, rather, a shortage of “bankable” projects (e.g., a lack of confidence in rule of law or whether a project is actually feasible, etc.). Regardless of where one comes out on this debate, there is a massive infrastructure deficit in many places in Asia, and so many Asian countries have welcomed the AIIB with varying degrees of enthusiasm.

The AIIB is also a response to growing “South-South” trade in the world, including in Asia. South-South trade’s share of global trade has doubled in the last 20 years, and now accounts for a quarter of global trade. This means that the most rapid growth in world trade is among poor countries, not rich ones.

The United States has given China and others political cover to push this through because of our lack of movement on IMF Quota Reform, which would cost the United States $300 million, money that would come out of our international affairs and/or defense budgets. The Obama ddministration has been unable to cut a deal with Congress on IMF Quota reform for four years. Out of the 20 G-20 countries, we are the only hold out. China has pointed this out, and said, “[t]he IMF and World Bank and others are not responding to the new realities of the size of our economy. We are going to create our own version of the Bretton Woods System.” Without IMF Quota reform, this strengthens the Chinese argument. I wrote about that here.

The Obama administration must take some blame for the rise of the AIIB because AIIB fills a void due to administration policy decisions around energy financing. Through policies and executive actions, the World Bank, Overseas Private Investment Corporation (OPIC), and the Export-Import Bank (EXIM) are turning away from coal, nuclear, hydro, and even oil and gas projects because of environmental concerns and pressures from environmental lobbies. Asia is the largest consumer of coal in the world, and the United States is the Saudi Arabia of coal. You could see the AIIB financing U.S.-built coal-fired power plants, or situations where the United States is providing the coal when OPIC, EXIM, and the Bretton Woods institutions have turned up their noses to these projects. These environmental policies, pushed largely by the Obama administration (although the OPIC “carbon cap” was regrettably instituted under President George W. Bush), are largely opposed by developing countries who have major energy demands and are making decisions based on “energy poverty” first.

There are many challenges and dilemmas for the AIIB:

1) What percent of the vote will China have? The first proposal, based on GDP size, gives China 60-plus percent control. But China quickly realized that no one would want to join such an institution. The latest proposal has Chinese voting shares in the 30s.

2) Will AIIB be the funder of choice for “uncertified” palm oil plantations, Iranian airports, and roads built with quasi-slave labor? In other words: what labor, environmental, and other standards will be used? Will AIIB provide financing to any regime? What happens the first time there are community problems at an AIIB-funded project?

3) What sort of approach will this bank take to corruption in infrastructure projects? Japan and the United States can’t stop China, but we can expand our lending portfolios, fix the internal processes, offer great advice and research, and review our policies with regards to energy financing

The ADB’s announcement — not a coincidence, I am sure — to increase lending by 40 percent is a good first step but not the last.

The West no longer has a monopoly on official financing, and we should respond with a better, faster, and broader offering from Bretton Woods institutions and regional development banks.

The AIIB Is a Threat to Global Economic Governance
The era of a U.S.-dominated global economic order is ending. But a fragmented governance system isn't the best replacement
Paola Subacchi, March 31, 2015

The U.S. rebuke of Britain earlier this month for its participation in the China-led Asian Infrastructure Investment Bank (AIIB) has put the spotlight on a set of questions that have dogged policymakers and economists for years: Who is in charge of global economic governance? Who sets and manages the rules? And should they be set multilaterally?

Given China’s controversial lending to countries with murky track records — not only in terms of good governance and political stability, but also credit ratings — the concerns about the direction of the new bank and the role that all shareholders will be playing are spot on. But the U.S. stance vis-à-vis the new institution and the role that China might play in it is also highly hypocritical. With Congress’s approval of International Monetary Fund (IMF) reform still pending, is the United States in the best position to preach to others on the risk of using China’s mold for shaping the new bank?

As big developing countries, in particular China, have transformed in the last two decades, so has global economic governance along with it. But governance seems to evolve at a much slower pace than the world economy. The so-called Bretton Woods institutions — the IMF, the World Bank and, to some extent, the World Trade Organization (and its previous incarnation, the General Agreement on Tariffs and Trade) — that have been in place since the end of World War II, reflect a world economic order dominated by the United States. Despite their 188 states-strong membership, both the IMF and the World Bank continued to be managed by the United States and western European countries — Britain, Germany, and France. The United States is the largest shareholder in the IMF, contributing approximately $65 billion, which gives Washington veto power on other countries’ deliberations thanks to the Fund’s weighted voting system.

For years, many around the world have called for reforms to the IMF’s governance to give other countries a greater voice in decision-making. To date, those efforts have been largely stymied. As a consequence, both the IMF and the World Bank continue to be seen as an extension of U.S. economic and geopolitical influence. This is despite the softening of the so-called Washington Consensus — policy measures that have been part of the IMF’s conditional lending — since the excesses of the 1980s and 1990s. And the fact that both the IMF and the World Bank are now much more diverse than they used to be — for instance, nearly half of IMF staff are from developing countries now — also has done little to change the perception that both organizations answer to Washington.

The AIIB’s creation is a response to Asia’s large infrastructure financing gap, which has been estimated to be about $8 trillion between 2010 and 2020.

