Rejecting the AIIB is a no-brainer

By Su Tzu-yun 蘇紫雲  / 

Tue, Apr 14, 2015 - Page 8

In light of the statement by Chinese President Xi Jinping (習近平) that “China’s One Belt, One Road project and the Asian Infrastructure Investment Bank [AIIB] welcome all,” Beijing is establishing the AIIB as part of a tripartite strategic focus that includes diplomacy, the economy and overseas markets.

On one hand, the proposed bank can assist China in deepening its dollar diplomacy, while on the other hand, it can help Chinese businesses expand their global reach.

To be blunt, lenders will offer loans to AIIB member countries to allow them to build railways, roads and electric and hydraulic utilities. However, other countries already find it hard to compete with China in the construction industry due to low Chinese costs, and this is one of the reasons the US, Canada and Japan are unwilling to join the bank.

For Taiwan, the benefits that membership could bring would be extremely limited, and the government should think twice before rashly funding Beijing’s diplomatic affairs.

Judging from its strategy, China launched the “One Belt, One Road” scheme — described as a new Silk Road economic belt and a 21st-century maritime Silk Road — in order to break through a possible sea blockade. It is a consideration for the land power to confront any sea power.

Intriguingly, for the new Silk Road economic belt, intercontinental and high-speed railways will serve as the “neural network” that links China with Europe in the west and with the Indo-China Peninsula in the south.

At the same time, China will also secure new seaports on the Indian Ocean and thus move closer to obtaining crude oil directly from the Middle East, while connecting itself with the Southeastern Asian market and resources. By doing so, it will increase its competitiveness against both the US and Japan.

In Indonesia, for example, the largest economy in Southeast Asia, the domestic market has almost become completely dominated by Japanese enterprises. If Beijing can help Southeast Asian countries to build high-speed railways, it could perhaps turn this situation in its favor.

Economically, it can be predicted that the AIIB’s major business will be railway construction. China’s effort to link high-speed railways to diplomacy and economic issues is already beginning to bear fruit. Turkey’s first high-speed rail, the Ankara-Istanbul High-speed Train line, started operations in July last year. One of the major operators of the Turkish line is the state-run China Railway Construction Corp (CRCC).

During Chinese Premier Li Keqiang’s (李克強) overseas visits, he always tries to sell the Chinese high-speed railway, but countries that are interested may be unable to afford the huge costs involved. In the past, China often exchanged high-speed rail for resources or minerals.

Wang Mengshu (王夢恕), an academic at the Chinese Academy of Engineering, has said that when Beijing cooperates with other nations in building a high-speed railway, it takes money when it can and resources when it cannot. The main reason for this is that China is likely to exhaust its own natural mineral production completely in the next 60 years, which is why swapping railways for resources abroad has become a key economic strategy.

The three planned high-speed railways, the Pan-Asia, Central Asia and Europe-Asia lines, will be used by Beijing to fight for overseas markets. Today, the CRCC, China CNR Corp, China CSR Corp and other state-run rail groups have become the world’s leading railway giants. The total production value of the Chinese steel, electromechanical control and fastener industries driven by those rail groups is enormous.

China will have gained share of the global rail transport market worth almost US$250 billion before next year, and this will make a significant contribution to the Chinese economy. This is also the reason Japanese Prime Minister Shinzo Abe tried so hard to sell the Japanese Shinkansen system during his visit to India in August last year, which marked the beginning of a “railway war” between China and Japan.

Beijing has now won a round in this battle by obtaining the deal to build Russia’s first high-speed rail by means of financing the deal. This may become a business model for the AIIB.

Germany first proposed a “railway strategy” about 100 years ago. Based on this land-based strategy, Germany attempted to resist Russia in the east and France in the west by relying on the mobility of railways. A century later, China is now enhancing and glorifying this strategy by integrating the railway strategy with its thinking on diplomacy, economic and resource safety issues.

As it extends a railway network into other countries, the AIIB will be the main source of its financing, placing China’s “high-speed rail diplomacy” at the core of the bank.

Should Taiwan put its limited capital in the China-dominated AIIB, whose mechanisms and benefits are still unclear to us, or should it put its money in mature multilateral development mechanisms such as the Asian Development Bank dominated by the US and Japan? The decision is self-evident.

Su Tzu-yun is chief executive officer of the Center for Advanced Technology at Tamkang University.

Translated by Eddy Chang