The expansion of the Asian Infrastructure Investment Bank (AIIB) mooted by China has revived American Sinophobia. This time around, though, the phobia appears weak and incapable of affecting as many ‘vulnerables’ as it would have earlier.
The US has been caught on the wrong foot by the decision of its traditional European allies—France, Germany, Italy and the United Kingdom—to join the AIIB as founder members. Austria, Luxembourg and Switzerland had earlier indicated their consent to become non-regional members. Australia, another major US ally from the Asia-Pacific, is seriously considering the possibility of coming on board.
Media reports point to South Korea having convinced the US about its intentions of joining. This would disappoint the US on what some commentators have referred to as the ‘litmus test’ for deciding whether the current government in Seoul is ‘pro-US’ or ‘pro-Chinese’. Elsewhere in Asia, Saudi Arabia, the most important US ally from the Gulf, has also decided to join.
The crack within the US coalition of allies over joining the AIIB has several implications. First, it points to the differences of opinion between the US and its ‘like-minded’ partners on managing regional institutions to be dominated by China. Second, China’s clout over the international financial architecture, sensed for a long while but not felt through a reorganisation of international coalitions, is now visible. Finally, the balance of power between global financial and economic organisations is poised for a distinct change.
The US position on the AIIB has been peculiarly ambivalent from the beginning. While not denouncing the initiative—which, strategically, would have been unwise given the large infrastructure deficit in Asia and the US’s inability to help in alleviating it—the US left little doubts over its unhappiness. The official line thrown to the allies was the importance of staying out it for ensuring the AIIB follows the right ‘standards’: in choice of projects, loans and pattern of functioning. The real reason would have been the grave discomfort with the prospect of a major global financial institution dominated by China.
The strategy was childish and bound to backfire, as it did. The European countries obviously thought they could have greater say in the running of the AIIB from being within the institution, rather than outside. While this was almost a clear act of defiance, the US also did not anticipate the impact that its high-pitch rhetoric on standards might have on the regional members that had already joined. With large economies like India, Indonesia, Hong Kong, Malaysia and Singapore already in the AIIB, apart from China, the fuss over standards meant these countries were not intelligent or capable enough to ensure the right standards. This was hardly the time and occasion for such a condescending gaze on Asia’s ability to shape and structure regional finances.The apprehension over the China-dominated AIIB spelling difficult days for its counterparts elsewhere in the world, while not unfounded, is clearly exaggerated at this point in time. The IMF, World Bank, and particularly, the ADB would feel the heat of the AIIB over time. But that does not imply that they would become irrelevant given the vast swathes of the world where funds are little compared with their needs. On the other hand, the AIIB might have the positive effect of introducing rational competition in the regional market for institutional funds. Many countries, including India that are large users of the ADB and World Bank funds, would be hoping that these loans become more reasonably priced following AIIB.
The political economy, though, is more intimidating for the US. The Bretton Woods institutions have been traditionally dominated by the Anglo-Saxon world. China, along with India, Brazil and other emerging markets have been strongly opposed to voting powers and quotas in the IMF not being commensurate with the greater economic weight of the emerging markets on modern world. Reforms have been inadequate in this respect. World Bank lending has begun insisting on conditions that have become increasingly difficult to fulfil. The ADB, dominated traditionally by Japan, has been another key conduit of the US influence in the Asian region.
The AIIB has the capability of altering the balance of power within global and regional financial institutions. And there is no denying that this is due to the global pull that China has come to exert on the global economy. The worries of the world, including that of most of the US allies, are much greater over China slowing down, than the exuberance over the recovery in the US economy.
In what is probably on the most humiliating episodes of weak American diplomacy in recent times, the US now has to retract its words and strike a conciliatory posture over the AIIB. The IMF Chief’s assurance to cooperate with the AIIB along with the desertion of the major allies from the Europe clearly shows that the latter is not willing to spoil the Chinese party.
The US would now fervently hope that Korea, and most importantly, Japan, stay away from the AIIB. Given the generous smiles on display at the recent tripartite meeting between the Chinese, Korean and Japanese foreign ministers, the hope might be misplaced.
The author is Senior Research Fellow at the Institute of South Asian Studies in the National University of Singapore.
E-mail: email@example.com. Views are personal