China’s new bank is proof there’s a new world order
So they have finally come round, the leaders of “the exceptional nation”, to the idea that even their allies won’t always meekly just do what they’re told. The Obama administration, according to arecent report, has decided that institutions over which it has great influence, such as the World Bank, should work with China’s proposed Asian Infrastructure Investment Bank (AIIB). Earlier this week, US Treasury under secretary for international affairs Nathan Sheets said “the US would welcome new multilateral institutions that strengthen the international financial architecture”.
This only came after Washington had a very public hissy fit over the fact that in the past few weeks Britain, Germany, France and Italy declared that they wanted to join the AIIB as founding members (the deadline for that status is the end of this month). The White House let it be known via the American press that “some of its closest allies” had ignored “direct pleas” not to do so and that the move was a “stinging rebuke”.
Why the fuss? Last October, 21 countries signed the memorandum of understanding on establishing the AIIB, including Kuwait, Oman and Qatar from the Gulf. Five other states, including Saudi Arabia, joined soon after, followed by Europe’s leading economies. The UAE hasn’t indicated that it wishes to become a member, but after China’s foreign minister Wang Yi met the Emirates’ Vice President and Prime Minister, Sheikh Mohammed bin Rashid, in Dubai in February, Chinese media reported that the UAE would like to be a “gateway” for China in the Gulf and to the Arab world. The reports also said that Sheikh Mohammed “noted that the Asian Infrastructure Investment Bank would benefit the development of regional countries, and accord with the interests of all sides”.
On Monday, Australia’s cabinet voted to join, Switzerland applied last week, and Canada and South Korea are considering whether or not to do so. Last Sunday even the managing director of the IMF, Christine Lagarde, said that the Fund would be “delighted” to cooperate with the AIIB. The announcement was interpreted as a blow to Washington’s efforts to block the new China-led bank. Elizabeth Economy, director of Asia Studies at the Council on Foreign Relations, said: “Opposition to the Asian Infrastructure Investment Bank has become a millstone around Washington’s neck. It is time to remove it one way or another.” It would appear that this gathering momentum is what caused the US to give way, though not entirely graciously.
The US Treasury’s Mr Sheets has also said that co-financing projects with existing institutions such as the World Bank or the Asian Development Bank “will help ensure that high quality, time-tested standards are maintained”. That is code for what Washington has been warning all along: we don’t trust a Chinese-led institution to meet those standards – and nor should you.
But that is not entirely convincing. More realistic is the conclusion of one Australian commentator that the US fears “that without proper governance procedures in place the bank could be used by China as a tool of foreign policy. Of course it will – precisely as the World Bank has been used as a tool of US policy”.
Ever since their inception at the Bretton Woods conference in 1944, the World Bank has traditionally been headed by an American and the IMF by a European. Both institutions are based in Washington. Their location and the geographical provenance of their leadership were reflective of the post-Second World War order. But they are out of date. Continuing to privilege Europe and America in this way is indefensible, as the emerging economies made clear when Dominique Strauss-Kahn had to step down as head of the IMF in 2011.
There were eminently qualified candidates from Turkey, Brazil, India, Singapore and Mexico. Even Kenneth Rogoff, a former IMF chief economist, conceded at the time that “the days are gone when it should automatically be a European”. In the event, of course, Mr Strauss-Kahn’s successor is European. Though Ms Lagarde is well-regarded, there is no doubt that the row over her appointment caused enormous resentment and is likely to have contributed to the keenness of so many Asian countries to sign up to the AIIB.
At a time when China has overtaken the US to become the world’s largest economy – as the IMF announced last December – its right to have a greater say in the global financial architecture cannot be denied. And a lot of construction – of the physical kind – is needed in Asia: $8 trillion-worth in the decade to 2020, according to a 2009 study by the Asian Development Bank. The AIIB will support this. Yes, that means that much of the direction will come from Beijing rather than Washington. But this rebalancing of power is entirely appropriate, a part of the inexorable shift towards a multipolar world that cannot be stopped by arm-twisting Americans upset at the gradual erosion of their dominance. “America has, either by design or ineptitude, turned the AIIB into a test of diplomatic strength. That has proved a disaster,” declared The Economist.
It is a warning to the US. But given the ease with which countries in the Middle East, Europe and Asia are signing up to the AIIB, it is also a message. The world has moved on. It’s time for America to catch up.
Sholto Byrnes is a senior fellow at the Institute of Strategic and International Studies, Malaysia
Updated: March 24, 2015 04:00 AM