Most developed nations are suspicious of China’s brainchild, the Asian Infrastructure Investment Bank. Some, like the UK and Germany, have joined the bank as founding members, hoping to influence its ground rules; while others, like the US and Japan, are still staying away
China’s decision to establish the Asian Infrastructure Investment Bank is one of the most significant diplomatic initiatives. It has generated a great deal of interest among the major countries in the Asia-Pacific region.
When it was launched in October 2014, with a proposed capital of $50 billion, many feared that it would challenge the Asian Development Bank and the World Bank which have been the major fund-giving bodies of the world for over 50 years now. However, there has been a perception in Asia and other regions as well that these traditional fund-giving bodies have been dominated by the US and its allies like Japan, Germany and others for a long time.
As there has been a growing need for infrastructure facilities across the Asian continent, there is a funding gap that the old funding agencies cannot fill. In this context, China’s initiative is timely, and given its present economic and political clout, one can understand the rationale for this ambitious project. China also argues that, whereas the World Bank and the ADB have distributed their funds in a wide variety of economic and social sectors, the AIIB will focus only on infrastructure projects.
Further, China also complains that even though it is the largest economy in Asia, its power is not reflected in the actual operations of the ADB. To be sure, Japan, the founder of the ADB, does not enjoy veto power, but in combination with the US, it controls about 25 per cent of the votes whereas China’s voting share is only six per cent.
In addition, Japan has always managed to have a Japanese national as the ADB’s president ever since the bank’s inception. Further, attempts to increase the vote share of other countries have been unsuccessful. The resultant feeling of alienation is also one of the reasons why China has floated the AIIB.
Driven by its suspicion of Western domination as well as its own growing self-confidence following remarkable economic growth in the last several decades, China has been keen to expand its economic influence in the region. Its proposal to promote economic cooperation with the Eurasian countries by contributing $40 billion to the Silk Road fund is another of Beijing’s regional initiatives to bolster its influence.
China’s launch of the AIIB in Beijing was attended by delegates from 21 countries mostly from Asia which included India, Thailand and Malaysia. However, conspicuous by their absence were countries like Japan, Australia and South Korea. Considerably upset by the launch of the AIIB, which the US thought would undermine its preponderance in the region, Washington, DC, has lobbied quite hard to dissuade its allies and friends partners from supporting the AIIB.
One could see some major differences in the attitudes of the US and China. The US State Department insists that the new bank fulfill certain international standards of governance and transparency in its lending policies. Many in the US and Japan fear that China might use the new bank to leverage its own political and economic objectives. They have expressed their concern about certain ambiguous aspects of the AIIB proposal.
In a bid to dispel these doubts and suspicions, China has assured that it will not insist on exercising any veto power in the bank. China’s stress on a no-veto position was obviously meant to entice many Western allies including South Korea, Japan and Australia to support AIIB. Chinese President Xi Jinping, in a moderate tone, admitted that the AIIB has to learn from the World Bank, the ADB and other such institutions in its multilateral rules, procedures and operations.
Mr Jin liqun, a Chinese official picked by the Government to set up the bank, also stressed, “China will not bully other members, but will work together with them to reach consensus in all the decisions we make. China will not brandish its majority status.”
Since the deadline for countries to join as founding members was March 31, many countries were anxious not to miss the bus. Though they can join the bank as ordinary members after the date, the difference is that only founding members can play a role in determining the rules and regulations of the bank.
There is a strong feeling among the Western powers that, as AAIB founding members, they can exercise a great deal of restraint and moderation on China at the time of framing the rules and regulations of the bank and that it would be an advantage to be an ‘insider’ at the time of framing the rules.
As of now, 40 countries are expected to endorse the AIIB including the UK, Germany, Italy, Russia, South Korea, Australia, and the member countries of the Association of South East Asian Nations. The British decision to join the AIIB on March 12 triggered a trend on part of many European countries to follow suit. Chancellor of the Exchequer George Osborne went on record to state that the AIIB would fill a major gap in infrastructure investment in Asia.
He said that joining the AIIB at this stage would create “an unparalleled opportunity for the UK and Asia to invest and grow together.” As one of the founding members of the new bank, Britain will participate in important discussions concerning issues on governance and accountability arrangements of the new institution.
In the meantime, several highly placed officials of the International Monetary Fund, the World Bank and the ADB have expressed their support for the new institution. ADB president Takehiko Nakao met with China’s Finance Minister lou Jiwei on March 24 and expressed his eagerness to work with the AIIB as there was great room for cooperation in building infrastructure. Similar hopes were also expressed by Ms Christine lagarde, Managing Director of International Monetary Fund.
Despite all these strong pro-AIIB trends, both the US and Japan have decided to opt out of joining the AIIB as they still have serious reservations. Opinion in Japan is quite divided. Though Japanese Finance Minister Taro Aso indicated on March 20 that Japan could still ease its position, the Abe administration, because of its strong commitment to the US and strained relations with Beijing, has decided not to join the bank.
Mr Fumio Kishida, Japan’s Minister for Foreign Affairs, commented on March 30 that his country has not received any clear assurances dispelling its concerns on the bank’s governance. Strong business groups in Japan, however, worry that they might miss many investment opportunities which may go to many Western members of AIIB. It will be interesting to watch what strategies the US and Japan, having opted out of the AIIB, adopt in the coming months.
(The author is a Distinguished Fellow at the Observer Research Foundation)