The United States has suffered a major strategic setback in recent weeks, as a growing number of western powers join the China-led Asia Infrastructure Investment Bank (AIIB) as founding members. With China’s determined push to recreate the regional order through the firepower of its vast financial resources, nothing less than the US’ decades-long leadership in Asia is at stake. No wonder, an increasingly isolated Washington has been unusually outspoken against its allies’ decision to join the Chinese economic bandwagon.
For months, the US managed to successfully dissuade its most important allies from joining the AIIB, with Japan, South Korea, and Australia effectively boycotting the new regional institution. That left the China-led bank stacked with mostly developing countries with limited capital to pitch in, undermining the long-term commercial prospects of the AIIB.
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But events took a surprising turn when the United Kingdom (UK) decided to ride along as a founding member, paving the way for other European powers, namely Germany, France, and Italy, to follow suit.
Coup de grace
It was nothing less than a strategic coup de grace, as more US allies failed to resist the temptation of gaining economic favours with China, leaving Washington bitter and isolated.
A senior US official was blunt in expressing his country’s outrage over the UK’s decision, stating how Washington is “wary about a trend toward constant accommodation of China, which is not the best way to engage a rising power”.
Washington expected its allies to help in constraining and reshaping any Chinese assertion of power on the global stage in order to preserve the existing western-dominated international system of governance under the Bretton Woods institutions, namely the World Bank and the International Monetary Fund (IMF).
Officially, the US opposition to the AIIB rests on more subtle grounds, primarily centered on the necessity to ensure newly-created international financial institutions reflect globally-accepted standards on good governance, environmental sustainability, and a healthy combination of commercial viability with development imperatives.
The US National Security Council expressed Washington’s “concerns about whether the AIIB will meet these high standards, particularly related to governance, and environmental and social safeguards…”
Washington maintains that the AIIB should “complement the existing architecture, and to work effectively alongside the World Bank and Asian Development Bank”.
As a cocktail of western and Asian economic powers sign up as founding members, the AIIB will be more representative, diverse, and multilateral in nature.
Unable to prevent its top allies from joining the China-led bank, the US Treasury Secretary Jack Lew, in a speech before the US Congress, was left with little choice but to plead allies to think twice before forging ahead. Washington argues that its allies would undermine the existing architecture of global governance by joining the AIIB.
Defying the US, the UK has tried to justify its decision by underlining the importance of engaging rather than opposing the China-led bank. By maintaining a strong presence in newly-created financial institutions, London argues, the West can more effectively shape their direction and ensure their compliance with accepted practices.
European powers hope that by joining the AIIB they can ensure maximum accountability and transparency in its structure of governance and day-to-day operations.
Traditionally, Germany and France have been more active in the Asian markets, maintaining robust trade and investment ties with Beijing. Since the late-2013 visit of British Prime Minister David Cameron to China, London has tried to catch up with its more entrepreneurial neighbours, especially Germany. The UK decision to become the first European power to join the AIIB was most likely based on its desire to preserve London’s edge over Frankfurt as the prime destination for Chinese investments in Europe.
The US’ treaty allies such as the Philippines, Thailand, and New Zealand as well as leading strategic partners such as Singapore, India, and Indonesia have all already registered as the founding members of the AIIB.
Astonishingly, the IMF, World Bank, and the (Japan-dominated) Asian Development Bank have also expressed their support for the AIIB, forcing Japan, South Korea, and Australia to reconsider their initial boycott of the China-led bank. In late-March, Australia officially announced its decision to break off with the U.S.-led boycott and join the AIIB as a founding member.
China’s leading media outlets couldn’t resist gloating over America’s “sour grapes”, which made it “look isolated and hypocritical”. For China, which has more than $4 trillion in financial reserves, the AIIB is a natural and much-needed response to the humongous infrastructure needs of Asia, estimated at around $8 trillion.
With the US Congress refusing to ratify long-standing proposals for reforming the IMF and World Bank to fairly reflect the growing economic contribution of emerging powers, China has opted for creating alternative institutions of governance.
Since 2013, Beijing has also emphasized the importance of “peripheral diplomacy”, the necessity for China to play a more active role in shaping the regional economic order and deepen strategic ties with neighboring countries. The establishment of the AIIB perfectly tracks with this new strategic thinking in Beijing.
More than anything, the US is worried that China will use the AIIB as a tool to forward its national interest, offering economic carrots in exchange for political concessions – at the expense of Washington and some of its allies, which have been caught in bitter territorial disputes with Beijing.
But as a cocktail of western and Asian economic powers sign up as founding members, the AIIB will be more representative, diverse, and multilateral in nature. Crucially, the participation of advanced economies such as the Germany, Singapore, Australia, and possibly even Japan and South Korea, means that China will have a difficult time monopolising decision-making in the AIIB. Nonetheless, it is clear that Washington has been eclipsed by China’s emergence as the economic pivot of Asia.
Richard Javad Heydarian is a specialist in Asian geopolitical/economic affairs and author of “How Capitalism Failed the Arab World: The Economic Roots and Precarious Future of the Middle East Uprisings.”
The views expressed in this article are the author’s own and do not necessarily reflect Al Jazeera’s editorial policy.