IN the past two weeks, China has made a splash with its evidently successful initiative to create the “Asian Infrastructure Investment Bank,” or AIIB, pitched as an Asia-centric alternative to the US-backed World Bank and the Western-leaning Asian Development Bank.
To the consternation of the United States, a number of its high-profile allies have signed on with AIIB, including Great Britain, Germany, France, Italy, and New Zealand; Australia, South Korea, and Taiwan are among a number of others said to be “considering” joining the China-backed bank. Even the AIIB’s eventual business competitors, the World Bank and ADB, have publicly expressed support for the bank’s development, as has the International Monetary Fund.
With its warnings that joining the AIIB means “accommodating” China having been completely ignored by most of its allies, the US has moderated its criticism in the past few days, but remains openly unhappy about the idea.
Preventing or forestalling China’s expansion for as long as possible while American influence wanes is a very American idea. US policymakers have had decades to learn how soft power can be extended through multilateral financial institutions, so they are well aware of the advantages China will gain the minute the AIIB opens its doors, probably sometime in 2016. And that understandably makes the US very nervous.
The US, however, may be getting a little hysterical about something which may not be as bad as it first sounds.
Back in 2009, ADB published a study (which is still frequently cited) which concluded that something between $8 trillion and $13 trillion of infrastructure and other developmental investment would be needed by 2020 in order to maintain Asia’s long-term economic growth.
AIIB’s capitalization – which, true enough, will be mostly provided by China – will be somewhere between $50 billion and $100 billion. At best, AIIB will be able to fund about 1 percent of the demand. The AIIB will have a significant impact, but that’s because 1 percent is still an enormous amount of money; against the overall investment potential, it’s a drop in the bucket. The relevance of competing institutions like ADB and the World Bank will hardly be reduced.
The second thing that should ease US fears is precisely the thing that has so annoyed the American establishment, the fact that so many important western nations have joined the AIIB. A growing number of analysts are taking the view that so much western involvement in the AIIB is actually a sign of weakness on China’s part. The hypothesis is that China would have wanted to keep membership in the bank to the area it considers its sphere of influence – most of Asia, and parts of Africa – but that without the strong backing of at least a few developed nations would not have complete global legitimacy, something China needs if it is to internationalize the renminbi, which is supposedly the main objective of establishing the AIIB.
Of course, China’s ability to outspend other participants will limit the influence of the rest of the AIIB members, but their presence opens Chinese policy to greater scrutiny. Over time, Chinese control should gradually decrease as other members increase their stakes, and that might happen more quickly than anyone anticipates.
Concerns aired by the US that the AIIB might be hindered by lax banking standards and poor regulation are probably not actually a serious issue – China has already, for the most part, accepted and learned to work with global standards such as Basel III – but the involvement of western nations might lead to an interesting situation: China, with its very strong preference for bilateral arrangements, could very well find itself increasing its development investments outside the AIIB, reducing its ability to heavily fund the multilateral bank.
So by all appearances, the AIIB is not the threat the US believes it is, and is instead a welcome addition to a global economic sector that desperately needs more multilateral banks. It’s actually kind of adorable, like a panda, China’s national symbol.
But pandas, no matter how much they may charm us, are still bears. Bears have teeth and claws, and take a rather dim view of being threatened or otherwise imposed upon. The AIIB deserves a chance – it is needed, and can have a sustainable positive impact – but it also demands close attention.