Sunday, April 5, 2015

Rush to join China-led bank stuns even Beijing

April 4, 2015

BEIJING — The sudden rush to join China’s new Asian Infrastructure Investment Bank (AIIB) by this week’s deadline, including last-minute applications by countries hardly considered Beijing’s best friends, astonished even the Chinese.

Few in Beijing had believed Taiwan would want in. Same for Norway, whose relations with the Chinese have been chilly since its decision five years ago to award the Nobel Peace Prize to a dissident Chinese writer.

But after the deadline, China, which expected to be joined mainly by its neighbours, announced that it had attracted 46 founding members for its new bank. Among the surprises, the final tally of countries clamouring to participate included 14 advanced economies of the Group of Twenty, many of them — such as Brazil, France, Germany and Russia — from outside Asia.

“Such wide and warm support was unexpected,” said Professor Jin Canrong, who specialises in international relations at Renmin University in Beijing.

The last-minute surge to join the bank is considered a major victory for China in a rare public showdown with the United States, which opposed the bank, as the two powers try to outmanoeuvre each other for influence in Asia. It was also a recognition of economic reality; China has deep pockets and the institutions backed by the US have not met the growing demands for roads, railroads and pipelines in Asia.

US allies said Washington had criticised the bank as a deliberate effort to undercut the World Bank and the Asian Development Bank (ADB), international financial institutions dominated by the US and Japan. Obama administration officials had also expressed concern that the new bank, under China’s leadership, would ignore protections for lending created to ensure, for instance, that vulnerable populations would not be pushed from their land in the rush for development.
By this week, Japan — China’s chief rival in Asia — was the only major Asian US ally still standing with the Obama administration, while usually staunch allies such as South Korea and Australia pledged to join, reversing earlier decisions not to.

The avalanche of countries wanting to join was triggered in recent weeks by Britain, one of the US’ most trusted friends, which concluded that China was such a large export and investment market that it could not afford to stay on the sidelines of one of its pet projects. That US allies in Europe and Asia flouted Washington’s appeals not to join the AIIB has brought a sense of triumph to Chinese officials and scholars, who say Beijing has now demonstrated it can construct a broad-based institution without Washington in the lead.

“This has shown China that you don’t always have to work your way with the US, that you can work your way with the region and many others outside the region,” said Dr Wu Xinbo, director of the Center for American Studies at Fudan University in Shanghai. “As long as people think what you are doing is beneficial and that you are providing for the public good, you don’t need US approval.”

Washington basically undermined itself by failing to allow a bigger voice for China in the World Bank and the International Monetary Fund, said Prof David Daokui Li, a former adviser to the People’s Bank of China who has a PhD in economics from Harvard.

“The Americans got nervous, saying to its allies, ‘You guys can’t join, they are not dependable,’” Prof Li said. “But in the end, all of America’s best allies ended up joining. We should be the ones most surprised, not the Americans.”

He added that Washington needed to match its talk of welcoming a more multipolar world.
Now that the US has lost the battle, Washington has softened its position, saying it will encourage the World Bank and the ADB to cooperate with the AIIB, provided projects meet certain standards. US Treasury Secretary Jacob Lew flew to Beijing this week to deliver that message to Chinese Prime Minister Li Keqiang. But the shift to a more constructive position was viewed as late. The repercussions of what many considered poor handling by Washington were on display at the Boao Forum for Asia in southern China last weekend, where Chinese President Xi Jinping spoke about his views on Asia to more than 1,000 delegates, many from outside China.

Now, the onus is on the Chinese organisers to build an institution that meets transparency, lending and environmental standards and fits the demands of many different kinds of members with different agendas.

The interim head of the bank, Mr Jin Liqun, who has worked at top levels of the World Bank and the ADB, is an experienced, savvy guy, said Mr Nicholas Lardy, a senior fellow at the Peterson Institute for International Economics in Washington. “He’s hiring an able staff of about 40 people, half from China’s Finance Ministry, half recruited internationally. He says he wants to hire the best staff he can get.” 


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