Monday, 30th October 2017

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New bank, new friends and old routes made new

The China-sponsored Asian Infrastructure Development Bank has witnessed an unprecedented rush from American allies to join it as founding members. Countries like Brazil and Russia were expected to join, so was India, having already supported the China-powered BRICS bank initiative last year. But who would expect the United Kingdom, France, Netherlands, Germany, Italy, even Denmark, falling head over heels to join a China-sponsored bank seen as an alternative to the World Bank-International Monetary Fund combine? The AIIB has now officially approved 57 nations as prospective founding members, making Sweden, Israel, Poland and South Africa the last group of nations to be included.

By The Chinese AIIB and its attendant plans may achieve a shift of power that the US may find difficult to counter, writes Subir Bhaumik
  • Published 5.05.15
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The China-sponsored Asian Infrastructure Development Bank has witnessed an unprecedented rush from American allies to join it as founding members. Countries like Brazil and Russia were expected to join, so was India, having already supported the China-powered BRICS bank initiative last year. But who would expect the United Kingdom, France, Netherlands, Germany, Italy, even Denmark, falling head over heels to join a China-sponsored bank seen as an alternative to the World Bank-International Monetary Fund combine? The AIIB has now officially approved 57 nations as prospective founding members, making Sweden, Israel, Poland and South Africa the last group of nations to be included.

The founding members have priority over other nations that sign up later, as they possess the right to establish the rules for conducting the bank's activities. The AIIB is the first Asian bank to have a new international banking system that is independent of the dominance of the founding member states of the international Bretton Woods one. It may be too early to see an end of the Bretton Woods system but the clamour for that has already started. Several African and Asian leaders, gathered at the recent Jakarta conference to commemorate the 60th anniversary of the Bandung conference, actually called for an end to the Bretton Woods architecture of the global monetary system.

Countries that have been accepted as AIIB founding members include China, India, Malaysia, Indonesia, Singapore, Thailand, Kazakhstan, Saudi Arabia, Kuwait, Oman, Qatar, Brunei Darussalam, Cambodia, Laos, Myanmar, Philippines, Vietnam, Mongolia, Uzbekistan, Nepal, Sri Lanka, Bangladesh, Pakistan, Maldives, New Zealand, Jordan, Tajikistan, Luxembourg, Switzerland, Britain, Australia, Austria, Brazil, Denmark, France, Germany, Italy, Netherlands and Spain.

Unable to increase its voice in existing global institutions (China commands just 6.47 per cent of the vote in the Asian Development Bank, 5.17 per cent in the World Bank, and 3.81 per cent in the IMF), China seems to have stung the United States of America where it will hurt most by creating its own alternative. The AIIB is seeking to make up for the gap in funding Asia's development needs - about $800 billion annually in infrastructure investment alone, as an ADB study points out. It is expected to launch later this year.

Barack Obama's 'Asia pivot' seems to be running into slush and mud with some commentators even saying the AIIB represents a huge US policy failure that exposes the "dysfunctional American political system", but for which China could have been appeased with quota reforms in the IMF. But would China, under a powerful and ambitious leader like Xi Jinping, be happy just with a greater voice in international financial institutions? Perhaps not. Xi has taken advantage of China feeling that it is not getting what it thinks it deserves by unleashing his own offensive to 'change the world order' to its advantage. The veteran China watcher, Simon Hunt, during a recent visit to Calcutta in January, had predicted the demise of the Anglo-American and Europe-dominated world order by 2050. The AIIB and the Chinese initiative on the 'Belt and Road Initiative' are parts of that effort by the Middle Kingdom to stamp its authority on the global balance much before Hunt predicted it would happen.

The 'vision' document released by Xi at the Boao conference in China in late March is titled "Vision and Actions on Jointly Building Silk Road Economic Belt and 21st Century Maritime Silk Road". It details the action plan for changing the world's political and economic landscape by drawing a huge number of countries into closer trade and investment bonding with China along its proposed Silk Routes. China is, as one commentator has said aptly, using geo-economics to force geopolitics to the margins and thereby completely outwitting the US.

The vision document says in unambiguous terms:

"The Silk Road Economic Belt focuses on bringing together China, Central Asia, Russia and Europe (the Baltic); linking China with the Persian Gulf and the Mediterranean Sea through Central Asia and West Asia; and connecting China with Southeast Asia, South Asia and the Indian Ocean. The 21st-Century Maritime Silk Road is designed to go from China's coast to Europe through the South China Sea and the Indian Ocean in one route, and from China's coast through the South China Sea to the South Pacific in the other.

