What a difference a year makes.
When, in October of 2014, China and 20 other Asian nations signed a memorandum of understanding to create a new global lending organisation, the reaction from the United States was swift and hostile. In Beijing, discreet leaders murmured reassurances and denied accusations that their intent was to undermine the existing global financial infrastructure.
A little more than 12 months later, the new institution, now with 57 member countries, was signed into being with nary a comment from Washington DC, and China’s President Xi Jinping is preparing to step into the spotlight to trumpet the agenda of what is being described as one of the most significant geopolitical initiatives of recent times.
In retrospect, it’s not hard to understand why the Asian Infrastructure Investment Bank proved such an attractive proposition to so many countries – even those with the strongest ties to Washington. What’s harder to explain is how the US government managed to misread the geopolitical sentiment so badly.
New global lender
For AIIB supporters, the practical need for a new global lender was self-evident, glaringly so.
According to the Asian Development Bank (ADB): “Only three out of 10 people [in the Asia-Pacific] have access to telephone services and only 53.4 percent of the total road network in Asia of 5.66 million km is paved.” (The total road network in the US is 6.5 million km in an area the size of China alone.)
By the ADB’s own estimate, developing Asia needs a mind-boggling $800bn each year in infrastructure investment, and until now the ADB itself has been the primary source of those funds.
By the ADB's own estimate, developing Asia needs a mind-boggling $800bn every year in infrastructure investment.
But ADB resources are and have been woefully inadequate. From a total capital base of just over $175bn, the ADB made direct loans of just $13bn in 2014, up from $7.5bn in 2012.
Even if you added in the resources of the World Bank, and allocated them all to Asia, the gap would remain huge. The World Bank lent $42bn last year, across all sectors, across the globe.
It is pretty obvious, then, why the developing countries were quick to jump at the possibility of a new bank with an estimated $30bn a year to lend, and even those nations with reasons to be wary of China can appreciate the knock-on benefits of regional economic development.
Distant developed countries have no similar need for such investment or engagement, so why was Britain so quick to sign up with the AIIB, especially when it meant defying the express wishes of its decades-old patron and partner? And why did so much of Europe follow?
Perhaps one answer lies in corporate interests. Of the top 25 construction companies in the world, companies that will profit handsomely from $800m of infrastructure spending every year, 15 are European. (Those behemoths also gain indirectly from the four Chinese companies in the top 25, who buy considerable supplies and technologies from them.) Only three companies in the top 25 are from the US.
But for Washington, corporate pressure – or the absence of it – was never the major consideration, politics was.
As Lawrence Summers, President Barack Obama’s former economic adviser, characterised it last March, the establishment of the AIIB was “the moment the United States lost its role as the underwriter of the global economic system”.
Summers’ comment highlighted US fears of ebbing global dominance, but also served to expose the double standard at play. Having benefitted enormously from its own domination of the existing multilateral system, Washington was actively strangling Asia’s development potential by trying to prevent China from taking up the lending slack.
It didn’t take long for the world to see the reality. Singapore was among the first to take a position that the AIIB would be a complement to the existing global institutions (a fact that those institutions themselves quickly conceded) and that the best way to ensure transparency in the new body would be for everyone to join it, not to boycott it. Even Japan now says it will review its position later in the year.
What happens next?
So now that the AIIB is a reality, what happens next? Well, the truth is that even this bank will not have enough money to plug the lending gap in Asia, and however much pomp and ceremony Beijing decides to deploy when announcing its first loans, their immediate impact will be barely noticeable.
Long term, however, few experts are betting against the proposition that China’s development agenda will re-shape most of the economic and trading status quo around Asia. Beijing’s “One Belt, One Road” programme has already been transforming rail, road and internet connectivity at home and in selected countries, and in the decades to come AIIB money and European construction expertise will combine to build capacity, output and consumption throughout the continent.
As for Washington’s worst fears, of a much darker and more threatening agenda, well Beijing has been working to address these, too, even well before the AIIB was even mooted.
As the man nominated to be the first chief of the AIIB Jin Liqun told me more than five years ago, “This does not mean that now it’s our time to tell you to do this and that. I don’t think that is the spirt of international cooperation. We are members of the international community, and countries big or small should work together on an equal footing.”
Teymoor Nabili is a Singapore-based journalist and commentator, and CEO of TheSignal.Asia.
The views expressed in this article are the author’s own and do not necessarily reflect Al Jazeera’s editorial policy.