TheAsian Infrastructure InvestmentBankand theFutureof theWorld

LiberalOrder

ByAndreBrazPinheiro

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Abstract

In2013,China’sprimeministerXi Jinpingannounced ina visit to Jakarta, the formationof a

multilateral development bank (MDB) called Asian Infrastructure Investment Bank (AIIB).

Recognizingthedireneedoftheregiontoupgradeandcreatenewinfrastructure,theChinese

initiativehoped togeneratebetter investmentopportunities to channel large savingsof East

Asiancountries.Thisbankissettofocusonareasthatincludetransport,energy,communication,

industry,andagriculturetopromotebetterinterconnectivityandeconomicintegrationbetween

Asiancountries,andacceleratethepaceofdevelopmentintheregion.Bythesummerof2015,

XiJinpingsuccessfullypersuadedleadersof57countriestosigntheArticlesofAgreementofthe

Bank,therebymarkingavictoryforChineseforeignpolicy.TheAIIBwas,perhapsunsurprisingly,

received with a great deal of hesitation by someWestern countries, particularly the United

States,whoseestheMDBsitleadsasbeingdirectlychallengedbyChina’snewstrategy.Liberal

pessimists fear the new development bank represents the erosion of Washington-based

internationalfinancial institutions(IFIs)andthegrowingpreponderanceofChineseinterest in

EastAsia.Othersclaimmorechillinglythatthebankisasignoftheimpendingcollapseofthe

global institutions created followingWorld War II. This paper will address the reasons that

potentially led to the creation of the will make the case to skeptics that this bank is an

advancementintheliberalworldorder,ratherthanthedeteriorationofit.

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JohnIkenberry’sTheoryofLiberalism

IntheaftermathofWorldWarII,theUnitedStateswasinaprominentpositiontoundertakethe

roleofahegemonduetothesizeofitseconomy,whichrepresentedover50%oftheworld’s

wealth,anditsvastmilitarycontributiontotheliberationofEuropefromNaziGermanyandEast

AsiafromImperialJapan.Inthisposition,theUStooktheroleofwhatIkenberrycallsa“reluctant

hegemon,”whichinsteadofexertingitsnewfoundpowertointimidateandcoerceweakerstates,

itcreatedforthefirsttimeaglobalframeworkforcountriestoresolvetheirdisputesinapeaceful

manner.TheAmericancommitmenttotheinstitutiontorestrainitspower,andtooperateunder

asetofcommonrulesreducedthefearofweakerstatesofapotentialtakeoverbythehegemon,

therebygivingthemsignificantreasontojoininthesenewinstitutions.Byabdicatingsomeofits

potentialpower,theUnitedStateswasabletoestablishalastingworldorder,withinstitutions

that constrainedstatespower,and increased thevoiceof smaller stateson the international

stage,therebymitigatingpowerstructures.

Overthecourseoftheyears,theseinstitutionsbuiltadurableandacceptableorderbetween

nationswithhugepowerasymmetries.Theseinstitutionsalsoturnedouttobe“sticky”innature,

therebyexplainingwhyahegemonwouldengageinsuchanagreement.AccordingtoIkenberry,

therearetwomainreasonsforwhichtheUScreatedaninternationalframeworkattheapogee

ofitspower:1)“powerfulstatesthatarefarsightedenoughtoanticipatetheirrelativedecline

canattempttoinstitutionalizefavorablepatternsofcooperationwithotherstatesthatpersist

evenaspowerbalancesshift,”andthe2)thatsuchorganizationreducedthe“enforcementcosts

ofmaintainingorder”(Ikenberry,1999)meaningthattheatthetime,theUnitedStatesbelieved

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that itwouldbe farmoreeffective to shape the interests andorientationsofweaker states,

rather than punish or reward them for their actions unilaterally. In these institutions, the

hegemoncouldassurethatitspreferredworldorderwouldprevail,evenafteritspowerreceded.

Astheleaderofthisorder,andtheworld’sbiggestmilitarypower,theUSassumedthemajor

responsibilityof“policeman”oftheliberalorder,therebycommittingagreatamountofmoney

tosecuringinternationalpublicgoods.

