[Commentary] The AIIB: writing Asia's new rules

March 09, 2015

By Kristine Yang

It may surprise even China that over 50 countries joined the Asian Infrastructure Investment Bank (AIIB). If Britain’s pre-emptive strike to ignore US pressure was understandable, Israel’s decision to join in spite of being one of the US’s staunchest allies, was more surprising. Even Taiwan joined at the last minute. How bizarre for the US and North Korea to stand shoulder to shoulder in not joining the AIIB.
While comments are overwhelming on the US’s diplomatic failure on handing the AIIB issue, it is important to review China’s philosophy behind the initiative. An interesting psychological change is occurring.
The establishment of AIIB can be regarded as first clear evidence of China’s attempt to challenge the Bretton Woods System, which took shape after the World War II and resulted in a US-dominant global financing structure.
Currently, the US has 16.5 percent shares of the World Bank, 15.6 percent of the Asian Development Bank (ADB) (Japan has a similar 15.7%) and 16.75 percent votes in the International Monetary Fund (IMF). Even though China has the third largest shares in the ADB, it has a mere 6.46% vote. The US congress has refused to pass an IMF reform scheme intended to increase the voting power of emerging countries, in particular, China, who has only 3.8% of votes.
China’s attempts with the AIIB are quite clear – funding its own infrastructure-building needs, financing for the One Belt One Road initiatives, Reminbi internationalization and correction of domestic overcapacity. All these would be limited within the current US-dominant world. 
China has been playing smart by leveraging its power through the APEC region.  During China’s chairmanship of APEC in 2014, it kicked off the negotiation of the Free Trade Agreement of Asia Pacific (FTAAP), an initiative that many regard as ambitious and visionary, and which has in many was leeched interest away from  the delayed US-led Trans-Pacific Partnership (TPP).
In parallel with the AIIB, Brazil, Russia, India, China and South Africa (the BRICS), have set up the New Investment Bank (better known as BRICS Bank). Such institutional frameworks would not only serve as financial channel for China’s One Belt One Road initiatives, but also allow China with greater elbow space in the global stage.
On April 3, a few days after the deadline to join the AIIB, China announced that Iran and UAE have been approved to join the AIIB. It’s hard to tell if there is any direct connection but it is interesting to note that on April 2, Iran and the P5+1 countries (the US, British, China, Germany, France, Russia) and the EU surprisingly reached a detailed preliminary agreement in Switzerland on Iran’s nuclear program, which could be critical to talks on removing Iran’s sanction.
For those who see US opposition to the AIIB as part of a strategy to keep China from the diplomatic epicentre in Asia, there is seen to be a common motive in US efforts to complete the Trans-Pacific Partnership (TPP), which includes 12 Asia Pacific countries and leaves China out. But even clearer evidence has emerged in the 22-economy Trade in Services Agreement (TiSA) negotiations in Geneva. China initially stood aloof from these services liberalising negotiations, but has in the past year formally sought to join. The US is today the only TiSA participant  blocking China’s engagement, after an EU shift in March last year after Chinese President Xi Jinping’s high profile visit in Europe.
Given the lesson of the AIIB, the next big question is whether the US will stand firm to block its emerging rival in global trade talks or whether it will change its geopolitical strategy?
Meanwhile, as more countries join the discussions to agree the AIIB’s operating rules, such as shares and votes structure, personnel appointment, and cooperation with ADB and World Bank, China could face challenges too. If the dramatic success of the AIIB is a signal of other countries’ discontent with US bullying tactics, the message is also clear that they don’t want China to be too bossy inside the AIIB either. A fascinating game is now in play.
As the dust settles, AIIB will perhaps be remembered less for its role in funding infrastructure in Asia than for being the first evidence of China beginning to introduce its own world views into a global diplomatic architecture that has been shaped by the US and the western powers for the past 60 years. This is not about good versus bad. It is about a gradual rebalancing of global economic and political power. This is inevitable, but given the row we have witnessed over the AIIB, it may not be comfortable. 
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