Combined with other Chinese-led initiatives, an Asian financial order led and shaped by China is slowly emerging in the Asia Pacific. The geopolitical and geoeconomical implications of such a transformation of this magnitude should not be underestimated, both at the regional and global levels.
The AIIB’s core operational objective is to provide basic public goods in the form of infrastructure — a much needed investment given Asia’s multi-trillion dollar infrastructure ‘deficit’.
But Beijing is not completely discarding the existing rules of the global governance game. China continues to benefit too much from the current world order to seriously challenge it in its entirety. But it is clear that China is increasingly dissatisfied with being in the passenger seat of global governance.
From now on, Beijing will actively attempt to modify some of the international rules to reflect its strategic interests, values and new-found international power. It invited both Japan and the United States to join the AIIB, rather than block their attempts to join. By doing this, China had hoped not only to give credence to its newly created institution, but also to act as a positive and inclusive force in the Asia Pacific.
In its eyes, Beijing has proof that Washington wants to contain it, or at least thwart its quest for influence and power. The conclusion of the Trans-Pacific Partnership will do little to assuage that fear of economic containment. But it may lead, some could argue, to Beijing deciding to join the trade pact as soon as possible to avoid being left out.
Geopolitics aside, the AIIB offers the world a chance to reform existing financial institutions that have been too slow to launch projects or too inept to tackle regional issues. The United States previously obstructed Chinese efforts to reform those institutions, and is now reaping what it sowed.
After the global financial crisis, Beijing was convinced it was time to seek an alternative to the US dollar. Fast-forward to 2015: the internationalisation of the renminbi has dramatically progressed and the ‘redback’ is now on the verge of being included in the IMF’s special drawing rights currencies basket.
Something is definitely happening in the realm of international finance. While it is too early to dismiss Bretton Woods institutions, the flurry of Chinese-led initiatives, including the AIIB, should be viewed and understood as a reaction to developments, positive and negative, that have occurred in the world since the last crisis.
As Australian former prime minister Kevin Rudd argues, the West should stop assuming the worst about Chinese-led initiatives. It should let the AIIB rise or fall on its own merits. The AIIB may never matter much in the grand scheme of things. Still, there is a clear need for infrastructure development in Asia and the new bank would fill this critical role. Its success is in the best interests of other Asian countries, and also of countries benefitting from US-led institutions.
By making the AIIB multilateral, Beijing is effectively relinquishing control of the bank, but not influence over its decisions. The rules of the system will be reinforced automatically because of the multiple stakeholders. Chinese Vice Finance Minister Shi Yaobin indicated that ‘every member’s share will decline commensurately with the gradual increase in the number of the member countries’. This means that the AIIB will reinforce multilateralism, albeit a contested one, and will not undermine the current world order.
The AIIB is not an attempt to end the Bretton Woods institutions and Washington’s Pax Americana. The bank, and other Chinese-led institutions, is not meant to act as a substitute to Bretton Woods, but rather to complement its strengths and patch its flaws. The bank gives Beijing an opportunity to learn about the responsibilities that great powers must shoulder. China ought to be given some leeway and the opportunity to lead change. If the United States continues to pressure other countries against joining Chinese-led institutions, its coercion may ultimately backfire and push emerging economies closer into China’s orbit.
Fortunately, it appears that the United States has finally warmed up to the idea of setting up an infrastructure bank in Asia, as long as it complements existing institutions and meets high governance standards. The World Bank, the IMF and the Asia Development Bank have all signalled that they are ready to cooperate with the AIIB.
A rising China will definitely attempt to influence and rewrite some of the rules of global governance. But this does not mean that its efforts should be dismissed. Global governance is not a zero-sum game, although it is increasingly seen as one in the context of geopolitical rivalries, rising emerging economies and stagnating industrialised nations.
Forming a coalition of middle and great powers within the AIIB could rein in Chinese ambitions and implement better governance practices within the institution. But for the many countries that stayed away from the AIIB, being absent at its genesis means not having a say in the rules. The development of the bank was inevitable; China could have moved bilaterally instead of going through the trouble of establishing a regional infrastructure bank.
Creating an Asian financial order is not a moral debate with clear winners and losers. The story of the AIIB will continue to unfold in parallel with a new Asian financial world order. The West should start taking a proactive role in constructively accompanying China’s rise.
Grégoire Legault is a doctoral student at the University of Ottawa.