The new international institutional framework that was drawn afterWorldWar II created a

systemofincentivesandchoicesformembercountries.Thisconstitutionalframeworkagreed-

uponbyallstatesallowedfortheUnitedNationstocreatesubsidiaryandsisterorganizations

andmassivelyincreasethereturnstobecomingamember,whileatthesametimereducingthe

likelihoodofalternativeinstitutionsbeingcreated. Inparticular,weakerstatesweredrawnto

joiningthemduetotheirprinciplesofmultilateralism,openness,andreciprocitythatlegitimize

themasaforumforinternationalcooperation,ratherthanexclusivelytiedtotheinterestsofthe

UnitedStates.Despitecomplaintsandstrugglestheframeworkhasseensince itsconception,

whatismostremarkableistheirlongevityandstability.

Criticshavearguedthatthesystem’sWesternfoundationisn’trepresentativeenoughoftherest

oftheWorldandrisingpowersfrequentlytrytocreatenewinstitutionsinwhichtheyarebetter

represented. This attempt, according to Ikenberry, is ushering in the crisis of what he calls

Liberalism2.0,thetimeofUSsupremacyinintergovernmentalinstitutions.Seventyyearsafter

theirconceptionandtheorganizationshaveyettochangetheirgovernancestructures.Dueto

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the decreasing returns found in attempting to use military force to settle disputes, ranking

countriesaccordingtotheirmilitarymaynotberepresentativeoftheorderthat isemerging.

Instead,the liberal isdefinedbyeconomicmight,andthishaschangedsignificantlysincethe

postwarperiod.CountrieslikeChina,India,Brazil,Indonesia,Mexico,Canada,SouthKoreahave

allgrowexponentiallytobecomerelevantplayersintheglobaleconomy.ThecrisisofLiberalism

2.0hasthusbroughtwithitacrisisoflegitimacyoftheworldorderasitcurrentlystands,and

emergingeconomiesincreasinglywanttotiltthebalanceofpowerawayfromWashington.

Ikenberryclaimsthattheretworoutesthispoweradjustmentmayoccurfortheworldtoreach

Liberalism3.0.InorderfortheWesttocontinuetogetsupportforthecurrentIGOs,itneedsto

reformtheirgovernance,seekamorecollaborativewaytoprovideinternationalpublicgoods,

andthesystemasawholemayneedtorelinquishfracturesofitssovereigntyinordertoensure

thatinternationalagendasareputintoaction.Ifthesecriteriaaren’tmet,Ikenberryforeseesthe

breakdownofthe liberalorderwhereregionalblocsandbilateraltradepactsandareturnto

balancingpowersactsthatlastseenpriortoWorldWarII.ThiswouldsurelyreduceAmerica’s

abilitytocoordinatewiththeinternationalcommunitytherulesandinstitutionsthatchannelthe

resourcesneededtotacklethisgeneration’smainthreatstothepublicgoodlikeclimatechange,

non-statethreats,andeconomicstabilityinacoherentfashion.

ChineseAid

Fromitsinception,Chineseaidhasbeencontroversial.JoshuaCooperRamoarguedthatChinese

aidwasdistributedbasedonwhatsomehavelabeledBeijingConsensus,usedasanantithesisto

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the prevalent development model prescribed by Western IGOs called the Washington

Consensus.ThoughthetermislooselydefinedbyRamo,TheBeijingConsensus,theauthorrefers

thespreadingofthemodelofdevelopmentemployedbytheChinese,wherecentraltenantsto

modernization involve leapfrogging on innovation, instead of leading Western thought of

specializing on an agricultural product it may have an advantage in, or adopt trailing-edge

technology,likecopperwires.TheChinesemodelsprovesthatotherdevelopingcountriesneed

to adopt “bleeding-edge” technology, like fiberoptics. The second theorem relieson looking

beyond measures like per-capita GDP, and focus instead on quality-of-life, thus demanding

sustainabilityandequality.Thistheoremisbasedontheideathatchaosisimpossibletocontrol

for the top, and governments needmany tools at its disposal, includingmisinformation and

hardline politics, in order to ensure order. Finally, Ramos states that the Beijing Consensus

stresses a theory of self-determination, regardless of other hegemonic powers attempt at

dictatingadevelopingcountry’scourse.Thus,theBeijingConsensuswasdiscussedasathreatto

thecurrentdevelopmentmodelsinceitwasindiametricoppositiontothetenantsoffreemarket

capitalismanddemocratizationthatWesternsMDBtrytoincentivizebyimposingconditionality

and structural adjustments. In 2004, Ramo stated that “What is happening in China at the

moment is not only a model for China, but has begun to remake the whole landscape of

internationaldevelopment,economics,societyand,byextension,politics,”(Ramo,2004).

