We are all aware of the strength of China expressed in almost every dimension, starting from its sheer size, and ending on the productivity of its industry. However, Chinese authorities feel that they are not being given enough voice in the matters concerning the shaping and development of the world. As an argument, they give their voting power of 5.47% in the Asian Development Bank (ADB), whereas the US and Japan constitute jointly 26% of voting power (13% each). Similar disparities exist in the World Bank and the International Monetary Fund (IMF). Hence, the Chinese figured that creating their own institutions is the only way to make their voice loud and clear.
What is the role of the Asian Infrastructure Investment Bank?
As the name already suggests, the main task ahead of the AIIB is to invest in sustainable infrastructure in Asia. Handing over the management power to China seems well-grounded, especially considering the enormous capacity that Chinese companies have available to develop infrastructure, be it high-speed trains, expressways, power stations, or ports. This also poses a hidden motive: the Chinese companies are slowly running out of investment opportunities in Beijing, and China overall. Hence, they would probably grab a lion share of investments in other Asian countries. In other words, the Chinese construction companies are looking to expand to foreign markets, and the funds from the AIIB might make those plans possible.
The initial plans were speaking of gathering the funds of US$ 100 billion, with China being the biggest contributor. However, now it seems that the funds will be scaled down to a mere US$ 50 billion, with rather equal proportions among the founding nations, although China is still said to be the biggest contributor.
For greater (Chinese) good
As said before, China has its own motive in the creation of the AIIB, and it is not of the ambitious nature. Namely, since its rapid growth in the mid-1990s, China has become more and more dependent on natural resources. Seeing as those resources are controlled by other nations, China has become dependent on the international markets. Hence, the Chinese import levels are constantly increasing, which forces it to diversify in terms of trading routes.
The majority of imports come in through the Straits of Malacca, which are known for their pirate hazards. The level of Chinese military is incomparable to that of the Americans; the Chinese are unable to challenge them on the Straits. For the strategic planners in China this is a great weakness. That is the reason for creating the New Silk Road, which will give China alternatives, while the AIIB will provide the funds to realise it.
One could argue that China could have built the New Silk Road only through loans and bilateral investments, without the whole idea of binding oneself into an international organisation such as the AIIB. However, China’s leaders have decided that the creation of such an institution will give greater legitimacy to their long-term objectives, and will serve as a convenient tool for using their enormous reserves.
Obama doesn’t like it…
The AIIB was officially formed on October 24, 2014, and as of today it comprises 57 nations, from both inside the region (37 members) and outside of it (the remaining 20). The main countries that decided to stay outside of the AIIB are the US and Japan. The Americans fear that the AIIB will serve as a huge rivalry for the IMF, the World Bank, and the ADB. For this reason, they advised all of their allies to abstain from becoming part of the AIIB. However, virtually all of them (the UK, Germany, France, South Korea, and Australia) have decided to join, while Canada’s application is currently being taken into consideration. So far Japan is the only ally left, but we need to keep in mind that the increased position of China in the region is not to their interests, so they are not just blindly following US orders. The attitude of the Americans is best illustrated by the quote of the US Government official, who spoke to the Financial Times: “We are wary of a trend towards constant accommodation of China, which is not the best way to engage a rising power.”
Are the fears of the US grounded? Does the AIIB have the possibility of dethroning the World Bank and IMF as key international institutions? Alas, it is too early to answer those questions. However, we know that if China start doing something, they are usually doing it big and fast. The next years will defi nitely tell us whether this bank will only be held responsible for the development of Asia (as stated in the prospectus), or whe ther it will grow much bigger than that and, through investments of Chinese companies overseas, become a New World Bank, this time with headquarters in Beijing instead of Washington…