China has achieved impressive success in changing minds around the world and recruiting allies over a proposed international infrastructure investment bank.
The Asian Infrastructure Investment Bank (AIIB) is a new multilateral development bank first proposed by President Xi Jinping in October 2013. At the time, Xi explained that “to support the process of interconnection and integration of the economic development in the region, China has proposed to build the Asia Infrastructure Investment Bank and provide financial support to infrastructure development in developing countries in the region.”
China will provide the bulk of the capital, estimated at $50 billion (310 billion yuan), and other founding members include India, the second largest shareholder, as well as two Gulf Arab states, Kuwait and Qatar. A number of non-regional countries were invited to be founding members.
The US rejected the offer and then lobbied its allies, including Australia, South Korea, the UK and other European states, not to join.
But much to the US’ chagrin, in recent weeks, developed nations including the UK, Germany, France, Italy and Switzerland, have agreed to participate. Australia and Denmark have filed their applications. South Korea also announced its decision to apply before the deadline and expects to be a founding member of the bank, Reuters reported.
Facing defiance from its allies, the US has since somewhat softened its stance. The Obama administration is proposing that the AIIB work in a partnership with US-backed development institutions, such as the World Bank and the Asian Development Bank, The Wall Street Journal reported on March 23.
Why was the US so upset about the AIIB initially?
According to the Financial Times, the US and other AIIB critics have questioned whether the new bank will have high standards of governance and environmental and social safeguards. They say the bank will play fast and loose with conditionality and other restrictions on the behavior of borrowers, allowing corruption to flourish.
More significant, however, are strategic considerations, says the Financial Times. The US and China are increasingly engaged in a competition for regional influence, while the bank is seen as contributing to the spread of China’s “soft power” in the region, possibly at the expense of the US.
In an interview with Xinhua News Agency, China’s Finance Minister Lou Jiwei stressed that the AIIB, rather than being a competitor, will be compatible with established international lenders.
He described the bank’s founding as a “constructive move” that will complement the current international economic order and enable China to shoulder more global responsibility.
Martin Wolf, chief economics commentator at the Financial Times, says the UK’s decision to join the new bank is sensible. The US criticized the UK for its “constant accommodation” of the rising superpower, Wolf says, “but the alternative to accommodation is conflict. China’s economic rise is beneficial and inevitable. What is needed is intelligent accommodation.”
“Where China offers proposals that make sense for itself and for the world, engagement is more sensible than carping from the sidelines. An erstwhile US policy maker once asked China to be a ‘responsible stakeholder’. With the creation of the AIIB, it is doing just that,” Wolf writes in the Financial Times.