However, besides this purely economic argument it would be difficult not to detect, behind the establishment of the new bank, China’s urge to advance its influence in the region. Under the current arrangement, the Asian Development Bank (ABD), which is a part of the World Bank, is primarily responsible for Asian infrastructure financing and other development projects. But China has limited impact on the Asian Development Bank, which is in the grip of Asia’s established powers, the United States and Japan.

But even if the AIIB’s creation is in China’s interest as the new regional power, the move does little to respond to the need to improve multilateralism and to strengthen global economic governance. In fact, it may do the opposite. The risk now is the creation of two blocs of economic influence in Asia: one led by China and the other by the United States and Japan. Demand for infrastructure investment is large enough to accommodate both — even a third development bank could probably find demand — but this is not the point. At stake is good governance and multilateralism — for instance, in a world of fragmented governance what would be the incentive for Congress to finally approve the IMF reform?

In addition to fragmented institutions and governance, the AIIB could present a risk of establishing divergent investment standards — a risk already significant in trade as China has reacted to the Trans-Pacific Partnership, of which it is not part, by accelerating its own trade arrangements in the region. Can the rest of the world — not only the United States — afford to leave China to set up its own standards on both trade and investment? The concern here is not on the quality of these standards — and the assumption is not that Chinese-set standards are by definition inadequate. It is on maintaining a harmonized, consistent, and multilateral framework of rules and standards that help integrate, rather than fragment, the world economy.

Rather than venting their frustration on Britain, the United States would benefit most from leading by example and embracing a two-fold strategy. First, Congress could press ahead and approve the IMF reform with no further delay. Second, the administration could engage with China on the issue of the new regional banks — the New Development Bank, better known as the BRICS bank, is the next down the line — within the setup provided by the G20.

Since the aftermath of the global financial crisis, the G20 have been the leading forum for global economic and financial affairs, having taken over from the G8 after November 2008. Even if the G20 remains an informal forum without a secretariat, it has better adapted to the changing dynamics of the world economy than the IMF and the World Bank. In particular, the G20 have been better than the existing institutions at bringing in and engaging with emerging economies – all major emerging markets economies are members of the G20.

The outbreak of the global financial crisis was a catalyst, and a turning point, for global economic governance. The G20 have become critical for managing the world economy and, especially, for dealing with economic disruption and financial instability. This is why this forum should provide the context to discuss the setup of new multilateral institutions, such as the AIIB and other regional organizations, and to set the tone, and the rules, of the new global governance.

China's New Bank Offers Fresh Approach to Old Problems
Enda Curran, March 26, 2015
(Bloomberg) -- With the world’s first major new multilateral development bank in a generation, China has the opportunity of crafting a fresh approach to an old challenge -- how to channel funds to the most productive projects, in the least time, while maintaining a likelihood of repayment.

By lining up the support of more than 30 nations, and securing a pledge of cooperation from the five-decade-old Asian Development Bank, China has quickly built credibility for its $100 billion Asian Infrastructure Investment Bank -- even over U.S. opposition. Still to come is forging lending objectives, approval processes and outlines for loan conditions.

While details are pending, what’s clear is that China isn’t prepared to copy existing formats. Finance Minister Lou Jiwei says “I don’t recognize so-called best practices.”

Officials’ comments indicate the bank will have some of the features of a commercial bank -- a different approach from the ADB, whose main focus is on poverty reduction. At the same time, China’s unilateral loans, much of them through China Development Bank Corp., provide cautionary examples of practices that generated loans that turned sour, such as to Venezuela.

By blending parts of the ADB’s structures that focus on governance, along with its own individual experiences, China could create a lender with wide appeal to help fund an estimated $8 trillion infrastructure shortfall in Asia between 2010 and 2020.

‘Middle Path’

“It has the potential to be a middle path, and this would be a positive development,” said Philippa Brant, a research associate in Sydney at the Lowy Institute, a nonpartisan foreign-affairs research group. “China’s bilateral financing through the CDB has sometimes faced problems relating to bad loans and community backlash.”

The last major multilateral lending institution to be created was the European Bank for Reconstruction and Development, set up in 1991 to help rebuild former Communist nations in eastern Europe after the end of the Cold War.

China has similarly lofty goals, with the AIIB one of three entities it’s promoting, along with a joint development bank with Brazil, Russia, India and South Africa, and a Silk Road Fund designed to revive Chinese commercial ties in South and Central Asia. They would join existing bodies including the ADB, World Bank and Inter-American Development Bank in offering finance to emerging markets.

New Rules

The AIIB will be “a multilateral development institution mainly led by developing countries, and we must consider their appeals -- some rules proposed by Western countries may not be best, in my view,” Lou said in a panel discussion with Takehiko Nakao, the head of the Japan- and U.S.-led ADB, at a forum in Beijing this month.

China plans to push for the yuan to take prominence in projects under the AIIB and the Silk Road Fund as it seeks broader global use of its currency, said people familiar with the matter.

China already has deep experience in overseas lending from Africa to South America -- not always with positive results. Led by China Development Bank, it has lent tens of billions of dollars to foreign governments and businesses, often part of a push to build bilateral ties and help secure energy resources.

