The United States won’t be there, but dozens of Washington’s closest friends and allies will be on hand Monday as China celebrates a diplomatic and economic triumph with the signing of the formal charter for its proposed new Asian Infrastructure Investment Bank.
Despite clear signs of skepticism from the Obama administration, the AIIB — first floated by Chinese President Xi Jinping two years ago — has come together with remarkable swiftness, with key allies from France, Germany and Britain in Europe to South Korea, India and New Zealand in Asia all signing on. Organizers hope to open the Beijing-based bank for business by the end of the year.
The U.S. and Japan will be the only two major industrial economies in the region not participating in the multilateral development bank, designed to help finance an estimated $1 trillion annually in new roads, bridges, dams and other public projects in the booming Asia-Pacific region. China and many private analysts argue that the funding need is not being met by the established organizations such as the World Bank and the Asian Development Bank.
The first new multilateral lending bank in decades and the first ever organized by China, the AIIB will open with an initial subscribed capital base of $50 billion, with Beijing providing half of that total.
With the bank’s bylaws requiring a 75 percent “supermajority” for major decisions, China is projected to have a de facto veto on AIIB personnel and policy decisions even when the bank bumps up to its stated goal of $100 billion in authorized capital for lending, although Chinese officials say privately they are not seeking a permanent veto as the bank expands.
Daniel F. Runde, director of the Project on Prosperity and Development at the Center for Strategic and International Studies, said the AIIB’s successful debut marks a clear challenge for the United States and for the traditional network of the World Bank and regional development banks developed and dominated by Washington and its allies since World War II.
“It marks a clear departure from the status quo,” he wrote in an analysis last week. The existing development banks “no longer have a monopoly on financing infrastructure projects in developing countries, nor in deciding how and how long they should be evaluated before implementation.”
But the tug-of-war over the AIIB’s founding is widely being seen across Asia as part of a larger narrative, one in which President Obama stumbled badly on his “pivot to Asia,” and the lure of Chinese trade and investment overpowered concerns American officials expressed over how the new bank might operate.
British Prime Minister David Cameron abruptly announced in March London’s plan to join the AIIB without informing U.S. officials beforehand, sparking a rush as other European powers also said they would participate.
An exasperated Mr. Obama in April denied multiple reports that Washington had tried to undermine the bank or pressure allies not to join.
“What we have said, and what we said to all the other countries involved is if we’re going to have a multilateral lending institution, then you have to have some guidelines by which it’s going to operate,” Mr. Obama said. “This could be a positive thing, but if it’s not run well, then it could be a negative thing.”
Australia signed on
Australia last week became the 57th country to agree to contribute as a founding member to the new multilateral bank, with its $719 million initial contribution making it the sixth-largest investor after China, India, Russia, Germany and South Korea. Noting concerns from Washington that China could dominate the bank and undercut existing environmental, labor and openness standards on loans, Australian Treasurer Joe Hockey said Canberra engaged in “intense” talks with Chinese officials before signing on.
“We are absolutely satisfied that the government arrangements now in place will ensure that there is appropriate transparency and accountability in the bank,” he told Sky News.
Chinese Finance Minister Lou Jiwei, in Washington last week for high-level bilateral talks as part of the China-U.S. Strategic and Economic Dialogue, said it was not too late for the U.S. and Japan to change their minds.
“We have also opened the door for the two countries to joining this bank,” he told reporters. “At present the two countries have not expressed their willingness of intention to join the AIIB.”
Pressure is building on the government of Japanese Prime Minister Shinzo Abe to reconsider its stance. Japan has long been the leading supplier of development aid to countries in Asia, and the head of the Manila-based Asian Development Bank is by tradition a Japanese national, just as the World Bank is headed by an American and the International Monetary Fund is reserved for a European.
Yoichi Funabashi, chairman of the Rebuild Japan Initiative Foundation, warned in an op-ed in The Japan Times last week it was “delusional” of Tokyo to think it could stop the economic and political shifts taking place in Asia with the rise of China and India as new economic superpowers.
Japan, he wrote, “should consider the AIIB as a strategic challenge for the nation to work with other countries in Asia to build regional architecture and order. With or without Japan, the process of regional order-building in Asia will press on.”
Even some influential U.S. voices, including former Treasury Secretary Lawrence Summers and former Federal Reserve Board Chairman Ben Bernanke, argue that emerging economic powers such as China, India and Brazil are understandably chafing at the failure of the existing international financial institutions to accommodate their growing clout in the world economy.
A much-touted reform of the IMF designed in part to give China and other rising economies a greater say in financing decisions has foundered largely because the Obama administration and the Republican-controlled Congress have been unable to pass the package while the rest of the world waits for action.
“The U.S. Congress has not approved it. They should [but] they haven’t,” Mr. Bernanke said at an economic forum in Hong Kong earlier this month. “So I understand why other countries say, ‘Well, let’s take our marbles and go home.’”