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
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 email@example.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 firstname.lastname@example.org
Stampede to Join China’s Development Bank Stuns Even Its Founder
By JANE PERLEZ, APRIL 2, 2015
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.
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.
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?
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.
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.
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.
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