Through the CDB, China has sent billions to oil-rich Venezuela since 2008, resulting in Chinese firms winning contracts to build housing, power stations and other public works. Some of those loans have drawn scrutiny as Venezuela’s government, which gets about 95 percent of its export revenue from oil, creaks under the strain of the slump in oil prices.

Lessons Learned

“If AIIB was put at the same position as China Development Bank, I am sure it wouldn’t pour so much funds into Venezuela as China Development Bank actually did,” said Pang Zhongying, an international relations professor at Renmin University of China in Beijing. “A multilateral institution such as AIIB can help China to control the risks and to learn from past lessons in lending abroad.”

The AIIB will be much smaller than the CDB, at least at the start. Its initial subscribed capital, or the amount of capital pledged to the bank, is anticipated at around $50 billion, with $100 billion in authorized capital, versus the 67-member ADB’s more than $150 billion.

By one estimate, the AIIB’s annual firepower for infrastructure spending could be about $30 billion a year, based on lending to capital ratios for the World Bank and European Investment Bank, according to estimates from Australia & New Zealand Banking Group Ltd. analysts.

World Bank

While sizable, for now at least, it’s unlikely that the AIIB will reach a scale to rival the World Bank or ADB, the ANZ analysts, led by Liu Li-Gang in Hong Kong, wrote in a note.

By involving developed countries, banks and firms from those member nations will likely be able to compete to win a place on AIIB-backed projects, which should increase overall governance standards, according to ANZ. “If done right, the rise of the AIIB could offer a new approach for Asia’s infrastructure financing,” the analysts wrote.

Asian governments have been quick to embrace the Chinese proposal, lured by the appeal of funds for infrastructure.

“The ADB people came to see me and said: ‘Why do you want to join it?,’” Thailand’s Deputy Prime Minister Pridiyathorn Devakula said while attending a Credit Suisse Group AG conference in Hong Kong this week. “I said, ‘We can have two friends. Only you alone is not adequate to finance all these emerging economies.’”

Asian Holdout

The AIIB was proposed by Chinese President Xi Jinping during a visit to Indonesia in 2013. Late Thursday, South Korea became the latest country in Asia to express a desire to join up. Others are still holding out.

“We’re not shutting the door, we’re thankful they invited us, but at the end of the day, can we see the fine print?” Philippines President Benigno Aquino said in an interview Wednesday. The nation is waiting for the “final details of this proposed new financial institution. We’ll reserve comment until we see the final draft of the proposal.”

Japan has held the presidency of the Manila-based ADB, which aims to reduce poverty, since it was founded in 1966 and shares roughly equal voting rights with the U.S.

“The AIIB has the challenge of showing that it can deliver a different business model and add value to economic growth and poverty reduction,” Duvvuri Subbarao, a former governor of the Reserve Bank of India, said in an interview. “It is a good experiment to try. At this time there is no evidence or basis to say it is negative.”

U.S. Opposition to Asian Bank Is Self-Destructive
Mar 31, 2015, Mohamed A. El-Erian

While most of the world is focused on the challenges to the U.S. in an increasingly fluid Middle East, a once-unthinkable phenomenon is playing out in Asia.

Having failed to kill the Chinese-led proposal to create an Asian Infrastructure Investment Bank, the U.S. is now being openly defied by a growing number of its allies as they signal their intention to join this new institution.

U.S. opposition to an Asia-focused organization isn't new. In the late 1990s, it confronted a regional initiative to establish an Asian Monetary Fund.

Even then, the motivations of the two sides were similar to those that drive them today. Countries in the region were extremely dissatisfied and angry about their treatment by the existing, Western-dominated institutions (particularly the International Monetary Fund, which had assumed huge influence with the 1997-98 Asian financial crisis).

As now, U.S. opposition to a new Asian institution reflected concerns about the fragmentation of the existing multilateral system and the loss of influence that would ensue.

This time, China is leading countries rebelling against the glacial pace of reform at the institutions that arose from the Bretton Woods system, the IMF and the World Bank.

Through the combination of the proposed AIIB, a new development bank and mushrooming bilateral arrangements, China is slowly building small pathways to bypassing the longstanding institutional arrangement. No wonder the U.S. is again worried about the erosion of the existing Western-dominated multilateral system (in this particular case, the World Bank) where its influence is still considerable, if not determinant.

But even though the motivations of both sides are similar as in past, this time, outcomes may be very different.

Although the U.S. was forced to yield on some small points to help Asian nations save face, it succeeded in quashing the Asian Monetary Fund a little more than 15 years ago. Now, it is finding it much more difficult to get its way.

In recent days, Australia, a steadfast U.S. ally, signaled its intention to participate in the AIIB. It joins several European countries and a number of emerging economies that have already defied U.S. wishes, suggesting that the creation of the new institution is almost a done deal.

The U.S.'s inability to impose its will reflects both domestic and international factors.

Along with Europe and Japan, the U.S. has become more inwardly oriented as its economy continues to emerge from the global financial crisis. This has occurred in a context of political polarization that tends to paralyze even the most basic elements of economic governance, such as enacting an annual budget.

On the global scene, the economic realignment of recent years has led to the emergence of a more confident and assertive China. And unlike most Western economies, China is willing to devote considerable funds to regional initiatives.

