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The AIIB Debacle: What Washington Should Do Now

by Elizabeth C. Economy
March 16, 2015

China's Finance Minister Lou Jiwei (L) gives a speech with the guests of the signing ceremony of the Asian Infrastructure Investment Bank at the Great Hall of the People in Beijing October 24, 2014. REUTERS/Takaki Yajima/Pool (CHINA - Tags: BUSINESS) China's Finance Minister Lou Jiwei (L) gives a speech with the guests of the signing ceremony of the Asian Infrastructure Investment Bank at the Great Hall of the People in Beijing on October 24, 2014 (Takaki Yajima/Courtesy of Reuters).

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It is time for Washington to take a step back and regroup. Its Asian Infrastructure Investment Bank (AIIB) strategy, ill-considered from the get-go, has now taken a major hit with the announcement this past week by the United Kingdom that it plans to join the Chinese-led AIIB. Washington’s concerns over the AIIB are well-established: the competition the AIIB poses to pre-existing development institutions such as the World Bank and Asian Development Bank; concern over the potential for weak environmental standards and social safeguards within the AIIB; and the opportunity for China to use AIIB-financed infrastructure for greater leverage in the region. From all accounts, the Obama administration has expended serious energy trying to dissuade its allies from joining the bank at least until greater clarity is offered as to the decision-making structure of the institution. With the defection of the UK, however, it appears likely that Washington’s carefully constructed coalition will gradually unravel—both Australia and South Korea are apparently reconsidering their earlier reluctance to join the bank and could well use the UK’s decision as political cover for deciding to join the bank.

At this point, therefore, Washington has three choices:

1)      Continue to press its allies not to join the AIIB until governance procedures for the bank are assured;

2)      Join the AIIB itself; or

3)      Drop the issue.

Option one is clearly a losing proposition. There is no sense expending further political capital trying to persuade regional and other actors not to join the bank. It is a small-potato issue that is making the United States look weak at a time when U.S. influence in the region is otherwise quite strong.

Option two, which I—along with virtually every other China analyst outside the U.S. government—supported back in October is that the United States join the AIIB. There are several reasons why this is a good idea. It would allow the United States a seat inside the tent where it could be both a positive force for best governance practices and an internal critic if things go awry. It also would likely help ensure that U.S. companies have fair access to the bidding opportunities that will arise from the AIIB’s investment financing. Joining now will be hard to accomplish in a face-saving manner, but the United States could begin by publicly recognizing the need for the financing capabilities in Asia that the AIIB can provide and by moving quickly to work with Australia, South Korea, and Japan to work out common principles of accession.

Option three is for the United States to back away from the AIIB, release other countries from any pressure they might feel from the United States not to join, and let the AIIB rise or fall on its own merits. Chinese-led resource and infrastructure investment has encountered significant difficulty in a number of countries, including Zambia, Myanmar, Vietnam, Brazil, and Sri Lanka, among others. If the AIIB does not do a better job than China’s own development banks, it will be a stain not only on Beijing but also on all the other countries that are participating. If it does operate at the same standard as the World Bank and Asian Development Bank, then it will be a welcome addition to the world of development financing. The United States does not have to be in every regional organization in the Asia Pacific; it is not in the Shanghai Cooperation Organization, for example, and it is only an observer in the Conference on Interactions and Confidence-Building Measures in Asia. It can sit out the AIIB or assume observer status as well.

Washington’s priority should be on advancing U.S. ideals and institutions through the pivot or rebalance rather than blocking Chinese initiatives unless absolutely necessary. (Let’s not confuse China’s effort to develop the AIIB with its push to implement an Air Defense Identification Zone, for example.) Opposition to the Asian Infrastructure Investment Bank has become a millstone around Washington’s neck. It is time to remove it one way or another.

Post a Comment 11 Comments

  • Posted by George Chakko

    I fully go along with Elizabeth’s wise second option. Prophetic futuristic thinking has not necessarily been a U.S. govt. talent, nor its strength. In this globalized village the U.S. has all to gain by joining the AIIB instead of a ‘narcissistic’ self-isolating withdrawal, all the more as the U.S. has lost and continues losing influence in the wider world at large. It is only by being in the club that the U.S. will ever have any tangible leverage on the democratization of such institutions and the market. It would be absolutely foolish on Obama administration to let this chance go unutilised.