Thisinfluentialbookhadagreatimpactonthedevelopmentcommunity.ManypointtoChinese

aidasanexistentialthreattothemaintenantsasadiametricallyopposedtotheWashington

consensus,whichhaditstenantsintheliberalizationofmarkets,pushedbytheBWI.During2006

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and2013,whenthePeople’sRepublicofChina(PRC)disbursedover$1.06billioninbilateralaid,

criticsclaimedthatitwasadestabilizingforceintheinternationalsystem,claimingthatChina

wasattemptingtoexertitseconomicmuscleinordertogainalliancesinplaceslikeSub-Saharan

AfricaandSoutheastAsia.ThelackoftransparencyinprojectsfinancedbyChinacontributedto

thecontinuedtobeviewedwithskepticism.MoisesNaím,formereditorinchiefofForeignPolicy,

summarizedsomeofthecriticisminaNewYorkTimesop-edin2007,claimingthatChinawasa

“rogue aid provider” and rather than seeking the development of the countries in which it

operates, it instead “sought to further their own national interests, advance an ideological

agendaorevenlinetheirownpockets.Rogueaidproviderscouldn’tcarelessaboutthelong-

termwell-beingofthepopulationofthecountriestheyaid,”(Naím,2007).

ManyofthecriticsoftheAIIBsharesimilarfears.Theypointtothenewinstitutionasatell-tale

signofChinesedesiretocreatenewrulesandinfluencestateplayersaroundtheregion.These

criticstendtothinkintheoldparadigmoftheColdWarwhereagainforonesidemeantaloss

fortheother.TheypointtoChina’sgrowinginfluencebothinitsregionandalsoinAfrica,where

theyhavepouredbillionsofdollarsforbuildingtheinfrastructuresofthecountrythere,without

theconditionsimposedbyWesternmultilaterallenders.WiththegrowinginfluenceofChinese

developmentaid,criticsareworriedthatitwillhavealargeinfluenceinsettingthedevelopment

financingagenda,typicallycontrolledbyWestern-ledinstitutions.

FindingsbytheAidDatareleasedinNationalInterest,however,discredittheclaimthatChinais

aroguedonor.Inanalyzingthe$94billionaiddisbursementsmadebyChinaintheaggregate,it

findsthatthenotionthatthePRCisaroguedonorisoverstated.Between2000and2013,itfinds

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thatChineseaidpaledincomparisontoofficialdevelopmentassistance(ODA)providedbythe

UnitedStatesduringthesametime,aboutthreetimesless.Chineseaid,itgoesontofind,did

not only support infrastructure projects in the region, in search of unique access to natural

resources inweak states, but rather it also supported large portfolio investments in Africa’s

agricultural,educational,andhealthsectors,resemblingWesterndonorportfoliosintheregion.

LiketheUnitedStateshasdoneoverthepastsevendecades,Chinaalsoprovidedmoreaidto

countries that voted consistently with it in the UN General Assembly. Contrary to skeptics

believed, however, this didn’t always mean that it was supporting authoritarian or corrupt

regimes,asMoisesNaímclaimedinhimNewYorkTimesOp-Ed.Inmanyinstances,Chineseaid

didgotocountrieswithsuchcharacteristics,butmostly intheformofcommercial loansthat

favoredresource-richcountries.Accordingtothefindings,however,theseloansweredifferent

innaturebecausemostprojectsitfundedwerecontractedtoChinesecompanies,arguablygiving

thePRChigherfiduciarycontroloftheoperations.DuetoChinesepolicyofnon-interferencein

thecountriesitprovidesfinancingto,AidDatafoundthatadisproportionateshareofChineseaid

goestothebirthplacesofAfricanleaders,apatternthatisnotfoundinWorldBanklending.The

dataalsoshowsthatthereislittlecorrelationbetweenthenotionthatChineseaidfuelsconflict,

assomecriticshaveargued.Infact,theoppositeistrue:whenWesterndonorsleftacountry

thatwasnotalsoreceivingChineseaid,conflictswerelikelytooccur.Inthissense,Chineseaid

functionedwellasashockabsorber.