Meanwhile, the global economic influence of the U.S., especially in international institutions, has been weakened by the repeated blockage by Congress of a set of relatively minimalist reforms to the IMF that have already been approved by the majority of the Fund's 188 members. And this even though the U.S. spearheaded the reform effort, which neither dilutes America's voting power nor imposes additional funding.

The U.S. may well have to consider a change in strategy. Rather than steadfastly opposing the AIIB, it may make more sense to join the institutions and work with other members to ensure strategic coherence and effective operational rules.

Doing so would increase the likelihood the AIIB would be designed as an efficient supplement to existing institutions, rather than a costly substitute. It would also improve the prospects that this new institution would internalize the World Bank’s past mistakes and adopt more modern tools of development.

The U.S. challenge doesn't end there. The AIIB setback is another illustration of the extent to which dysfunction in Congress is doing more than just holding back America’s economic growth and prosperity. Combined with the damaging opposition to IMF reform, it is also continuously eroding the U.S.'s global economic influence. The longer this persists, the greater the costs to an economy that still runs well below its potential, and that now risks seeing this potential erode.

What Went Wrong With U.S. Strategy on China’s New Bank and What Should Washington Do Now?
A ChinaFile Conversation
Now that much of Europe has announced its intentions to join the China-led Asian Infrastructure Investment Bank (AIIB), was Washington’s initial opposition a mistake? Assuming the AIIB does get off the ground, what might it mean for future competition between the world’s two largest economies in the arena of global development finance and, by extension, in the realm of soft power? — The Editors

Tuesday, March 24, 2015
Patrick Chovanec

Many of the concerns the U.S. has with China’s Asian-Infrastructure Investment Bank (AIIB) are valid. The problem with developing much-needed infrastructure in Asia is not money—the world is floating in money right now—but selecting and managing projects in way that will deliver the desired results. Given the track record of development lending by China’s existing policy banks (the China Ex-Im Bank and China Development Bank), at best the AIIB risks being merely a vehicle to “buy business” for Chinese companies and absorb China's huge overcapacity. At worst, it threatens to undermine the “good governance” that is key to the region’s genuine economic development. Many of the U.S. allies who broke ranks to join the bank appear—like the U.K., eager to win China's “blessing” as an offshore RMB trading hub—to have done so for deeply misguided and even delusional reasons.

All that said, it’s hard to think of a more ham-fisted and ineffectual way to deal with these concerns than the U.S. employed. It was a classic case of “you can’t beat something with nothing.” The Chinese have accumulated a large pool of savings, and to pretend that Chinese capital won't play a role in the global economy—with or without U.S. permission—is simply untenable. Issuing a blanket “no” to Chinese capital, rather than offering constructive ideas or alternatives, was never going to fly. Strong-arming allies isn't going to work if it looks like China has a plan, and the U.S. is just a carping bystander.

The AIIB potentially has flaws. One of two things will happen: either those flaws will become evident, or China will find a way (perhaps working with other member countries) to overcome them. Either way, China has taken the lead and whining about it isn’t a convincing argument.

If the U.S. wants to lead, then lead. Making progress—and a real commitment—to the Trans-Pacific Partnership (TPP) and the Transatlantic Trade and Investment Partnership (TTIP) is one way to do this. But the Obama Administration, despite pursuing these objectives, has yet to make them a real priority. President Clinton sent Vice President Gore out to debate NAFTA with Ross Perot on live TV. He spent real (and precious) political capital to bat down opposition (much of it within his own party) and ensure congressional passage. By letting pending Free Trade Agreements with South Korea and Colombia twist in the wind for most of his first term, President Obama sent the signal, to friends and foes alike, that his trade agenda wasn't very important, and certainly not worth fighting for.

Into that leadership void has stepped China, with a different vision for the global economy. Can we really blame our friends for taking them more seriously, if we fail to contest that vision in a more credible way?

Tuesday, March 24, 2015
Zha Daojiong

That the United States is not going to join the Asian Infrastructure Investment Bank (AIIB) is in and of itself not a surprise. But the level of fury in recent weeks Washington has put on public display, is in several ways beyond expectation.

First, China has offered to have a process of negotiation in establishing the AIIB. Among other things, Natalie Lichtenstein, a lawyer who worked at the World Bank for over 30 years, was invited to help prepare the bank’s charter. That gesture alone is indication that China, too, wants the bank to build on experiences and lessons of existing multilateral development banks. After all, being the largest underwriter, China has the greatest stake in seeing the proposed bank start off with a well-thought through institutional structure.

Second, the AIIB is but one among a number of initiatives China has tabled in relating to the rest of the world economy in the same time frame. For example, the pilot Shanghai Free Trade Zone, its follow-up enlargement, and recent expansion to Fujian, Guangdong, and Tianjin, is an indication that China is serious about further liberalizing its own investment and trade policies. In other words, China is demonstrating that it is committed to reform its own policies, rather than just asking others follow it.

Third, it was only a couple of months ago when the United States and China agreed on ten-year multiple visa arrangements for their respective passport holders. This is transformational. Many Western countries followed suit, though to varying degrees. After all, with more convenient international travel, an ever growing number of practitioners of the cross-border trade and investment stand to benefit. When it comes to internationalizing Chinese foreign investment projects, it is investment practitioners, not code drafters, who matter more. Washington’s public disapproval of the AIIB sends out a message of confusion of its intent.