    Secondly, since the bank is catering to infrastructure development, where the true economic growth lies at field level, the U.S. has a direct chance to have a good bite on the Asian market pie, especially for U.S. companies having an eye on a vast, world’s largest growing market (Asia). Pres. Obama’s Asia pivot has been a very smart decision, based on an unchallengeable perception that this century belongs to Asia. So the leading economies of a stagnant Europe lost no time in immediately jumping into the AIIB waggon with a lead given by an adept colonial past-master the U.K. followed by France, Germany, Italy etc. with a hundred percent surety that Australia & New Zealand will follow suit. To dis-advise them makes no economic sense, neither political..

    Thirdly, many seem to underestimate that economic engagement is the best forerunner for more political adjustment, compromise and leverage in times of crises in Asia. Interestingly, since the AIIB is a China-led initiative, China per force will have to be more accommodating and cannot afford any hegemonic attitude towards its neighbours in Asia. We have already seen a remarkable turnaround by the Chinese president towards Modi government and India, because China wants India to play an important strong role in SCO and BRICS and in the Asian market. There is one issue that has not surfaced yet though. How the BRICS New Development Bank will tally/align with the goals of AIIB remains to be seen. Irrespective of that the situation created by AIIB bespeaks only advantages to U.S. economy than any negatives. One can only hope that Washington will not resort to self-harm by letting a golden chance go waste.

    George Chakko, Former U.N. correspondent, now retiree in Vienna, Austria.
    Vienna, 18/03/2015 11.27 am

  • Posted by Andre tordjman

    We don’t need to take but we know that the future are in China

  • Posted by Liars N. Fools

    無為而治 — the Americans, having made a hash of it, should do nothing and let the AIIB work or not work. Creating public goods is hard work, and the Chinese are entitled to take a crack at it. The Americans should encourage the like-minded to participate constructively because many are quite capable of operating fine without being stooges of the Chinese.

    The Japanese are unlikely to jump in. Abe Shinzo’s dislike for the Chinese will prevail. Hence the Americans will not be alone.

  • Posted by ltlee1

    Concern over the potential for weak environmental standards and social safeguards are just excuses. At present, the world is full of money. If there is money to be made, projects would get go their ahead. The real reason for the US to object is about money. That is, a China led AIIB could break the dollar trap. Imagine emerging economies do not need to hold trillion of US dollar as foreign exchange reserves. It means dire consequence to the US economy.

  • Posted by Jerome A. Cohen

    The PRC has acted very intelligently in its efforts to make AIIB attractive to the Western financial powers. Precisely in order to meet the need for the usual international financial organization protections and procedures that the U.S. government claims to insist on, the PRC invited Natalie Lichtenstein, a very able Harvard Law graduate who spent the bulk of her career as a legal adviser at the World Bank, to serve as AIIB’s initial general counsel. Natalie, a Chinese language specialist and expert in Chinese law who has taught as an adjunct at SAIS and D.C. law schools, enjoys China’s confidence as a result of decades of cooperating with Beijing finance officials and others on World Bank matters. She is widely respected in the public international banking community. Her appointment, despite the opposition to AIIB of her country’s government, is a remarkable tribute to Natalie as well as a shrewd PRC move.

  • Posted by Francesco

    What should America do? Simple,try to help pro-USA parties win the elections in Western countries. Here in Italy Renzi and the PD think the future is China and Asia, so his government will join not only the AIIB but also any other partnership with China. The right parties like Berlusconi and his allies are instead pro-USA and oppose China and its expansion. So if America uses his power to make Renzi fall(with Italian state bond crisis,financial crisis,no export to the USA,etc) then Italy will return to the American sphere of influence.

  • Posted by Chris McDonald

    “It would allow the United States a seat inside the tent where it could be both a positive force for best governance practices…”
    Give me a break. The US consistently uses its power in its puppet organisations like the World Bank to bully and subjugate other nations.
    I don’t know whether you have brainwashed yourselves or what but the US and its cancerous organisations are just another tool you have used to further your imperialistic behaviour and get other nations to do what you want them to.
    Wake up and start behaving like decent global citizens.

  • Posted by Rodney Nichols

    Type your comment in here..
    As usual, Liz nailed it. US should join and the other two options are losers.

  • Posted by Tan

    “The AIIB Debacle: What Washington Should Do Now”

    Who cares what it does? By all means remain isolated, lick your wounds and sulk for all we care!

  • Posted by Jack

    Why should I care about this? Isn’t the AIIB the minor leagues?

  • Posted by Traiano Welcome

    Option 1 is what the US will do, regardless of what the best of the three options is.

    Why? Because that’s pretty much been US policy for almost more than a century. Policy has inertia.

    The only question is “How” they will do it. Probably quietly and behind the scenes, exerting low-key but firm pressure at every opportunity where they can to discourage participation in the AIIB over a number of years.

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