Saturday, Aug 19, 2017, 11:06 PM CST – China

Special Report



The positive aspects of the Asian Infrastructure Investment Bank far outweigh the negatives highlighted by Washington. A more nuanced understanding of international relations is required

What was the motivation behind the Chinese government’s decision to establish an investment bank along with 20 other Asian partners late last year?

If Beijing’s goal was to deliberately sow disarray among the US and its allies, then it has certainly succeeded. The creation of the US$100 billion Asian Infrastructure Investment Bank (AIIB), which will derive half its initial capital from China, has struck some as China’s defiant answer to the US-led World Bank, which is typically headed by an American. The AIIB is the competition, so the narrative from some officials and analysts in Washington has run: a means through which China is trying to edge in on global financial systems, and set its own rules and norms at the expense of others. This story would have the world believe that the AIIB is part of a wider Chinese plot to secure global influence.

Scepticism and suspicion regarding the AIIB was of course to be expected. Developed countries – the US in particular – have long been uncomfortable with what they feel to be China’s desire to revise and redraw global rules of financial governance and regulation. But, examining the facts, it is hard to objectively conclude that China desires to wield this sort of influence.

On the whole, academics studying China’s participation in the global system have found that, internationally at least, China has tended to be a rule follower, signing up to fiscal discipline regimes that it can use to enact domestic reform. Take China’s induction into the World Trade Organization in 2001, for example: while China might argue fiercely for rule adaptations and modifications before joining a governing body, in the economic realm at least it tends to observe the rules of an institution once it has joined it. No one would say that China has not faithfully complied with the bulk of its WTO obligations, for instance.

Nonetheless, the AIIB was met with a cool reception by many in the West, as well as by some of China’s neighbors. Australia, one of the key players in the region the bank will presumably be active in, was at first positive. After a few alleged late-night calls from Washington last November, however, Australian Prime Minister Tony Abbot distanced himself from the scheme. Japan and South Korea, major players in the region, have also kept the AIIB at arm’s length, with South Korea only declaring its application for founding membership at the eleventh hour. With the US leaning on its allies to avoid the bank, a united Western front of wariness was established.

As the AIIB sign-up deadline drew near, however, that front was shattered by the UK, who surprised many when it announced on 12th March this year that it intended to join the AIIB. France, Germany, and Italy all followed suit shortly after. The US responded with a rare rebuke to the UK government. Was this breaking of ranks the sign that, at least on policy towards China, the world was witnessing a major division? The UK is often regarded as Washington’s closest ally – indeed, the Special Relationship is sometimes seen as Whitehall’s almost slavish adherence to White House policy on diplomatic issues.

In fact, for all their concert in other areas, the UK and the US have rarely been unified in their approach to the People’s Republic. Its interests in Hong Kong led the UK to recognize the People’s Republic in 1950, many decades before the US established diplomatic ties. The UK government had representation in Beijing from the early 1950s – the US held out until the mid-1970s. In 2004, under then British Prime Minister Tony Blair, the UK supported an initiative in the EU to lift a 15-year arms embargo on China, though this initiative soon fell to US pressure. The UK’s attitude towards the AIIB is, therefore, not as uncharacteristic as some would paint it. It is a continuation of a long-standing streak of independence, particularly in the realm of commerce.

However, what can be seen from Washington’s rebuke, and from its general opposition to the bank, is that in the instance of the AIIB, the US instinct was to react with its heart, not its head. When allies as fervent as the Australian Foreign Minister Julie Bishop and the British Chancellor of the Exchequer George Osborne – both of them regarded as pro-American – support membership of the AIIB, then the US needs to revisit its initial hard-line attitude. Even in Washington, opposition to China’s banking ambitions is not universal. Treasury Secretary Jacob Lew testified to Congress on March 18 that continuing to block or prevent China’s access to greater voting rights in the IMF was ultimately not in the interests of the USA. Instead, it was causing China to become disengaged with the IMF and seek its own path. Such behavior is in no one’s interests. America needs to listen to its friends and consider the advantages of the AIIB with an open mind.

For a start, the growing demand for infrastructure in Asia cannot be ignored. From the most distant islands of Indonesia to the Mongolian steppe, there is an immense need for new roads, high-speed rail, airports, and port facilities. The AIIB can provide a new way of dealing with the immense investment opportunities such infrastructure challenges present.  The idea that the International Monetary Fund, or the World Bank, or the Asia Development Bank should have sole responsibility for trying to meet these demands is unrealistic. There are limits to their various mandates, and to their available capital. There is plenty of space, therefore, for a new player. And what is wrong with a bit more competition?

Add to this the fact that this is an initiative set up for Asia, in Asia, by Asians. That local support matters. After all, these are the countries best placed to decide what they need, and how they want to go about achieving it. Having more local input over investment decisions surely makes sense. Finally, there is the opportunity the UK spoke of after it announced its intention to join the AIIB. The British government argued – quite rightly – that it is better to be on the inside, influencing the governance and regulation of the AIIB, than to sit helplessly on the outside unable to do anything about decisions it disagrees with if and when they arise.

One final point. For all the media speculation of a new Cold War, it is hard to imagine during the USSR’s prime that an argument would break out over its founding of an international investment bank. The very fact that China is promoting an idea like the AIIB, and winning broad support, shows that it has accepted key tenets of the current global system. All China is trying to do is find a place where it has a stronger voice for itself and its own interests. It would be odd for any growing nation to do otherwise. The priority now, for those who have joined up to the AIIB, is to find the best ways of implementing operations, and make sure that it does what it proposes to do in a sustainable, fair and well-governed manner.

There is a larger lesson here. It is tempting to see growing Western approval for the AIIB as a sign of some grand realignment. But dividing the world into a US zone of influence and a Chinese one is way too simplistic. The interests of the US and China regularly overlap, with plenty of blurred edges. The same can be said of all countries involved, where interests are split in different areas and in different ways: siding closer to the US on some issues and with China on others. The quicker we move away from the current Manichean view of international relations and accept a more complex, nuanced understanding, the better things will be for all.

Kerry Brown is professor and Director of the China Studies Centre, University of Sydney, Team Leader of the Europe China Research and Advice Network, and Associate Fellow of Chatham House, London. 


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