The concerns of the United States and some of its allies about the AIIB not being an exact copy of the World Bank or the Asian Development Bank in governance structure are in some ways understandable. Still, it is hardly convincing to somehow indicate that Washington is in reality saying that a new development institution cannot be innovative.

The last thing China and other founding members of the AIIB want is validation of their critics’ and skeptics’ fears—not just in the outside world but domestically inside China as well. The real test is not so much who is in the AIIB and who is not. Rather, it is whether or not the bank’s proceedings can prevail after its former establishment.

To see the ongoing developments associated with AIIB as a manifestation of competition in soft power between Beijing and Washington is overbearing. After all, no country has money to burn.

For China, it will be ill-advised to see Washington’s disapproval of its allies in joining the AIIB as an affront. As a traditional Chinese saying goes: “One only can be enlightened by listening to both sides, and will end up benighted if one only heeds himself” (jiāntīng zémíng, piān xìn zé àn / 兼听则明,偏信则暗).

For the United States, if it is concerned about the AIIB’s effect on its soft power, it can serve itself better by keeping an open mind about the project. Collaboration on specific investment projects to come will be a plus, too.

Wednesday, March 25, 2015
Scott Kennedy

In 2005, then United States Deputy Secretary of State Robert Zoellick famously called on China to be a “responsible stakeholder.” He meant that China needed not only to comply with its international commitments, but also to provide public goods to the international community. Well, be careful what you wish for.

Since then China has become much more active in global governance. Chinese occupy leadership positions in a wide range of institutions. In 2013, China helped broker an interim deal in the World Trade Organization’s Doha Round, and in November 2014, China, along with the U.S., made a new pledge to limit carbon emissions, creating momentum heading into the United Nations meeting in Paris later this year. But the Asian Infrastructure Investment Bank (AIIB) is China’s first signature contribution.

China certainly could have done a better job of selling the need for a new development bank. It is still unclear why it would be impossible to improve the quality and quantity of development assistance in Asia through either the Asian Development Bank (ADB) or the World Bank. The arguments that those banks were un-fixable and not open to a greater Chinese role or that China deserves pride of place in a new institution given how much it is contributing leave the impression that the AIIB is a vanity piece or a disguised cash register for Chinese state-owned enterprises.

That said, the U.S. has performed even worse. Although joining the AIIB was not an option since Congress would not have allocated the funds, the U.S. could have adopted the posture of a friendly outside voice. Instead, it discouraged others from joining in the hope the initiative would collapse or leave China with a small “coalition of the willing.” They argued that the bank would not follow international best practices, but in reality it appears the U.S. opposed the AIIB simply because it was a Chinese initiative, full stop. Such knee-jerk antagonism gives life to arguments that the U.S. opposes China’s rise and is bent on containing it. Even more important, American bungling fuels the perception that China can drive a wedge between the U.S. and its allies and that U.S. leadership in Asia is on the wane just when it is needed more than ever.

It’s a shame that China did not provide greater reassurances early on that the bank would not be a tool of Chinese industrial policy and geo-strategic maneuvering, and that the U.S. did not do more to pursue such reassurances and find a way to serve as a constructive supporter. The “best practices” of existing multilateral aid institutions too often have not translated into sustained poverty alleviation and development. There are many other areas of global governance in need of reform, and we can be sure that the AIIB will not be China’s last major initiative. Let’s hope China and the U.S. learn from this experience and find ways to identify areas in need of change where they can collaborate or at least not get in each other’s way, instead of being in opposite camps and forcing others in the region and elsewhere to pick sides. Then both countries will be able to justly claim they are truly acting as responsible stakeholders.

Thursday, March 26, 2015
Stephen S. Roach

The Obama Administration has obviously made a major strategic blunder in resisting the establishment of the China-initiated Asian Infrastructure Investment Bank (AIIB). Many of America’s most loyal allies have rejected the folly of this intransigence. By opting to join the start-up of this new international lending institution, they will be much better positioned to shape the governance of the AIIB as insiders rather than voice criticism as outsiders, as the U.S. apparently prefers. Washington’s Cold-War style criticism of its allies for their “constant accommodation” of China is a new and embarrassing low in the China debate.

It is both ironic and hypocritical that Washington’s response is to circle the wagons around the existing Bretton Woods institutions—the IMF and the World Bank. The U.S. Congress has repeatedly dragged its feet on IMF reforms. And lending programs of the U.S.-dominated World Bank have done little to address infrastructure deficiencies in any part of the world. The Asian Development Bank estimates an Asian infrastructure void of some $8 trillion over the 2010 to 2020 period. Clearly new lending capacity is needed to meet this daunting challenge.

Nor does the AIIB pose a threat to more established and experienced international lending institutions. Its initial capital base of $50 billion is less than a third of that which supports the Asian Development Bank and less than a quarter of that held by the World Bank. Surely, an $80 trillion global economy can afford to support much greater lending capacity than is the case today.

