ONE of the key outcomes of Chinese President Xi Jinping’s recent visit to the United States was the somewhat sheepish acceptance – if not exactly an endorsement – of the Asian Infrastructure Investment Bank (AIIB), the global-scale counterpart created by the Chinese government to Western-backed institutions like the World Bank and the Asian Development Bank.
In a somewhat vague but telling statement issued in a summary “fact sheet” about the economic points raised in the conversations between Presidents Xi and Obama, the US said China had agreed to address American “concerns” about how the new bank would do business, and had also agreed to increase its contributions to the potentially competitive World Bank and other regional development institutions.
In exchange (although that is not exactly how the US statement described it), the US confirmed its support for inclusion of the renminbi in the International Monetary Fund basket of reserve currencies by implying it would not object if and when the IMF decided the Chinese currency was worthy.
Xi put on a masterful performance during his US excursion, positively raising his and China’s profile while giving up absolutely nothing in terms of the economic and geopolitical strategies that have bedeviled the West over the past few years. Had the US government sidestepped the entire subject of the AIIB and China’s IMF aspirations Xi’s visit would have still been a resounding success; to come away with a couple of tangible concessions, vague though they may have been, was simply a bonus.
When China announced the formation of the AIIB earlier this year, the US was seriously embarrassed when its calls to allies to avoid becoming involved with the Chinese start-up were promptly ignored, and worse, even subject to some mild chastising by countries like Australia and the UK. Quietly dropping its opposition was about the only thing the Obama Administration could do to stop looking foolish; stressing the “commitment” by China to manage the new bank’s business in a way that addresses American “concerns” was likewise empty face-saving, since China didn’t promise to do anything beyond what is already written into the AIIB’s charter, that funded projects should be legally-transparent and environmentally sustainable.
However it transpired, it is good that the US, if not exactly on board with the AIIB, at least does not intend to try to thwart it. Even the World Bank is supportive of the initiative; in comments over the weekend, WB President Jim Yong Kim said they were looking for ways to collaborate with the AIIB, and welcomed the role the latter could play in helping to reduce poverty.
Of course, another way to take those comments is as a tacit admission that current efforts are falling short, and that a departure from the Bretton Woods financial architecture that the West has imposed on the world since the end of World War II is needed. While institutions like ADB, the IMF and the World Bank have made inroads on their primary focus—poverty reduction and human capital development—the sense is that while the extent of poverty and economic inequality may have been reduced, its degree has deepened; in other words, there are fewer economically disadvantaged people in the world, but the depth of their poverty has become more profound. By focusing on a complementary, rather than competing, path of infrastructure and industrial capital development, the AIIB may provide the missing piece of the puzzle.
Granted, that may be too idealistic a point of view; the devil is in the details, as the saying goes, and how China actually deploys the AIIB remains to be seen.
Lingering concerns of the West are probably justified to some extent, because without having to give up anything in terms of its aggressive geopolitical aims, its somewhat dubious perception of human and political rights, and its rather casual attitude toward environmental concerns, China has taken a big step toward becoming a peer of the major political economies, which may threaten to undo much of what little achievement there has been toward global social development and environmental management. One thing that is particularly worrisome to the established multinational financial community is that AIIB will not impose some external conditions—such as privatization and deregulation—on big-ticket projects like the WB and IMF does.
While the concerns and risks should not be dismissed, China and the AIIB should be given a chance, for two broad reasons. First, greater engagement on an international scale is likely to dilute Chinese influence, just as the Western sociopolitical perspective has been progressively compromised the farther it has spread.
Second, the dominant economic development paradigm seems to have hit its limit. Broad initiatives like the Millennium Development Goals—and in all likelihood, their successors, the Sustainable Development Goals—have fallen short of their aspirations, arguably because they have focused too heavily on the improvement of human capital and not enough on the frameworks to apply it to—a gap which, with its focus on infrastructure and economic development, the AIIB could very well fill.
If—and it’s admittedly a big “if”—things are done right. The acceptance of the AIIB by the US, however grudging that may have actually been, could serve to make “doing things right” a little more certain.