Will the U.S.’s hesitation to join China’s AIIB cost them influence on the world stage?

08/06/2015

China US AIIB

China US AIIBWhen China proposed its new international financial institution, the Asian Infrastructure Investment Bank (AIIB), in April, a number of Western nations – including the United Kingdom and Norway, among others – were eager to join it.

The United States, however, declined the invitation to join.

One U.S. official told a leading British newspaper:

We are wary about a trend toward constant accommodation of China, which is not the best way to engage a rising power.

As of writing, the following states have applied to join the IFI project:
India, Malaysia, Singapore, Iran, Saudi Arabia, Australia, Brazil, France, and Germany

So far, 57 countries have submitted an application to be part of the AIIB.

Most surprising of these, to American officials at least, is the United Kingdom. The U.S. and the UK are assumed to have a ‘special relationship’ and are expected to act in coordination on foreign policy matters.

However, the strength of these bilateral ties has been questioned, especially following the 2003 joint invasion of Iraq. London’s embrace of the China-led bank was a shock to Washington, which now looks foolish for choosing not to apply for entry.

What is the significance of the AIIB?

The Beijing-based institution will compete with the Asian Development Bank (ADB) to provide funding for much-needed infrastructure throughout Asia – such as bridges, roads, and other critical projects like hydroelectric dams. The AIIB will have start-up capital of US$50 billion.

Founding members of the development bank met in Singapore in mid-May to negotiate the operating strategies of the institution. The IFI is expected to be fully running by the end of this year.

Why is the U.S. reluctant?

The U.S.’s explicit reasoning for declining to join the bank has to do with concerns that China cannot be trusted to manage the bank using good governance and transparency.

Washington also stated that it is concerned that China will not institute appropriate environmental safeguards on projects it opts to fund.

But analysts believe the U.S. turning down membership in the China-led bank has more to do with global competition for influence.

However, the U.S. is widely perceived to have lost in reputation as a result of this decision.

Where once a U.S. refusal to join an international project would inspire its allies to similarly hold back, the opposite happened in this instance – allies and close partners ignored Washington’s lead and signed onto the project anyway.

Put more clearly:

It was also a recognition of economic reality; China has deep pockets and the institutions backed by the United States have not met the glowing demand for roads, railroads and pipelines in Asia,

The New York Times wrote in April.

The U.S. appears to be putting a major dent in its role as global economic influencer as a result of the decision to forgo membership of the AIIB.

Of developed economies, only the U.S. and Japan are holdouts. Even Taiwan, despite its long-chronicled difficulties with China, has signed up for the IFI project.

Major foreign policy watchers – such as the Council on Foreign Relations (CFR) in New York – say the U.S. is only continuing to damage its stature by urging nations to stay away from the AIIB.

Persuading “regional and other actors not to join the bank…is making the United States look weak at a time when U.S. influence in the region is otherwise quite strong,” CFR said.

Instead, the U.S. is urged to join the AIIB, in order to give it a role in the organization and to help shape it, as well as ensure that U.S. firms will have equality of access in bidding for future projects put forward by the bank.

What’s your take on this? Will the U.S influence be undermined if it does not join the AIIB?

 Disclaimer: The opinions expressed in this article are those of the contributing author, and do not necessarily reflect those of the Forum for International Trade Training.

About the author

Author: Jacqueline Côté

I am a working journalist, with experience as SNL Financial’s Canadian correspondent for its Mining and Metals vertical. I also served as the Managing Editor for Central Asia Newswire – covering daily economic and investment news in the region – as well as Features Editor for the Washington-based Magharebia.com, which covers developments in the North Africa region. I have been published in The Montreal Gazette, The Guardian (UK), The New Statesman (UK), Red Pepper (UK), Geopolitical Monitor and CNN.com.

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