But there is a more sinister aspect of Washington’s resistance to this China-sponsored initiative. It is but the latest in an increasingly worrisome string of anti-China actions. The Obama Administration has focused on the Trans Pacific Partnership as its signature initiative on trade liberalization; unfortunately, TPP excludes China, the source of America’s largest trade imbalance. Yet another anti-China currency manipulation bill has been introduced in the U.S. Senate. And there are ongoing frictions over cyber issues, as well as over territorial claims in the China Sea. Suddenly, America’s Asian pivot seems like nothing more than a thinly veiled China containment strategy.

Is the rise of China a risk or an opportunity? Washington is clearly fixated on the threat—all but ignoring the benefits that are likely to come with the emergence of a consumer-led Chinese economy. This shouldn’t be so surprising. History tells us that dominant powers always have trouble with rising powers. Washington is bristling over China’s ascendancy. China, with the baggage of 150 years of a perceived sense of deep humiliation by the West, doesn't take kindly to that reaction. The AIIB folly only deepens concerns over an increasingly troubled relationship. A rethink by Washington is urgently needed.

Friday, March 27, 2015
Mikko Huotari

From a European standpoint, the current debate about China’s AIIB initiative seems overblown. If we move beyond the media hype, we are not witnessing the beginning of the end of the U.S.-led global financial order. Neither do we see a major political re-orientation of U.S. allies across the globe, certainly not in Germany.

Nevertheless, the ongoing institutionalization of AIIB and the surrounding political maneuvering provides the U.S. and European countries with a learning opportunity. It’s a fact to be recognized: the global financial order is undergoing fundamental changes and the further regionalization of development financing is just one dimension of this transition. New initiatives to provide financial asistance in times of crisis as well as the broader structural transformation of the international monetary system will repeatedly confront us with a similar set of challenges. The expectation that nothing will change would indeed be foolish. Fortunately, most experts, including the other contributors to this conversation, seem to agree on that.

Obviously much more U.S.-European and intra-E.U. communication and coordination is needed to manage the necessary changes and also the public diplomacy side of this transformation. It is indeed remarkable how little real dialogue and concrete transatlantic initiatives have materialized since 2007/2008 beyond the relatively stagnant G20 coordination and the difficult joint management of the Euro Crisis.

Some observers frame adaptation in global financial order simply as an issue subordinate to existing military alliance patterns. This is not a particularly fruitful starting point for the much needed dialogue. And of course, specific material interests of European countries differ: With regard to the policy agenda of the AIIB, Europe has much more immediate interests than the U.S. in the infrastructural development of the Eurasian continent not least because the EU is a leading exporter of construction services.

More profoundly, both Europe and the U.S. heavily depend on the success of China’s structural transformation, of which the AIIB and other financial initiatives by China are an external manifestation. In fact, the AIIB is just one of the mechanisms of China’s ongoing and welcome experimental financial internationalization in which a flurry of outbound financing instruments are currently being tested. Attempting to block precisely the one initiative that comes closest to “Western” understandings of international financial governance does not seem a wise strategy. On the contrary, the AIIB in its multilateral shape should be seen as a “victory of the system,” the result of Chinese learning and as another channel to further integrate and socialize China into multilateral rule-making.

We need to work with China not against it. Framing issues in black or white, with or against “us” will not help in the long run. The competition that AIIB and other China-centered initiatives will pose is a wake-up call to strengthen and adapt the existing institutions to new realities. It also challenges us to find better ways to improve the linkages and networking of complementing financial arrangements and forms of currency cooperation. Efforts at keeping China at bay in international rule-making for the 21st century will almost certainly backfire and reinforce Chinese determination to circumvent the existing order.

China has no aim to recreate Bretton Woods
Global Times, 2015-3-26

The establishment of the Asian Infrastructure Investment Bank (AIIB) has been depicted by a few overseas media outlets as if China is building its own version of the Bretton Woods system.

The bank is not yet in operation, and it will take time for people to come to grips with its purpose. However, overblown hype from foreign media claiming that China is seeking financial hegemony could create preconceived notions for people who are not familiar with it.

The Bretton Woods system refers to the international financial order that prevailed in the post-WWII era. It is also perceived as a triumph of dollar hegemony and gave birth to the World Bank (WB) and the International Monetary Fund (IMF) as its two representative global organizations.

The system held until 1971, when the US ended the convertibility of the dollar to gold. But the dollar had already become the bedrock of the international monetary system, and it remains so today.

Some foreign observers claim that the AIIB is the beginning of the Chinese yuan's hegemony. What they are actually trying to imply is that "China is another US."

This kind of statement is nonsensical, which uses historical experience to fool readers. It is divorced from the truth and shows no common sense and doesn't stand up to any scrutiny.

Through the Bretton Woods system, the US was able to wield supreme influence over its allies which had been severely battered during the war. China today is in a totally different position.

Founding the AIIB is only a China-led initiative. Over 30 countries from Europe and Asia have so far applied to join, some of which even have territorial disputes or political divergences with China. They are not courting Beijing, or pushing yuan hegemony. What they are pursuing is the win-win principle of cooperation.

The AIIB will not confront the WB or IMF, nor will it turn the current international monetary order upside down. The spirit of the AIIB is diversity and justice.

International relationships are entering an era of democracy that means pursuing hegemony is a wrong path whether one is an existing power or a rising power.

