Earlier this month, France, Germany and Italy jointly announced they would join China’s initiative of the Asian Infrastructure Investment Bank (AIIB), right after Britain — the closest ally of the US — had already decided to participate in the new bank. As a result, four of the G7 members have delivered their endorsements of China’s new financial institution, despite objections from the US.
Furthermore, Australia and South Korea, who were originally dissuaded by Washington, are showing a renewed interest in signing up, although no final decisions have yet been made.
More astonishingly, even Japan, which had consistently echoed the views of the US and questioned issues of transparency and governance concerning the China-led bank, might consider joining the AIIB if some concerns could be guaranteed, Japanese Minister of Finance Taro Aso said
Meanwhile, Minister of Finance Chang Sheng-ford (張盛和) also said in the Legislative Yuan last week that, if invited, Taiwan would love to join, as it would open opportunities for Taiwan’s abundant capital.
As an increasing number of countries openly embrace China’s new financial initiative, some commentators have been quick to conclude that the developments surrounding the AIIB indicate a significant touchstone of Beijing’s diplomatic success and another example of the US’ waning influence. Nevertheless, whether growing sponsorship of Chinese-led banks implies a forthcoming collapse of the US-dominated world order remains to be seen.
Since Beijing proposed the idea of launching a new multinational bank, its objectives and motivations have been broadly discussed. Beijing claimed that given the growing need for infrastructure financing in developing economies in Asia, it is important to provide sufficient finance. This would deepen regional economic integration and further sustain economic growth in the region. The Asian Development Bank (ADB) estimates US$8 trillion will be needed for infrastructure projects in Asia this decade.
Against this backdrop, Chinese President Xi Jinping (習近平), during his visit to Southeast Asian countries in October 2013, proposed creating a new bank to provide more funds supporting infrastructure development. One year later, the blueprint of the AIIB was drawn up, obtaining endorsements from more than 20 countries as co-founding members.
To lessen suspicion from Western countries, Beijing says that the new bank only aims to fill an urgent need for infrastructure financing in Asia, and it will still work alongside existing international financial institutions.
Despite Beijing’s allegedly benign intention, the AIIB — just one of many of China’s newly founded financial institutions — has been broadly perceived as a diplomatic tool for Beijing to extend its political clout and reshape the existing international financial order, which has been dominated by the West since World War II.
Noticeably, in addition to its commitment of US$50 billion for the AIIB, Beijing has also pledged US$40 billion for the Silk Road infrastructure fund, while promising US$10 billion for the BRICS bank, namely, the New Development Bank, which was co-founded by Brazil, Russia, India and South Africa, along with providing another US$41 billion toward a currency contingency fund.
China has single-handedly pledged nearly US$150 billion, revealing that Beijing is fairly dissatisfied with current international financial arrangements and intends to put more pressure on existing international financial institutions, if not radically overhaul or replace those with new ones.
From a global strategic viewpoint, Beijing’s series of financial initiatives have posed critical challenges to the global financial order. The AIIB will compete with the World Bank and the ADB, although the AIIB’s initial capitalization of US$50 billion is not comparable with the World Bank’s loans of US$65.6 billion last year. Nevertheless, by launching a new bank, Beijing is able to set new rules on its terms, instead of relying on existing financial constraints dictated by the US and its allies.
In particular, the AIIB should be viewed as a part of China’s grand strategy of “One Belt, One Road,” in which China intends to revitalize two ancient commercial routes toward Europe by restoring a Silk Road economic belt and a maritime Silk Road. For this vision to be realized, many infrastructure projects across neighboring counties become necessary, in order to break the connectivity bottleneck as well as possible US strategic containment. Infrastructure development is in Beijing’s interest and helps achieve economic integration in Europe and Asia, while undermining the Trans-Atlantic ties between Europe and the US.
Some question why the UK, which has usually been seen as an unswerving US ally, became the first Western power to jump at China’s proposal. And why was Britain closely followed by a slew of other European countries? The first reason is the rich potential for the nations’ corporations to obtain future infrastructure contracts disseminated by the AIIB, while providing a lucrative channel to pool their capital.
Second, joining China’s initiative also allows these countries to strengthen their economic engagements with emerging markets and to share enormous business interests in those fast-growing economies. Furthermore, these Western powers have an eye on China’s expanding consumer market and cannot ignore the fact that China has become a hugely important trading partner and the second-largest economy in the world.
In 2012, China was Britain’s second-largest importer and seventh-largest export partner. Meanwhile, China was also Germany’s second-largest importer and third-largest export partner, and in France, it is the second-largest importer and eighth-largest export partner. These intensive economic ties highlight the fact that the lure of vast commercial interests is too difficult to resist for these capitalist countries, even under pressure from the US.
Therefore, the UK’s turnaround against Washington on this issue is not really so surprising, since it has been famous for being a pragmatic realist nation with a sophisticated sense of political calculation, rather than a steadfast ally. After all, we should not forget what Lord Palmerston, a renowned British politician, said about British diplomacy: “We have no eternal allies and we have no perpetual enemies. Our interests are eternal and perpetual, and those interests it is our duty to follow.”
As for Taiwan, there are a few caveats about joining the bank. First, the AIIB is likely to be a game dominated by China and played with other financial giants. There will be little room to maneuver for Taiwan considering its relatively small scale and limited capacity. Second, the AIIB will be a bank composed of “sovereign state” donors. The only way for Taiwan’s participation will hinge on Beijing’s consent, which will not come without political concessions from Taiwan. An uncertain political climate due to an upcoming presidential election will certainly muddy the waters further.
Essentially, what Taiwan can gain from being an AIIB member seems unclear, because Taiwan lacks world-class construction firms, nor does it have experienced multinationals capable of competing for international contracts.
Moreover, considering Taiwan’s deteriorating fiscal deficit, intensified financial burdens and excessive exposure to assets overseas, it would be risky for Taiwan to pour more investments into a bank in its initial stage.
It may be wiser if Taiwan takes a prudent approach. The reality is that in the ruthless arena of competition between national interests, Taiwan’s hand is weak and the stakes can be high.
Eric Chiou is an assistant professor in the Center for General Education at National Chiao Tung University, specializing in international relations and international political economy.
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