Some of the discussion on the China-led Asian Infrastructure Investment Bank (AIIB) is based on solid facts and proper theory, but the full story is not being told.
China has indeed become an economic superpower and with the establishment of the bank, it hopes to create an internal financial vehicle for the “one belt, one road” policy, which will ultimately transfer outdated domestic manufacturing to nations along a continental and maritime “silk road.” This will solve the problem of excess capital, while at the same time drive economic development in China’s western regions. Internationally, China wants to reformulate the rules of international finance and improve its ability to be heard on international financial issues.
China has been experiencing setbacks within international financial organizations such as the World Bank and the IMF, and therefore would like to create an organization that it leads itself. Perhaps the European nations that are flocking to join the AIIB are confirming China’s economic hegemony, but that is probably an exaggeration.
Although the US Congress has blocked developing countries from gaining more voting rights in the IMF, a move that is obstructing the IMF’s reform, China is striving to keep its voting share in the fund from surpassing that of Japan, France or Germany. The reason for this is that Beijing is afraid that once it sticks its neck out, it will have to take on more responsibilities in the international financial system by taking on more oversight responsibilities and responsibility to issue loans, as well as technological assistance and training.
More importantly, it is afraid that if it gets too deeply involved in the system, it will be influenced by these stridently neoliberal organizations through a series of international organizations and conventions, an eventuality that Beijing fears could endanger China’s internal political stability.
Finally, just as China ropes in European nations to join the AIIB, it is exposing its key weakness. A few years ago, China managed to sidestep the World Bank, becoming the world’s largest lender to small and medium-sized nations through its China Development Bank and the Import-Export Bank of China, but its investment in overseas infrastructure is inflexible and relies on inter-governmental connections, without taking into account the local cultural environment. Local residents often suffer, as no employment opportunities are created for them. Two examples of this are the Myitsone Dam in Myanmar and the high-speed railroad in Mexico.
Moreover, China has recently been conducting commercial lending in developing countries in Asia, Africa and Latin America that has proven ineffective and been unsuccessful in buying political loyalty. It has also failed to protect the import of natural resources and to gain access to export markets.
Overall, China’s attempt at bilateralism has failed and brought no significant commercial or geopolitical benefit. Thus, to gain political legitimacy, China must sacrifice its veto power in the AIIB and ask for the endorsement of experienced European countries. If European countries do join, they will emulate the standards set by the World Bank and the IMF, and continue to give out loans in accordance with conditions of environmental protection and human rights, rendering Beijing’s efforts futile.
The importance of systems and institutions in international relations is to change the diplomatic behavior of nations, replace conflict with cooperation, and make them comply with international norms and guidelines. The future of the AIIB will be a formidable trial for China and the international community.
Lin Tai-ho is an associate professor at the Institute of Strategy and International Affairs at National Chung Cheng University.
Translated by Zane Kheir
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