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IDSA COMMENT

Geo-strategic Implications of the Asian Infrastructure Investment Bank

October 31, 2014

Last Friday when the Chinese President Xi Jinping inaugurated the establishment of the Asian Infrastructure Investment Bank [AIIB] at Beijing along with 21 other member countries, including India, a new and a highly significant financial institution emerged on the geo-strategic horizon of Asia. To give it broader scope, the Chinese have invited and also won the support of some wealthy West Asian nations, such as Qatar and Saudi Arabia. The proposal for the Asian Infrastructure Investment Bank (AIIB) was first presented publicly by Premier Li Keqiang at the Boao Forum for Asia in April 2013. Nonetheless, the Chinese Finance Minister, Lou Jiwei would have us believe that this event is entirely altruistic and that:

The AIIB will be a multilateral development organization for Asia established on intergovernmental lines, and it will function in accordance with the models and principles of other multilateral development banks. It aims to boost economic development and regional economic cooperation by supporting investment in infrastructure and other projects in Asian countries. The new bank will become a professional and highly efficient investment and financing platform for infrastructure facilities, and will meet the demand for further development.1

And yet close US allies in Asia such as Japan, South Korea, and Australia opted to stay out under intense US pressure. The case of Indonesia under the leadership of its new President Joko Widodo also staying out is rather unique; for did they too fall under US pressure or was it simply a case that the new government had no time to take such a crucial decision? That the US was not pleased with these developments had been known for long.

Several major news outlets, including the Financial Times and The New York Times, have carried reports in recent days highlighting the Obama administration’s attempt to convince other world powers to stay away from the Chinese led bank for a host of reasons.2 Senior United States officials and representatives of other governments involved have disclosed that in conversations with China’s potential partners, US officials, including US Secretary of State John Kerry, have lobbied against AIIB with unexpected determination and engaged in a vigorous campaign to persuade important allies to shun the project.3 It is reported that the United States Treasury Department has criticized AIIB as a ‘deliberate effort to undercut’ the World Bank and the Asian Development Bank; international financial institutions that are dominated by the United States and Japan. The US Treasury Department would have us believe that the new bank would ‘fail to meet environmental standards, procurement requirements and other safeguards adopted by the World Bank and the Asian Development Bank, including protection intended to prevent the forced removal of vulnerable populations from their lands’.4 The US has fought long and hard to have its ‘norms’ reflected in the programs of International financial institutions.

Surprisingly the US sponsored President of the World Bank, Jim Yong Kim, a Korean-American national told reporters last Friday at a breakfast in Washington hosted by The Christian Science Monitor, that he simply did not spend much time worrying about such risks and that the White House’s political push has carried little weight within the World Bank. Asserting that the bank is ‘not a political organization’ and that it is ‘actually in our articles of agreement that we don’t get involved in domestic politics,’ Kim declined to elaborate the US position but added that it is for Washington to clarify its stand on the Chinese bank. As for the World Bank’s position, he said, ‘my sense is that we can work with [the Chinese] very well and that the Chinese government began talking with us very early on, really sort of immediately after they had this idea that, especially in Asia, there’s nowhere near enough money for infrastructure investment.’5

The crux of the matter is however different for the US sees the establishment of the AIIB as an attempt by China to pull South- East Asian countries closer to its orbit and a soft-power play that promises economic benefits while refurbishing its image among its Asian neighbours. This is despite the fact that neither the World Bank nor the ADB are in a position to cater to the rising demands of Asian countries for infrastructure funding. In 2009 the Asian Development Bank estimated that the Asia-Pacific region would need as much as US$8 trillion in investments for physical infrastructure by 2020 — an amount that exceeds what the ADB or the World Bank can muster. Aware of US efforts to stymie the establishment of AIIB at an incipient stage perhaps for reasons other than economic; Jin Liqun the proposed Chinese leader of the AIIB and former head of China’s sovereign wealth fund (CICC),in an unprecedented meeting pressed the US Ambassador to China, Max Baucus, that the US should ‘soften its opposition’ to the bank. It remains to be seen whether the US will retain its adamant position with President Obama slated to visit Beijing shortly for a multi-lateral event but where a crucial Sino-US dialogue is to be held; preparations for which were initiated when the US National Security Advisor, Susan Rice visited Beijing and had met the Chinese President Xi Jinping.

It is not in the public domain whether the US pushed hard with India not to join the AIIB and what had been the Indian response. However going by the fact that India was one of the 21 countries present at the signing ceremony at Beijing; the response to the US request, if any, would obviously have been negative. The moot point however to note is whether India sees this as a purely economic event or whether it attaches any political connotations to it; as have the US and its close allies in Asia. The representation at the bureaucratic- Joint Secretary level- indicates that India is aware of this dilemma. The Chinese leadership no doubt would be quite pleased with the choice made by India; but the geo-strategic implications of this move, despite strenuous US opposition, should not be lost.

Views expressed are of the author and do not necessarily reflect the views of the IDSA or of the Government of India

  • 1. Zhang Yunbi, China Daily, 27 October 2014.
  • 2. Guy Taylor. The Washington Times, 26 October 2014
  • 3. Jane Perlez. NYT, 9 October 2014.
  • 4. Op. cit.
  • 5. Op. Cit. The Washington Times, 26 October 2014.