In the world of development banking, a “new and potentially disruptive player” has emerged. The Asian Infrastructure Investment Bank (AIIB) was proposed in 2013 by China, but received a rather flat welcome. The AIIB could potentially serve as a viable alternative to the Western-led and unchallenged development institutions such as the World Bank or International Monetary Fund (IMF). Chinese President Xi Jinping proposed the bank to “finance infrastructure projects in Asia, where need far outstrips funds provided by other development banks.” With the potential to reach $100 billion in working capital, the bank is designed to provide loans to “foster infrastructure and development projects that are often high-risk and long-term.” This would lower costs for governments unable to afford private sector loans. Ultimately, China’s goal is to foster more economic development throughout Asia. China has another motivation as it has experienced difficulty within the World Bank, IMF and Asian Development Bank, institutions China charges as being driven mostly by U.S. policies. China, then, seeks to solidify its own power and influence in the Asia-Pacific region. As such, Beijing promises a different type of development lending in an effort to prove its standing as a regional and global power.
The United States responded to the news of the AIIB with skepticism. The U.S. argues that the AIIB poses a threat to pre-existing institutions and maintains that China will not hold the new bank to the same standards as other financial institutions. Above all, the United States fears that China will employ the AIIB as a means of gaining greater influence in the Asia-Pacific region. These concerns are legitimate as China has a reputation of trying to usurp America’s role in the world. Washington has long tried to push China to act responsibility and match its international political engagement with its economic heft. Along those lines, the United States charges that China will not ensure the AIIB meets the “high-water marks of governance” as the other multilateral development banks. In other words, the United States believes China has developed this bank as a means of cementing its place in international development and the new bank will lack the same degree of legitimacy that is afforded to other institutions such as the World Bank and IMF.
As a result of Washington’s fears, the United States has proposed that the AIIB from a partnership with U.S.-led investment institutions, highlighting both Washington’s fears and its desire to counter China. This approach seeks to ensure the AIIB does not become “an instrument of Beijing’s foreign policy.” U.S. involvement would allow assurance that the bank would be held to the appropriate standards, especially preventing excessive debt accumulation, human rights concerns, and environmental degradation. In other words, such involvement would provide the U.S. with oversight abilities. The U.S., saying it would welcome development institutions that would positively impact the international development sector, worries that the AIIB would prove to be detrimental to international development.
The United States tried in earnest to prevent its closest allies from joining the Asian Infrastructure Investment Bank. Even Washington’s closest friends in Europe joined the bank, ignoring the Obama administration’s vocal opposition about governance and project-lending standards. The Western nations say that joining the bank will provide an advantage to the West as they will be able to work from the inside to ensure the new development bank meets the standards of Western-backed development institutions. Staunch allies in Asia, ones like South Korea and Australia who recently have requested support from the United States to help counter China’s rise in the region, also joined the bank. South Korea, in particular, has struggled with maintaining closer economic ties with China and balancing its security alliance with the United States. Membership will improve economic ties with China and bring more economic opportunities, but also put the U.S. seuciryt guarantees in jeopardy. These countries realized it was in their national interest to join the AIIB – their membership was not intended to punish or spite the United States.
Why were so many of the United States’ allies willing to join the AIIB? The United States has a lot of clout within the Western-led development institutions and many decisions made by such institutions follow the lead of the United States. China has presented the AIIB as a counter to such U.S influence. Further, U.S. Congress has stalled on IMF reforms for so long that many in the international community are growing impatient. The lack of progress by the United States has provided China with the perfect opportunity to recruit new members as they grow more frustrated. China presented a no-veto clause as a means of enticing many of the U.S. allies, showing that it is willing to let other countries have a voice in the bank as opposed to Western-backed development institutions that are, in China’s mind, essentially controlled by the United States.
The AIIB is a means by which China is trying to solidify its regional and global dominance, especially at the detriment to the United States. The bank is an attempt by China to be at the “center of Asia’s development needs.” In the effort to gain such hegemony, the infrastructure bank is China’s attempt to “redesign the world’s economic order from being western-centric to Asia-centric, with China being the core leader.” Along with the United States, other nations are also wary that the bank will be a “tool of Chinese foreign policy.” President Obama charged that “China wants to write the rules for the world’s fastest-growing region.”
Beijing may already be achieving some of its expectations as the support that the bank has received demonstrates China’s global clout and the respect of other world leaders that China has acquired. In a recent interview, Bambang Brodjonegoro, Indonesia’s Finance Minister, was praising the bank, and explaining how the pieces would fit together. He said that voting rights would likely be determined by gross domestic product so China would have the most votes. “But this is not strange,” he claimed. This statement exemplifies that China is employing the bank simply as a way to cement itself in the center of Asia and on the international stage and has tricked the other founding members that the success of the bank hinges on China’s control. Ultimately, some analysts argue, the development bank as a counter to the World Bank and other Western-backed financial institutions is China’s most recent attempt to challenge the United States as the world’s leading economic force but also the global hegemon.
The United States did have one traditional ally that refused to apply to be a founding member of the AIIB: Japan. The U.S. and Japan are the most powerful countries that are not applying for membership. The construction of the AIIB comes at a critical time as Congress is debating the Tran-Pacific Partnership, one that is very important to Japan. This free trade pact “would deepen our alliances and partnerships abroad and underscore our lasting commitment” to the region, as stated by U.S. Secretary of Defense Ashton Carter. This partnership includes 12 other nations and would account for 40 percent of global trade; however, it excludes China. The TPP is being utilized as a the United States version of a counter to the AIIB in an effort to further punish and humiliate China. To Japanese Prime Minister Shinzo Abe, the TPP is part of his plan to “strengthen the U.S. alliance and expand Japan’s clout in the region.” In fact, the aim of both the United States and Japan is to counter China’s regional rise. Closer economic relations between the United States and the other nations involved in the TPP would serve as a containment device for China’s growing assertiveness in the region. The United States is using the TPP as a defensive strategy that would allow some control over China’s rise by ensuring that the United States remains the dominant regional and global power. The United States and China are both using the TPP and AIIB, respectively, as a way to hinder the power of its competitor.
The United States and Japan charge that China created the Asian Infrastructure Investment Bank to counter the Western-led development institutions because China feels left out. Further, it can be argued that China’s proposal of the AIIB comes at a convenient time just as the countries involved in the TPP are ramping up discussions and its implementation is looking more likely to happen in the near future. Conversely, China feels that the traditional international development banks like the IMF and World Bank are Western-driven and that each institution is essentially a puppet of the United States. While the United States and China are trying to best each other with their respective development banks and trade deals, the AIIB was created by China to help Beijing achieve its foreign policy objectives, especially cementing its place as a regional and global hegemon.