Washington has been eclipsed by China’s emergence as the economic pivot of Asia.
Earlier this year, China was painfully isolated during the Shangri-La Dialogue (Asia’s premiere security forum), with Beijing’s massive reclamation activities in the South China Sea coming under criticism from almost all quarters.
The United States’ newly-installed Secretary of Defense, Ashton Carter, triumphantly declared Washington’s efforts to secure freedom of navigation in international waters by challenging China’s growing grip on contested features and waters in the South China Sea. But recent weeks have been good to China, allowing the Asian powerhouse to project economic leadership across Asia and beyond.
China officially launched the Asian Infrastructure Investment Bank (AIIB), a key component of the Xi Jinping administration’s plan to turn China into a pillar of the Asian order. China’s National People’s Congress also just approved the New Development Bank, a key economic initiative of emerging powers of Brazil, Russia, India, China, and South Africa.
China will be the largest contributor, pledging as much as $41bn, which is tantamount to a whopping 39.5 percent of total shares.
Blessed with up to $4 trillion in currency reserves, Beijing is expected to splurge even more funds on its ultimate pet project, the modern revival of the Silk Road under the “One Road, One Belt” initiative, which will transform Beijing into a core element of infrastructure development and transregional connectivity across Eurasian landmass as well as the Pacific to the Mediterranean waters.
All these initiatives are part of the so-called “peripheral diplomacy“, which Xi announced in 2013 and is carefully designed to win the favour of estranged neighbours and consolidate Beijing’s influence over longtime partners. But not all of China’s neighbours are impressed, with the Philippines and Japan openly expressing their continued reservations over Beijing’s growing economic clout in Asia.
On a practical level, the AIIB is a mechanism for China to invest its massive financial resource in more tangible assets such as infrastructure. Volatilities in global currency markets have repeatedly threatened the value of China’s multi-trillion-dollar reserves.
Not all neighbouring countries were enthusiastic to sign up for China's new bank.
Channelling its resources through multilateral institutions will also allow China to gain a strategic foothold in the important sectors of economies across the region. Given Asia’s estimated $8 trillion infrastructure spending gap, China’s financial resources are a dire necessity to revamp the regional economic landscape.
Recently, 50 countries hailing from across five continents, signed Articles of Agreement of China’s new lending agency, laying the foundations of the AIIB’s governance structure and determining the individual shares, contributions, and obligations of member states.
Much of the world, including the Western-dominated World Bank and Japanese-dominated Asian Development Bank, has welcomed the AIIB as a complementary mechanism to address the $8 trillion infrastructure spending gap in Asia alone. Australia reportedly led the signing ceremony at the Beijing’s Great Hall of the People, followed by forty-nine other nations.
Having a major US ally leading the event carried a huge symbolic value for Beijing, which skilfully managed to break the months-long Washington-led siege on the newly established lending agency.
The AIIB, in an official statement, claims that its “foundation will be built on international best practices and the lessons and experiences of existing multilateral development banks and the private sector”, while Beijing has tried to appease its critics by claiming it has forsworn any veto power within the newly established lending agency.
Yet, not all neighbouring countries were enthusiastic to sign up for China’s new bank. The Philippines, which has been locked in bitter territorial disputes with China, has deferred membership – along with Thailand, Malaysia, and four other prospective members – to later this year. It is carefully assessing the strategic implications of joining the AIIB.
The neighbour’s Finance Secretary Cesar Purisima openly admitted how his country is still suspicious of China’s intentions, stating the Southeast Asian country is “taking the time given to prudently consider its membership” in the China-led bank. Earlier, the Philippines expressed its concerns over the necessity to “make sure [the AIIB] is inclusive” and “complements rather than competes” with existing international financial institutions such as the World Bank.
The Philippines has questioned whether the new lending agency is “truly multilateral in nature”, with Filipino President Beningo Aquino openly declaring his concern that “the economic help that is supposed to be afforded [by AIIB loans] will not be subjected to vagaries of [geo]politics”. There are grounds for scepticism.
China’s past infrastructure investments in the Philippines were mired in corruption scandals. Despite suggestion for the AIIB to be based in another Asian country, particularly in Indonesia, China pushed ahead with establishing the headquarters in Beijing.
China will still be the largest contributor to the lending agency’s capitalisation, enjoying a whopping 26 percent voting shares for contributing as much as 30 percent of total funds (twice higher than the United States’ shares in the World Bank).
There are serious concerns that the lending agency will be mostly packed by Chinese bureaucrats and placed under the careful gaze of Beijing’s leadership. Refusing to join the AIIB, the United States has raised concerns over the governance structure and transparency of the its lending practices.
Similarly, Japan, amid its ferocious territorial spats with China in the East China Sea, has also decided not to join the China-led agency altogether.
Japan’s Chief Cabinet Secretary Yoshihide Suga stated Tokyo will “watch [the AIIB] closely, including its actual operations.” To counter China’s growing economic influence, Japan has pledged up to $110bn for infrastructural development across Asia.
Overall, it is clear that at least some neighbouring countries continue to view China’s growing economic clout with considerable suspicions, fearing Beijing will use its financial prowess to gain geopolitical subservience from its increasingly dependent neighbours.
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.