Washington’s short-sighted opposition to China’s new regional development bank

By Oliver Stuenkel
[Crossposted from Post-Western World]

When China’s Xi Jinping first mentioned his idea of a new China-led development bank for the region, some of his own officials were surprised that he had already aired the concept publicly. At the time, in October 2013, policy makers in Beijing had designed little more than the basic structures and guidelines of the bank.

One year later, a signing ceremony held in Beijing formally recognized the establishment of the Asian Infrastructure Investment Bank (AIIB). Twenty-one countries signed the founding document, including all major actors in South-, Central- and South-East Asia, aside from Kuwait, Oman and Qatar. China plans to contribute $50 billion US-dollars, hinting that it may double the amount.

There is an undeniable demand for fresh capital to modernize Asia’s infrastructure. In a much-cited study, the Asian Development Bank (ADB) said that the region needed $8 trillion US-dollars of investments in infrastructure in the current decade to put Asia on a sustainable growth trajectory. Yet particularly countries such as Myanmar lack the means to do so, and existing institutions such as the Asian Development Bank cannot satisfy existing demand. The ADB lends little more than US$10 billion a year for infrastructure development. Its president is traditionally named by Japan, even though China is by far the region’s largest economy.

Over the past year, the United States and Japan have undertaken a regional diplomatic offensive to convince Indonesia, South Korea and Australia — among others — to reject China’s invitation to join the AIIB, thus reducing the new institution’s respectability and making it look more than a sinocentric institution – precisely what Beijing seeks to avoid to not be seen as a regional bully. US motivations are clear: A potent AIIB with broad regional support would reduce the influence of both the World Bank and the Asian Development Bank, dominated by Washington and Tokyo respectively. Indeed, despite the risks, the rise of a China-led development bank would increase both China’s influence and its soft power in the region, a trend that could dramatically limit Washington’s capacity to build alliances in Asia based on the common aversion to Beijing.

The arguments used by US-policy makers are largely unconvincing, and it was only after severe diplomatic pressure that Indonesia, Australia and South Korea have decided not to join the AIIB – for now. However, in all three countries, powerful voices are beginning to argue that rejecting China’s invitation deprives them of influencing the way a key regional institution will be run. In the medium-term, Japan may become the only country not to become part of the new institution.

Yet Washington’s opposition to the AIIB is not only likely to be futile, it also hurts US national interest: Citizens across Asia will recognize that the United States seeks to maintain influence in the region, while caring little for the well-being of Asia’s poor, who are in dire need of better infrastructure. The argument that the AIIB is does not recognize the environmental and governance standards the World Bank or the Asian Development Bank adhere to may have some truth to them, but rejecting the institution for that reason is inadequate. A more coherent response would be to embrace the new initiative, but incentivize member countries (many of which are US allies) to push more rigorous standards. Paradoxically, by pressuring Seoul and Canberra to stay out of the new institution, Washington loses two actors through which it could have indirectly influenced the AIIB.

US policy makers are right to recognize the AIIB as yet another step by Beijing to create a regional that can complement and possibly eventually replace existing Western-led institutions. Other China-led institutions are the Shanghai Cooperation Organisation (SCO) and the Conference on Interaction and Confidence Building Measures in Asia (Cica). Whether China-led institutions will succeed does not depend on the United States, but on Beijing’s capacity to convince its neighbors that China’s rise is good (and not dangerous) for the entire region. While the outcome of China’s bid to regional hegemony is far from clear, the United States active opposition to projects that could benefit the region are likely to play into China’s hands.

Most problematically, the episode underlines how insincere US foreign policy makers’ calls on rising powers to become “responsible stakeholders” is — after all, there are few better examples of China “stepping up to the plate” than providing $50 billion for regional infrastructure development. While surprising to some in Washington, it is obvious that rising powers want to assume responsibility on their own terms rather than accepting the rules and norms established by US-led institutions. Similarly, in 2009, Washington was furious when it learned about Brazil’s and Turkey’s decision to negotiate a nuclear agreement with Iran – a move than challenged the West’s monopoly on discussing nuclear proliferation in the Middle East.

The United States’ unwillingness to accept anything but its own leadership or that of its allies points to a complex transition to actual multipolarity in which other powers such as China reduce US room for maneuvre in some parts of the world. This stance implies a deep sense of insecurity by US policy makers that is both exaggerated and unnecessary.

The United States has no reason to fear an intense competition of ideas with China. Quite to the contrary, undermining free competition goes against the United States’ most fundamental principles. Worries that China’s state-led capitalism or authoritarianism may seem more attractive to the rest of the world are still unfounded, and there are many signs that multipolarity could have positive consequences for global order – both politically and economically. The creation of the AIIB provides a powerful example: Its rise could force the World Bank to change its archaic distribution of power and make the institution more effective and legitimate.

About oliverstuenkel

Oliver Stuenkel is an Assistant Professor of International Relations at the Getúlio Vargas Foundation (FGV) in São Paulo, where he coordinates the São Paulo branch of the School of History and Social Science (CPDOC) and the executive program in International Relations. He is also a non-resident Fellow at the Global Public Policy Institute (GPPi) in Berlin and a member of the Carnegie Rising Democracies Network. His research focuses on rising powers; specifically on Brazil’s, India’s and China's foreign policy and on their impact on global governance. He is the author of the IBSA: The rise of the Global South? (2014, Routledge Global Institutions) and BRICS and the Future of Global Order (2014, Lexington).
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