China enjoys diplomatic triumph with new infrastructure bank

March 30, 2015 09:15
President Xi Jinping with guests at the launch of the AIIB in October. Since then, the number of potential  founder members has doubled to 42. Photo: Reuters

China scored a diplomatic triumph last week as countries around the world lined up to join the new Beijing-led Asian Infrastructure Investment Bank (AIIB).

Among them were many allies of the United States, which had opposed their membership.

On Sunday, Australia, Denmark and Russia became the latest countries to apply, bringing the number of potential members to 42. The deadline to become a founding member is Tuesday.

The most notable non-applicants are the United States and Japan.

Washington has expressed concerns about the governance and environmental and social standards of the new bank.

It lobbied its partners and allies not to join – but since Britain broke ranks March 13, there has been a flood of applicants, including US allies South Korea and Turkey, as well as Brazil, France, Germany and Switzerland.

U.S. Treasury Secretary Jack Lew arrived in China Saturday and is due to stay until Tuesday.

He could make an application to join, but most consider this unlikely. In Japan, the government and public opinion are split over the issue; a late application seems unlikely.

Beijing announced the new bank in October last year with the aim of accelerating the building of infrastructure in Asia.

It estimates the continent’s requirements at US$700-800 billion a year and says the AIIB will supplement – and not compete with -- existing international financial institutions such as the World Bank, the International Monetary Fund and the Asian Development Bank.

Addressing concerns about standards of governance, Beijing says that the addition of new founding members, especially those from developed countries, can lead to better standards.

These standards will be agreed on this year, and the new bank is due to start operations at the beginning of next year.

The founding of the AIIB is a milestone in China’s history.

It has established a global bank, based in the mainland, that will serve the fastest-growing region of the world.

The World Bank and IMF are based in Washington and headed by an American and a European, respectively. The ADB is based in Manila and headed by a Japanese.

It is part of the internationalisation of China’s economic strength, together with the gradual move of the renminbi to become a reserve currency.

The Industrial and Commercial Bank of China's unit in Toronto announced the start of a clearing system for the renminbi March 23, the first in North America; this follows the establishment of such a system in Asia and Europe.

“This is a new stage in the internationalisation of the currency,” the People’s Daily said March 25.

Chinese scholars see the fight over the AIIB as part of the global struggle between Washington and Beijing in the military, diplomatic and economic spheres.

Huang Renwei, deputy director of the Shanghai Academy of Social Sciences, said that, since the end of the 19th century, the US has been the leading superpower in the world, having beaten off the challenge of Britain, Germany, Japan and the Soviet Union.

“In the 21st century, it is using the same techniques to oppress China and hinder its rise … It has already lost its control over global resources," Huang said.

"China has become the world’s biggest trading nation. The many countries that rely on the Chinese market cannot block access to it. China has become a major exporter of capital, and even the US cannot block the inflow of it.

"China’s capacity for innovation is rising rapidly, and the transfer of technology of western countries to it has broken the American restrictions on export of such technology to China.

“The final aim of the renminbi is to break the monopoly of the US dollar as the global currency. In the future, there will be three world currencies – the US dollar, the euro and the renminbi.

"This is inevitable. Only if the dollar and the renminbi work together to protect the financial stability of countries can a repeat of the decline of the British pound after World War II be avoided.” 

In an editorial March 25, Beijing's Global Times said the new bank is a sign of China’s vision and self-confidence and that it will benefit many countries.

“Washington opposes it only because it was not the one that founded the bank," the newspaper said.

"Its failure to stop its allies joining is a sign of the limits of its power and is a major embarrassment.”

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A Hong Kong-based writer, teacher and speaker.