The great game between China and America entered a meaningful stage, albeit in a messy way, after Britain, France, Australia and South Korea defied lobbying by the United States and decided to join Beijing’s nascent Asian Infrastructure Investment Bank (AIIB).
With this unexpected assist from an opponent, China easily scored the first goal but it reminded the players that this is only the beginning.
To appreciate China’s strategic success, one needs to examine the post-war world order underwritten by the US.
The American order is an anomaly. It appeals for peace and prosperity for all instead of zero-sum wars and mercantilist trades that have featured in human history.
Whether to unleash the Marshall Plan to a war-torn Europe or hand out generous aid to the Third World via the World Bank, the US offers a vision that is at least as attractive as communism, even though it is at times accused of hypocrisy.
There is only American leadership but not British leadership or Japanese leadership — and leadership is as much about the well-being of followers as that of the leader.
This leadership conferred on the US substantial soft power: the ability to convince the world that what it does is in the interests of others, too.
How does the US go about realizing its vision?
The trick is “institutions”.
By establishing the World Bank, International Monetary Fund (IMF) and the General Agreement on Tariffs and Trade (GATT), present-day World Trade Organization, the Americans have discovered a way to impose power by invitation. Why would countries, for instance, reject financial aid and lower tariffs for their exports?
International institutions advance American power in the following ways.
First, institutions export the American model of capitalism, mainly by offering “technical advice” and imposing aid conditions.
Second, it regularizes and outsources the conduct of power. The US could unilaterally dictate tariff reduction in every negotiation, for example.
Chief among all, created at the peak of US power, institutions lock in US influence in agenda-setting.
Knowing this, however, other countries would still be interested in US leadership, as long as they share the fruits of prosperity.
This was something that the Soviets failed to offer during the Cold War.
In light of this, the AIIB, together with the New Development Bank (aka the BRICS Development Bank) and the “One Road, One Belt” initiative, can be seen as a Chinese attempt to end the seven-decade-old American order.
By combining the “yang” of military prowess with the “yin” of international economic institutions, China is establishing itself as a superpower-in-waiting whose vision is to foster global economic integration.
By adding the term “Asian” to AIIB’s title, China has skillfully neutralised American and European influences, restricting non-Asian members to 25 per cent of the shares.
The AIIB, of course, has an additional benefit of addressing excessive patriotic sentiment at home.
Analysts tend to explain AIIB’s creation in economic terms, for example, as a Chinese attempt to divert surplus capacity abroad amid an economic slowdown at home, or to diversify the US$4 trillion foreign exchange reserves.
These arguments are plausible but secondary.
A high-profile project of this scale is bound to shake up US perceptions of China’s geopolitical ambitions and is unlikely to bypass China’s Ministry of Foreign Affairs and, most of all, the all-powerful politburo.
However, one must recognize that the AIIB in its current form owes as much to a chain of events as to China’s far-sighted calculations.
The AIIB began as a protest with a modest aim, reflecting China’s discontent with the existing power structures of international financial institutions, which have historically been dominated by the West.
The US Congress failed to ratify the 2010 IMF agreement that would empower emerging economies, providing an impetus for further actions by the Chinese.
A person directly involved in AIIB’s foundation told the Financial Times in 2014 that “China feels it can’t get anything done in the World Bank or the IMF, so it wants to set up its own World Bank that it can control itself. China is going to go ahead with this even if nobody else joins it.”
This was the state of affairs then.
In the meantime, China learned the limits of hard power in 2013-14 after shocking Japan with a unilateral declaration of an air defence identification zone and triggering anti-China riots in Vietnam over an oil rig.
The two episodes pushed China’s immediate neighbors into the US orbit and removed the last obstacle to the US “pivot” to Asia.
They amounted to a wake-up call for China, as Chinese officials acknowledged in private, according to the FT.
It is arguably for this reason that Chinese policymakers abandoned “big stick” diplomacy and transformed the AIIB from a negative protest vote to a positive, visionary project.
It is no coincidence that both the AIIB and the BRICS bank were both created in 2014 immediately after the riots in Vietnam.
Knowing that countries count on the US for guns and China for butter, China has resorted to economic statecraft.
It took defiance of the US by the British Treasury to trigger a chain reaction that has brought us to this stage.
With western participation, the game has changed and new risks to China have arisen.
Any mal-governance of the AIIB will invite fierce criticism, tarnishing China’s geopolitical projects. This might be neutralised by bringing in western expertise.
Another issue is resource overstretch. China is yet to be in a position to commit ample ammunition to the AIIB and upend the US-led order.
It is keen to play down its geopolitical ambitions.
Chinese Premier Li Keqiang said in an FT interview that “[the AIIB] is intended to be a supplement to the current international financial system”.
There are a hundred possibilities as to how the Sino-American great game will play out.
For example, as a result of the AIIB initiative, would the US engage China by endorsing IMF reform? If so, would China dissolve the AIIB and the BRICS bank?
If not, would we enter a two-bloc age featuring both cooperation and rivalry between China and America?
Nobody knows, but one thing is certain: this is only the beginning.
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