19 April 2019
The world needs US$57 trillion for investment in infrastructure like electricity, roads, ports and water over the coming two decades. Photo: Internet
The world needs US$57 trillion for investment in infrastructure like electricity, roads, ports and water over the coming two decades. Photo: Internet

US needs to make space for a more engaged China

As Asians imagine a world without Lee Kuan Yew, I can’t help wondering what that diplomatic giant with strong opinions on many things would have made of the United States’ lead-booted diplomacy over China’s new infrastructure bank?

My guess is he would say the US is making an almighty cock-up of things, and would counsel a more subtle approach to the inevitability of China’s rise, and the practical need to make space for China, in particular in their own Asian backyard.

For those who missed it, President Barack Obama and other top US officials berated Britain’s Prime Minister for joining a China-led infrastructure bank, complaining this was evidence of the UK’s “constant accommodation” of Beijing.

In spite of what appears to have been intense US activity to get western economies to boycott the bank, Germany, France and Italy have quickly followed the UK. New Zealand has already joined, and Australia and South Korea seem next.

Gideon Rachman of the Financial Times called it a “diplomatic debacle” for the US, making Washington appear “isolated and petulant”.

In my work in the 21-economy Asia Pacific Economic Cooperation (APEC) grouping over the past two years, US discomfort has been very clear over China’s nurturing of the bank – now formally called the Asian Infrastructure Investment Bank (AIIB). But the need for such an institution – not to compete with, but to complement the work of the World Bank and the Asian Development Bank – has been so screamingly clear that formal opposition within APEC has been unthinkable.

With global consulting firm McKinsey estimating that the world needs US$57 trillion for investment in infrastructure like electricity, roads, ports and water over the coming two decades, it is clear we need every institution we can get.

Note the World Bank has paid-up capital of US$220 billion and outstanding loans of US$152 billion, while the Asian Development Bank has outstanding loans of just US$53 billion – drops in the bucket in terms of our infrastructure spending needs.

US diplomatic discomfort in managing China’s shockingly rapid rise has been clear for a number of years. It now seems ironic to glimpse back to the last years before China entered the World Trade Organisation in 2001, when the US was still berating Chinese diplomatic for “free riding” on the global trade and financial system and refusing to come forward with policy ideas or suggestions.

In a not-so-nimble volte-face the US seems now to be trying to depict China as a Machiavellian backyard bully bent on undermining the global Bretton Woods financial institutions that have provided stability for over six decades, at the same time extending its power across Asia.

The problem here is of course that the US cannot have it both ways: if we want Beijing to be more thoughtfully and actively engaged, we can’t then expect them to sit at the table like pliant puppy dogs now that they have decided to engage.

And here, for those in the west who created the post-war Bretton Woods institutions, is the fundamental challenge: China played no part in creating those institutions. In the wake of the 2008 global financial crash, many of the shortcomings of this global architecture were laid bare.

And now, as China is being asked to join us at the table to rebuild, it feels no legacy obligation to sticky-plaster the creaky old institutions.

Unlike any other government I have engaged (except perhaps Lee Kuan Yew in Lilliputian Singapore), Beijing seems to have the intellectual capacity to put down a blank piece of paper and ask: “If we were starting from scratch, and knowing what we have learned from the horrendous crash of 2008, what would we create?”

Of course, many of the recommendations that emerge seem heretical to those like the US who are so invested in the Bretton Woods architecture. They are seen as an impertinent challenge, driven not by a desire for improved architecture, but by a Chinese desire for hegemonic power in the Asia-Pacific. Of course, for the rest of us long used to having a hegemon around, US angst seems paranoid and cold-warish.

One reality is clear: China is emerging as an economic and diplomatic force more rapidly than is comfortable for many in the Asia-Pacific.

Lacking any legacy debt to the regional power architecture created in the 1950s, Beijing’s efforts to create some new architecture that reflects their needs – like a BRICS Bank, the maritime Silk Road, new credit rating agencies, dilution of the dominance of US$-denominated global capital markets, and the China-ASEAN Free Trade Agreement (and beyond that the Free Trade Area of the Asia Pacific) – makes reasonable sense.

US diplomacy would be better spent not boycotting such initiatives, but getting inside them that making sure they can mesh effectively with the massive global architecture already in place.

I am sure that Lee Kuan Yew would say that someone in Washington is losing the plot.

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Executive director of the Hong Kong APEC Trade Policy Group

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