When the British government decided to join the Asian Infrastructure Investment Bank (AIIB), a new China-led development bank, last week, the move sent ripples through the global banking system, especially for the United States and other nations that have strong economic ties with China, including Australia and South Korea.
In a statement, Britain’s Chancellor of Exchequer George Osborne said, “Joining the AIIB at the founding stage will create an unrivaled opportunity for the U.K. and Asia to invest and grow together.” The Treasury will hold talks with the founding members of AIIB later this month, according to the U.K.
China invited 21 nations, including India, Vietnam, Singapore and Thailand, to sign a memorandum in October for the creation of the $50 billion Asian regional bank. The initiation of the bank has been viewed as a deliberate challenge to the current financial state of the Asian Pacific region, where Japan initialized the Asian Development Bank with the support from the U.S. The ADB has been the major bank to give loans on infrastructure.
The United States has expressed concerns and skepticism of the new institution, largely on the grounds that it might not meet the same standards established by the World Bank and the ADB, which are the major banks currently making loans to developing countries for infrastructure projects.
The Obama Administration is pressuring its allies not to participate, in the fear that China is using the bank as a means to expand its political power in the region rather than merely expanding its business ties.
Washington’s conjecture concerning Beijing’s intention might be true, given the fact that China’s foreign policy continues to be driven by Cold War ideology. Thus it shows inconsistency to the outside world. For example, China’s foreign aid policy toward developing countries stipulates fewer conditions, major Western countries would stipulate, such as protecting human rights, in the name of “no interference of internal affairs.” For some authoritarian countries, China’s conditions may become more attractive than the Western countries.
Regardless of political motives, the creation of the regional bank would nevertheless boost competition and efficiency in the load market in the Asia region. Developing countries no longer have to stick with the only choice for funds building infrastructures. As the world’s largest open economy, the U.S. should welcome China’s engagement of the regional financial market.
Risks of the new bank’s governance should be left to the founding members of countries and those who receive loans from it. Internal risks are strongly connected to the governance structure of a bank. Perhaps it is unrealistic to force the new development bank to follow rules established by the World Bank and International Monetary Funds. It isn’t practical because China sees the two institutions as tools of the U.S.’ dominance of the post-World War II order and China would deliberately challenge this status quo. The new bank will soon reveal its performance and potential risks if it does not stress enough on the governance and standards.
In the meantime, the United States shouldn’t pressure its allies not to join nor simply ignore China’s move. Instead, it must actively welcome and engage in the creation of the bank, with the possibility that taking leadership to forge the bank is the direction that the U.S. wants to go.
Both the U.S. and U.K. are the world’s most powerful and sophisticated players in the global financial stage and they would keep and strengthen ties to the Asian Pacific region by exerting their advantages in financial market for the sake of AIIB.
With the U.K. embracing the move, it is expected that other American allies such as France, Australia and South Korea will follow. The Australians and Koreans have been China’s biggest trading partners in recent years and they are certainly not willing to let go of the potential opportunities of reaping economic growth from investing in developing countries, nor is the U.S.
