The rising superpower is pursuing its ambitions with a global bank to rival existing, US-dominated institutions. Britain has signed up. Should it have? Simon Wilson reports.
What is the Asian Infrastructure Investment Bank?
It is a new $50bn development bank for Asian infrastructural projects, which is being set up by the Chinese in partnership with all the leading Asian nations (except Japan). Many Western nations, including Britain, have agreed to back it, despite strong opposition from America. Asia already has a similar institution, the Asian Development Bank (ADB), which is based in Manila and dominated by the Japanese and the US. But whereas the ADB (which has a capital base of $160bn) and the World Bank ($223bn) support everything from environmental protection to gender equality, the AIIB will focus exclusively on Asian infrastructure.
How significant is it?
The bank is not necessarily a game-changer in terms of development funding. (The ADB puts the funding gap for infrastructure in Asia at $8trn for 2010-2020.) More significant is what it signifies about geopolitics. The US has been mystified, hurt and embarrassed that close allies including the UK, Israel, South Korea, Australia and even Taiwan have either signed up as members, or applied to join the Chinese-led project. In the case of Britain the first big European nation to join as part of Chancellor George Osborne's long-term plan to woo Beijing Washington was so miffed that it sent a senior official to brief the Financial Times last month against its close ally's "constant accommodation" of Beijing. Symbolically, then, the AIIB is big news. Indeed, according to Larry Summers, Harvard president and former US Treasury secretary, "this past month may be remembered as the moment the US lost its role as the underwriter of the global economic system... I can think of no event since Bretton Woods comparable to the combination of China's effort to establish a major new institution and the failure of the US to persuade dozens of its traditional allies, starting with Britain, to stay out."
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Why is America so wary?
Publicly, the US has emphasised governance fears. China's domestic record on governance is characterised by endemic official corruption, institutionalised bias in favour of state-owned companies, and a lack of transparency in financial dealings. Most analysts, however, say the core reason is concern at rising Chinese influence. In a sense, China is merely taking a leaf out of America's book. Since the end of World War II, the US has been the dominant voice in the global economic architecture, in part thanks to the creation of the Washington-based World Bank and International Monetary Fund (IMF). Similarly, China now wants to challenge the Bretton Woods framework by creating new institutions that will help it wield influence in the Asia-Pacific and further afield as part of a "New Silk Road" strategy. In addition to the AIIB, it is setting up a New Development Bank (with Brazil, Russia and India) and a contingent reserve arrangement, as well as a Development Bank of the Shanghai Co-operation Organisation, a six-country Eurasian political, economic and military grouping.
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What is China's motivation?
Partly, the desire to build and project influence and power, and partly frustration at the inability of existing institutions to adapt to changing global power relations. The US may want to stop the growth of these bodies, argues the FT, but its "lacklustre stewardship of the Washington-based international financial institutions is one of the reasons rivals are proliferating". The World Bank's influence as a lending institution has declined, partly because of more restrictive lending focused on poorer countries. At the IMF, the US "has proved incapable of helping to give the fund more firepower and a more representative share of votes that reflects the rising power of emerging markets".
What does the World Bank say?
Jim Yong Kim, president of the World Bank, "welcomes with open arms" the creation of the AIIB and the New Development Bank, seeing them as "potentially strong allies" in combating world poverty. Kenneth Rogoff, the World Bank's former chief economist, writes in The Guardian that US opposition to Chinese-led institutions risks looking hypocritical. "No other country [than the US] has been as adept at exploiting its power and leverage for strategic gain." Indeed, Rogoff argues that the AIIB will help make China's currently "opaque" channels for delivering development aid far more transparent, and subject them to scrutiny from the new bank's developed country members, such as the UK. China "needs to be given space to forge its own approach to global economic leadership" and move towards a more multilateralist approach. "Frankly, a relatively small infrastructure bank seems as good a place as any to start."
An opportunity for British business?
Washington is right to criticise Britain's "constant accommodation" of Beijing, says Leo Lewis in The Times especially on the issue of democracy in Hong Kong. However, on applying to join the AIIB, the UK is "making the right choice". America has presented the proposed $50bn (£34bn) AIIB as a rival to the World Bank and to the Japan-dominated ADB. That deliberately plays down the huge shortfall in infrastructure funding in Asia, and the inability of the World Bank and the ADB to meet it. "The effort to plug some of that gap however suspicious one is of Beijing's chequebook diplomacy will boost developing economies and create opportunities for British business."