"On land, the Initiative will focus on jointly building a new Eurasian Land Bridge and developing China-Mongolia-Russia, China-Central Asia-West Asia and China-Indochina Peninsula economic corridors."

The Chinese commerce minister, Gao Hucheng, says that 50 nations as far as Greece, Russia and Oman have shown 'positive interest' in joining the 'Belt and Road Initiative' that Xi Jinping says will generate trade worth $ 2.5 trillion within a decade. Even if half of that materializes, there is no doubt we are in for a game changer. Accused of sabre-rattling in the South China sea and seen as an 'unusually assertive power' threatening its neighbours, China has unleashed a massive soft power offensive with President Xi emphasizing the need for an Asian community that eschews "zero-sum games and cold-war mindsets". Xi said that China is willing to sign treaties of good-neighbourliness, friendship and cooperation with all its neighbours. "What China needs most is a harmonious and stable domestic environment and a peaceful and tranquil international environment," Xi said, committing China to accommodate "the interests of others while pursuing own interests".

In his speech, Xi presented the Chinese market as the driver of growth for the Asian economies. He outlined that China will import more than $10 trillion worth of goods in the coming five-year period and that it proposes to make investments abroad in excess of $500 billion. Xi visualized that in excess of 500 million Chinese tourists will be making outbound visits during this period.

It would be wrong to see the AIIB and the 'Belt and Road Initiative' as a Chinese attempt to strike at the heart of the Bretton Woods system or to directly challenge the US. The Chinese game plan is far more subtle. Beijing is not keen to run down existing international financial systems until an alternative is in place but it wants to start the process of creating an alternative nonetheless. Xi said China will "promote a system of regional financial cooperation, explore a platform for exchanges and cooperation among Asian financial institutions and advance complementary and coordinated development" between the AIIB and the likes of the ADB and the World Bank.

Beijing's game plan appears to focus on using the AIIB and the Silk Road Fund with the sovereign wealth funds of countries along the Belt and Road by encouraging commercial equity investment funds and private funds to participate in the key Silk Routes projects. The IMF has already shown interest in collaborating with the AIIB. The Chinese membership drive for the AIIB has emphasized the importance of European states for Asia and vice versa at the time of a major global economic transition. That is how China has managed to expose the US's 'containment plans' that are primarily political and military in nature operated by playing on economic aspirations. Even The Economist magazine has been critical of US decision-making on the AIIB issue and says it leaves Washington "badly stranded".

From an Indian perspective, the "US-India Joint Strategic Vision for the Asia-Pacific and Indian Ocean Region", signed during Obama's Delhi visit in January, seems to have been mercilessly outflanked by Xi's AIIB and 'Belt and Road Initiative". It is clear that Delhi is unable to comprehend the full implications of China's rise and very short-sightedly sees it from the mindset of a defensive regional power, worried over borders and influence in neighbouring countries. Simon Hunt had predicted during his talk at the Indian Chamber of Commerce in Calcutta that the Indian nationalistic leadership will wait to see which way the global balance pans out and then decide to jump into whichever bandwagon seems to be steaming ahead. At the moment, it is not staying totally away from the Chinese geo-economic initiatives but clearly appears to be uncomfortable with the Maritime Silk Routes and is even trying to delay the BCIM corridor initiative.

One Indian commentator has aptly said that India should welcome the recent developments "without being concerned about whether we are helping cement Chinese hegemony". Not only do we need infrastructure financing from China and Chinese-sponsored ventures for Modi's 'Make in India' campaign and other efforts to boost India's economy, but the knock-on effect of institutions like the AIIB for the existing IFIs may end up benefiting India. The Chinese have repeatedly said India and China as two ancient civilizations can rise together and co-exist peacefully as they did before the advent of European colonial powers in Asia. Premier Li Keqiang has not only offered a "handshake across the Himalayas" during his last visit to India but repeatedly insisted that India's 'Look East' policy can unfold in tandem with China's "southward bridgehead" policy and President Xi's Maritime Silk Road strategy can merge with India"s "Project Mausam". China is not concerned about India's rise as a sovereign power so long as India retains its strategic autonomy and does not join the US camp. Modi's impending visit to China will finally reveal whether India can use China's rise to its own advantage.