Europeans prepare to join AIIB, US continues opposition

Sayed Kamaluddin | Published: March 24, 2015 00:00:00 | Updated: November 30, 2024 06:01:00

Henry Kissinger who had surprised the world by successfully carrying out negotiations with the Chinese leaders in total secrecy in 1971 under US President Nixon's direction for normalisation of Beijing-Washington ties, had made a specialÂ mention about the sophistication of the Chinese diplomacy in his book White House Years. He said that the Chinese (under the direction of Mao ZedongÂ and Zhou Enlai) had been sending messages to Washington about reconciliation for sometime but the nature of the Chinese sophistication was so subtle that it had gone "over our head".
Decades later, the sophistication of the Chinese foreign policy strategy triumphed when Washington had bluntly opposed Chinese President Xi Jinping's announcement of the creation of the Asian Infrastructure Investment Bank (AIIB) and instructed its allies to stay away from it. It is no longer a secret that despite Washington's opposition, its European allies, Britain, Germany, France and Italy have already decided to join the China-led bank as founding members and their actual joining is now a mere formality. True to its nature, Washington had no clue as to how the Chinese diplomacy could achieve such a breakthrough in Europe.
Likewise, in Asia-Pacific region, too, diehard US allies such as Australia, Japan and South Korea are looking into the ways how to join the bandwagon for their own greater interest. They are all major US allies and were notable regional absentee from the AIIB.
Worried about China's growing diplomatic clout, the US questioned whether the AIIB would have sufficient standard of governance and environmental and social safeguards.
In the last weekend edition of the International New York Times, in a news analysis, Jane PerlezÂ commented quoting Paul Haenle, director of the Carnegie-Tsinghua Centre in Beijing: "The (US) administration made a major mistake in its opposition (the AIIB's launching). It was â€¦ very shortsightedâ€¦The bank was going to go ahead whether we supported it or not."Â Â Â Â Â Â Â Â Â Â Â Â
What is the big idea of forming yet another big international bank by China? Also, what is the reason for such strong opposition to its formation by the West and in particular, the United States?Â There are plenty of reasons for the first question and for the second, one has to find answer from common sense. The world's largest financial institutions such as the World Bank and the International Monetary Fund (IMF) needed major reforms and all the big players had tentatively agreed to it but nothing really moved for ages. It happened simply because Washington was not interested. The basic structures of those institutions were faulty and needed thorough reforms considering the realities of the fast-changing world since their formation after the World War II. Â
Take China, for example, which arguably is the world's largest economy by some measures, has less voting power in the IMF and World Bank than Belgium, the Netherlands and Luxemburg. Reforms in global financial institutions were suggested in recent years providing due recognition of the contribution of China and other middle-income countries to the global economy and hence their due place in the decision-making process in the IMF and the World Bank.
But, after 2008 financial crisis, the US Congress rebuffed legislation intended to increase Beijing's voice in the World Bank and IMF. Needless to say, China was upset. Now China with $3 trillion worth of foreign reserves in its coffers can easily float a new banking institution. Â
The plan of AIIB did not come suddenly. The idea of such an institution was mentioned first in a public speech of Xi Jinping in early 2013 when he took over the helm at Beijing. It went totally unnoticed in Washington.Â Â Given the above background, in October 2013, just before the meeting of the Asia-Pacific Economic Cooperation (APEC) in Bali, Xi Jinping announced the creation of the Asian Infrastructure Investment Bank (AIIB). The idea of the Chinese President came to fruition on October 24, 2014 as 21Asian countries signed in Beijing the Memorandum of Understanding as founding members to join the Asian Infrastructure Investment Bank (AIIB).
The countries that have already joined the AIIB are Bangladesh, Brunei, Cambodia, China, India, Kazakhstan, Kuwait, Laos, Malaysia, Mongolia, Myanmar, Nepal, Oman, Pakistan, the Philippines, Qatar, Singapore, Sri Lanka, Thailand, Uzbekistan and Vietnam.
Why was the acceptance of such a new banking institution so prompt and widespread?Â Many developing countries in Asia were not satisfied with conditional loans from the IMF- World Bank and China has realised that there is a need for a new bank for Asian nations. Logical support for such an exercise was easily available. As regards the Asian Development Bank (ADB), its strategy 2020, lists infrastructure development as just one of 10 strategic priorities together with softer initiatives such as climate change, social protection, governance, environment and gender equity.
The AIIB, it was suggested, can help fill the vast unmet demand for the development of productive economic infrastructure, especially in the emerging economies of Asia. In 2011, the Organisation for Economic Co-operation and Development (OECD) estimated that global infrastructure requirements over the next two decades will cost around $50 trillion. Biswa N. Bhattacharyay of the ADB estimates that developing Asian economies will need to invest $8.0 trillion from 2010 to 2020, just to keep pace with expected infrastructure needs. So it has now been accepted that the formation of AIIB is a move in the right direction. Â
The AIIB's authorised capital is $100 billion while the initial subscribed capital is expected to be around $50 billion. The paid-in ratio will be 20 per cent. It is reported that China will not seek to be the single majority shareholder and will not necessarily subscribe 50 per cent of the capital. Moreover, China's share ratio will be gradually diluted with more members joining AIIB in the future.
Â As agreed, Beijing will be the host city for AIIB's headquarters.Â The proposed head of the bank will be Jin Liqun, former head of the China's sovereign wealth fund.
For the reported US reservation for the new bank's ability to maintain global standards, the Chinese Finance Ministry has clearly stated that it would strive to make the AIIB a first class institution that would deliver projects more efficiently than the World Bank and the Asian development Bank.
To ensure this, according to the International New York Times last week, the Chinese have asked a lawyer, Natalie Lichtenstein, who worked at the World Bank for over 30 years, to help prepare the bank's charter. Such people, said Fred Hu, founder of Primavera Capital, a private equity firm in Beijing, are important to the bank's success. Fred Hu also worked for the World Bank earlier in his career.
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