China always maintains a low profile when it comes to showing the strength of our nation. Moreover, the Chinese media resists the hype over describing China as "number one" or a "superpower."

Chinese people would like to see that most of our economic and political resources can be used for the country's domestic construction.

We support our government to pursue equal rights for development in the international arena, but we don't support pursuit of hegemony.

The Bretton Woods system is a product of the old days. The new global trends created the AIIB and there is no room to look back to the old days of one currency's hegemony.

Yuan backed on Silk Road
Jiang Xueqing in Bejing (China Daily USA), 2015-03-26

Bank of China Ltd will promote wider use of renminbi in countries and regions along the New Silk Road Economic Belt and the 21st Century Maritime Silk Road.

"Our target is to extend credit of no less than $20 billion to projects related to the Belt and Road initiatives in 2015 and a total of $100 billion in the next three years," bank Chairman Tian Guoli said Wednesday

By the end of 2014, the bank had established branches in 15 countries along the Belt and Road program. It is preparing for the launch of branches in three more countries and will set up more branches in the regions of Southeast Asia, Central Asia, and Central and Eastern Europe.

"We will closely follow the steps of key industries such as high-speed railways and

nuclear power as they are going global and promote export credit, project finance and structured finance with all our strength," Tian said.

The bank will add renminbi clearing channels, promote the use of the currency in major overseas projects, and expand the volume of renminbi loans while it continues to issue offshore yuan-denominated bonds.

"Overseas assets accounted for nearly 30 percent of Bank of China's total assets," said a Shenzhen-based banking analyst who declined to be named because he was not authorized to speak to the media. "Compared with other banks, it has more advantages in promoting the use of renminbi and providing financial services to the Belt and Road initiatives. As a large State-owned bank, it will also have more convenience to coordinate with the Asian Infrastructure Investment Bank and the Silk Road Fund.

Bank of China, in annual results on Wednesday, actively developed overseas

businesses and international operations. Its overseas profit before tax was $8.66 billion in 2014, an increase of nearly 30% year over year.

The bank's cross-border yuan settlement reached 5.32 trillion yuan ($856.38 billion), up by 33.7 percent.

【市场观察Matket Watch】(华尔街日报附属网站)
China’s yuan may join elite money club this year
Michael Kitchen, Mar 25, 2015

LOS ANGELES (MarketWatch) — In what would be a huge milestone in China’s emergence as a major world financial power, the International Monetary Fund looks likely to adopt the country’s currency into the basket that makes up its global forex benchmark.

Or so say strategists at Bank of America Merrill Lynch, writing in a note Wednesday that they believe the IMF will vote this October to include the yuan USDCNY, +0.07%  as one of the units that make up the Fund’s “Special Drawing Rights” (SDR), a sort of meta-currency used in IMF transactions.

This might not seem like a big deal, but Merrill Lynch assures that it is. By joining the elite club — there are only four currencies in the basket right now: the U.S. dollar DXY, +0.03%  , the euro EURUSD, -0.06% the British pound GBPUSD, +0.03%  and the Japanese yen USDJPY, +0.10%   — it would “legitimize its use as a reserve currency,” possibly reducing China’s cost of foreign borrowing and offering an “extra degree of freedom in financing future current-account deficits,” the strategists said.

In fact, given that the yuan already enjoys significant use as a reserve currency, its weighting in the SDR system would likely be higher than that of the pound and yen, they said. According to Merrill Lynch estimates, central banks around the world currently hold a total of more than $80 billion in Chinese government bonds, which would make it the seventh largest reserve currency on earth.

China, and in particular long-serving People’s Bank of China Gov. Zhou Xiaochuan, has for awhile now been pushing for inclusion in the SDR, which is reweighted just once every five years. They didn’t make the last cut in 2010, as the IMF deemed China’s current account hadn’t opened enough to meet the “freely usable” criteria required of SDR currencies.

But Merrill Lynch sees the Fund as likely to give the go-ahead at this year’s review. There’s now a lively offshore market USDCNH, +0.08%  for the yuan (also known as the “renminbi” or “people’s currency”), for instance. Also, the strategists think the U.S. is unlikely to block the move, as it wants China more engaged in international institutions where Washington has wide sway, and in any case, it wouldn’t want to strain relations with Beijing.

Although obtaining such a high status in the foreign-exchange world would have deep symbolic value for China, the actual effect on the value of the yuan is a little harder to predict.

SDR induction might well boost demand for the Chinese unit. Some economists see it as likely to lift the yuan’s value further against the dollar, or at least add upward pressure, since, despite the chance to qualify to join the SDR, the yuan’s exchange rate is still constrained in a daily trading band set by the central bank.

But the Merrill Lynch strategists see increased volatility as the more likely result.

“If China is to mature into a global reserve currency with rising capital-account convertibility, this must entail more two-way movement and volatility,” they wrote. “Ultimately, its success will depend on long-term stability and its ability to provide a store of value and liquidity to international investors.”

