The Asian Infrastructure Investment Bank (AIIB) has become a huge headache for the United States, with the Chinese bank set to rival global institutions like the World Bank and International Monetary Fund (IMF). Formed late last year, the multilateral development bank will provide finance for a range of infrastructure projects throughout the Asia region. The problem for the US is simple. Unlike the World Bank, China will be in charge of the AIIB.
Make no mistake, the genesis and early success of the AIIB could usher in a new era of global influence for China. With regional influence practically assured and a number of US allies already signing on, the AIIB could change power dynamics both in Asia and throughout the world. The US has already suffered a series of embarrassments over the bank, as a surprising number of countries around the world sign on.
Founding Members and Opposition
There are currently 31 Prospective Founding Members (PFMs) of the AIIB, along with 23 countries and regions applying for PFM. This leaves the US almost completely isolated as one of only a few major economies not involved. With a number of European nations signing on early, along with Singapore and India, the US has been worried about the potential significance of the AIIB for some months. Things were made much worse for the US recently, however, with long-term allies the UK also signing on along with South Korea and Australia. Even Taiwan, former enemy of China and close ally of the United States, has applied to join the AIIB.
Japanese Finance Minister Taro Aso previously indicated interest in joining the AIIB, later switching his stance saying, “As of today, Japan will not join AIIB… Japan is dubious about whether (the AIIB) would be properly governed or whether it would damage other creditors”. This is a similar stance to the one publicly promoted by the US, with the US also criticising the AIIB by saying it will allow looser lending standards for the environment, labour rights and financial transparency. According to an overwhelming number of commentators, however, the US is opposed to the very existence of the AIIB on principle after holding a tightrope on global banking for so long.
According to UNSW’s Institute of Global Finance director Fariborz Moshirian, Beijing’s plan have been fuelled by China’s massive foreign exchange reserves and desire for more power both in the region and globally: “China is trying to use economic muscle and also in a sense it’s a reaction to the Bretton Woods institutions like the IMF and World Bank. They are seen as US and European children and China wants to make their own mark… It’s sort of a by-product of the rise of the financial strength of China… We’re going to see more of this kind of influence because China can afford now to take part of this kind of activity.”
Despite this play for global power, however, the bank could also have a positive effect on stability in the region. According to Barclays, “We believe through the building of interdependent relationships based on shared economic interests, this New Silk Road plan should deepen political linkages, improve mutual understanding and foster long-term stability in the region. The agreement to set up the AIIB by countries that have territorial disputes with China suggests potentially lower geopolitical risks and lower probability for military conflicts, in our view.”