The UK signs on to AIIB

Author: Yun Sun, Stimson Center

On 12 March 2015, the United Kingdom submitted its application to become a prospective founding member of the China-led Asian Infrastructure Investment Bank (AIIB). The application created a major diplomatic spat between the UK and the US. A spokesman for the latter criticised the UK for its ‘constant accommodation’ of China.

Britain's Prime Minister David Cameron Chinese Premier Li Keqiang, Britain's Chancellor of the Exchequer George Osborne and IMF Manager Director Christine Lagarde during a global economic round table discussion in Downing Street, London, Britain, 17 June 2014. (Photo: AAP)

China has set a deadline of 31 March 2015 for applications to become a founding member of the AIIB and is actively lobbying other countries, especially South Korea and Australia, to submit such applications. Under the circumstances, the UK’s application appears to be a boost for the legitimacy of the AIIB. It has already had a ripple effect on other countries’ decisions: France, Germany and Italy have also agreed to join the bank.

The UK has well-articulated reasons for wanting to become a founding member of the AIIB. The government is seeking closer economic engagement with Asia and more economic opportunities in the region to invest and grow. In the broader context of China seeking to enhance its economic relations with Europe through campaigns such as the One Belt, One Road strategy, the UK certainly does not wish to be left out of the game.

Sino–British relations in the past few years have suffered setbacks due to the Dalai Lama’s visit to London in 2012 and the UK’s position on the political movements in Hong Kong in 2014. The UK government has been seeking ways to mend ties and pursue cooperation, including through Prince William’s visit to Beijing in March.

The UK’s support of the AIIB as a legitimate multilateral financial institution and its willingness to participate unequivocally has done Beijing a huge favour and brings positive momentum to Sino–British relations. The UK does have a reasonable argument that joining the AIIB as a founding member will give it the valuable opportunity to shape the institution and its behaviour from within.

The US has remained suspicious of China’s plan to set up the AIIB since China first announced plans for the institution in October 2013. Aside from an almost instinctive distrust of China’s intentions — reflecting suspicion that China is setting up the institution to undermine the existing international economic system — there are also ample concerns about the governance, transparency and accountability of the new institution, particularly given China’s track record in bilateral infrastructure development projects.

While such concerns are legitimate, the Chinese retort is that these concerns do not merit premature opposition to the AIIB before it is even established. In both China and the US, there is a strong view that the AIIB is a zero-sum game in which China seeks to augment its regional economic and political influence and the US attempts to prevent this from happening — or from happening smoothly.

Whether the US government’s policy towards the AIIB could be more nuanced, better thought out and better articulated remains up for debate. The perception that Washington is imposing its views on its allies has created some disagreement and discontent among allies seeking to join the AIIB. Stories about the US lobbying South Korea and Australia not to join the bank have made the US appear petty and narrow-minded. After all, several US allies have joined the AIIB and become prospective founding members, including Saudi Arabia, Kuwait, Singapore, Thailand, the Philippines, New Zealand and Pakistan.

It remains unclear whether all of these countries have held thorough policy consultation and coordination with Washington on their decisions to join the AIIB. But since plenty of US allies have indicated their willingness to join the bank, US criticism of the UK’s decision — and US pressure on South Korea and Australia to refrain from joining the bank — at least invites questions as to where and why the line is drawn.

If the UK’s application does transpire into a founding membership, the UK’s membership process will reveal an interesting inconsistency in China’s position on founding membership rules. Since the inception of the AIIB, Chinese scholars and officials have expressed the view that the AIIB’s membership will be open to countries from within the region during its early stage.

As recently as 6 March 2015, Chinese Finance Minister Lou Jiwei stated at the National People’s Congress that ‘the relative consensus among the 27 current prospective founding members is that the prospective founding membership is open to countries from the region first and applications from countries outside the region are not considered for now’. If this standard were to be applied, the UK’s application to become a founding member would not be accepted.

If this report is accurate and the UK’s bid for membership succeeds, an interesting question will naturally be posed: why did existing members change their view and has China used its dominant position to influence the stance of others?

It is possible that other nations will come to see the benefits of accepting the UK as a founding member. But if others resisted the UK’s membership, the case would shed some important light on the bank’s supposedly democratic decision-making structure and on how China’s overwhelming sway could cloud the bank’s future.

Dr Yun Sun is East Asia Fellow at the Stimson Center and a non-resident Fellow at the Brookings Institution.

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