卫报社评:The Guardian view on the Asian Infrastructure Bank: the US should work with it, not oppose it
It’s no surprise that China is promoting a solution to the shortage of infrastructure capital in Asia

It is an exaggeration to talk of the pace of reform at the World Bank and the International Monetary Fund, for there has been almost none to these, the so-called “Washington institutions” that, together with the US Treasury, have both sustained and constrained the global economy since 1945. How to reflect the changing balance of economic power has been endlessly discussed but rarely implemented.

That is why countries that had hardly any economic profile three-quarters of a century ago but are now giants, such as China, are starting to change it from the outside. The creation of the Asian Infrastructure Investment Bank, to which 21 countries signed up in Beijing on Friday, is in part a product of this frustration. The new bank will be both a rival to the existing Asian Development Bank, an offshoot of the Washington institutions, and potentially a complement to them.

The bank is relatively small, the majority of its $50bn startup capital coming from China. But if and as it grows, it will give China the clout in regional financing that membership of the ADB has not allowed it to wield, in spite being a generous capital provider to it. The problem is that the United States has been cool towards a development that would increase China’s soft power and economic influence, particularly in south-east Asia, and would upset Japan, which holds the presidency of the ADB. Japan has kept its distance, while Australia, Indonesia and South Korea, although they have been in discussions, were not at the founding meeting. So there is a power play under way in which, as in other areas, Chinese assertiveness is being resisted by America and its close Asian allies.

What is not in contention is that the Asia-Pacific region needs more infrastructural funds. For that reason alone, a reinforcement of this kind should be welcomed.

Strategically, the United States cannot keep on shoring up an obsolete economic order in Asia. China is not withdrawing from the Washington institutions, it is supplementing them. Unlike certain other aspects of China’s policy, this development is properly seen in the context of the “peaceful rise” which China’s leaders have proclaimed. This is a case for accommodation, not confrontation.

AFR Weekend
Asian Infrastructure Investment Bank a challenge for China
US isolated as its allies in Asia and Europe line up to join China-led infrastructure bank

Ian Bremmer:China Challenges America’s Financial Leadership
Washington wants its allies to stay away from the Asian Infrastructure Investment Bank

On March 20, Japanese Finance Minister Taro Aso told reporters that under the right circumstances, his government might become a member of the Chinese-led Asian Infrastructure Investment Bank (AIIB). In Washington, which has urged allies to steer clear of the AIIB, jaws dropped. Tokyo, Washington’s closest Asian ally, is disregarding U.S. concerns and considering membership in an investment bank led by Japan’s primary rival.

There’s a bigger story here. Now that most U.S. troops are home from Iraq and Afghanistan, President Barack Obama knows there’s little domestic support for military operations that might demand another costly long-term commitment. That’s why he’s relied on sanctions, surveillance, drones, international institutions and willing, capable, like-minded allies to fight his foreign policy battles.

Yet it’s increasingly clear that none of those assets can solve some of Washington’s most pressing security problems. Sanctions can combine with lower oil prices to drive Russia into a deep recession, but they won’t force President Vladimir Putin to relax his grip on Ukraine’s throat. They can draw Iran to the bargaining table, but they can’t force Tehran to give up its nuclear program.

Surveillance has likewise proved a double-edged sword. American allies want access to the information Washington collects, but revelations that the National Security Agency has listened in on Germany’s Chancellor and other U.S. partners hardened attitudes in those countries toward Washington. And drones can take down groups of bad guys, but they won’t eliminate an enormous threat like ISIS–and they often kill innocents.

Now there’s the AIIB. For decades, Washington has used its dominant influence in the World Bank, International Monetary Fund (IMF) and Asian Development Bank to strengthen relations with European and Asian partners and guide developing countries toward Western values by conditioning aid on U.S.-backed reforms. Those countries had no choice: there was no credible alternative to the U.S.-led system.

That’s changing. Chinese President Xi Jinping launched the $50 billion AIIB in October; Beijing will probably hold a stake of up to 50% in the new institution. By providing project loans to developing countries in Asia, the bank will extend China’s reach and diminish U.S. negotiating leverage. That’s why the Obama Administration is so worried.

On March 13, Britain applied to become a member of China’s new bank, and in a rare fit of public anger toward its closest ally, the White House accused London of “constant accommodation” of China. Then France, Germany, Italy and Switzerland announced plans to follow Britain’s lead. The Saudis have signed on. Australia and South Korea, key U.S. allies that initially balked at joining the AIIB, are now reconsidering. The IMF and the World Bank have both recently said they would cooperate with the AIIB. It’s been a long time since Washington has looked so isolated.

Some will blame the Obama Administration, but Britain’s decision to sign up for China’s bank reflects its need to attract new volumes of Chinese investment. Australia already counts China as its top trade partner. South Korea now enjoys higher trade volume with China than with the U.S. and Japan combined. The Saudis understand that America will become less dependent on its oil over time. Even Japan must protect its relations with both America and China.

U.S. allies are not shunning Washington. They’re hedging their bets to adapt to a world where economic power is more widely distributed. Shared values still matter, and all these countries will continue to count on strong relations with the world’s only superpower. But Obama and his successors will face a difficult question: In a world that needs America less, how can Washington protect and maintain its dominant influence?

Bremmer is a foreign affairs columnist and editor-at-large at TIME. He is the president of Eurasia Group, a political-risk consultancy, and a Global Research Professor at New York University.

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