Finally,AidDatadebunkstheclaimmadebyRamoabouttheresonanceofaBeijingConsensus.

Inasurveyof6,750policymakersandpractitionersaroundtheworldabouttheusefulnessof

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ChineseinstitutionswererankedmuchlowerthanWesternones.BradParks,ExecutiveDirector

of AidData recognizes the criticismof Chinese aid but issues the following recommendation:

“therefore,nowisnotthetimetoseekthemoralhighground,butrathertorecognizethatthe

similaritiesbetweenU.S.andChineseaidareprobablygreaterthanthedifferences,andboth

countrieswillbebetteroff iftheyworktowardssharedobjectiveslikelessaidfragmentation,

closerdonorcoordination,andbetteraidoutcomes,”(Parks,2015).

ThefactthatChineseaidresemblesinmanywaysWesternaidshould,therefore,bereassuring

toleadersintheWest,ratherthanamatterofuncertainty.InsteadofskepticismfromtheUS,

officialsneedtobelookinginwaysitcanengageandcooperatewithChinatoensurethatthe

development agenda is set in unison, rather than allowing the development industry to be

fragmentedduetounfoundedcriticism.Withdevelopmentfinancing,Chinaissettingthecourse

tostartexercisingitssoftpower,andbuilddeeperrelationshipswithemergingmarketsaround

theworld. However, there aremany signs that the PRC iswilling to playwithin the current

institutionalframework,albeitseekingreformsinorderfortheglobalfinancialsystemtobetter

representitsinterestsandthatofemergingeconomies.

TheNeedforInstitutionalReforminBWI

At the timeof the creationof theUNorganizations and theBrettonWoods Institutions, the

developingworld’s shareof theGDPwas rathersmall. In thepast sevendecades, thesizeof

developing economies increased significantly, having largely benefited from the liberalworld

ordersafeguardedbytheUnitedStates.AccordingtotheFinancialTimes,by2013developing

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economiesovertookthedevelopedcountriesasashareofworldGDP.Thisradicalshiftinpower

dynamicshasyettoberepresentedintheinstitutionalframeworkasitcurrentlystands(Guiles,

2013). In a special report by The Economist, when in purchasing-power China’s economy

represents17%ofworldGDP,justinfrontofUS’shareof16%.Atmarketexchangerates,the

gap iswider,withAmericarepresenting23%ofworldGDPversusChina’s14%.However, the

changeissignificantenoughthattheUSshouldaccommodateinstitutionssothattheifChina

continuestofeelunderrepresentedintheinstitutionscreatedinthepostwarperiod,itmayseek

tocreatesomeoftheirown(TheEconomist,2015).

Themostobviousinstitutionsinneedforreformaretheonesthatorganizeglobalfinance.Inthe

BWIinstitutions,ChinastillhaslessvotingsharesthantheBeneluxcountries,whoseeconomies

oncehadamuchlargershareofworldGDP(IMF,2012).In2010,theIMFvotedtoreformthe

quotaseachcountryhadinitsExecutiveBoard.167membersoutofthe188member(i.e.80.5%

ofthequota)consentedtothischange,fallingshortofreachingasupermajoritynecessaryfor

the reform to be enacted (IMF, 2015). The failure of this resolution, however, is directly

attributedtotheUS’opposition.Holderofthevetopower(>15%ofvotingrights)inboththe

WorldBankandintheIMF,thebillthatwouldallowforthereformtotheExecutiveBoardofthe

IMFhasstalled inCongresssince itwas introduced in2010.This reformwouldhave increase

Chinesevotingsharesto6%,upforfromjustunder4%thatitcurrentlyhas.Intotal,itwould

shift6%ofthevotingsharestoemergingeconomies,tobetterrepresentthemintheinstitution.

RepublicansinCongressheldthelegislationhostageinordertogetotherchangespassed,such

asthehealthcarereformbill(NewYorkTimes,2015).Thischangewouldallocatesomeofthe

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currentvotingsharesofsmallEuropeancountries,likeGreece,whichhas“receivedfivetimes

theamountofaidthanthetypicalAsiancountrydidinthecrisesofthe1990s,”(TheEconomist,

2015)

This lack of reform in one of themost prominent institutions to emerge out of the postwar

agreements, alienated China, and is cited by former Chairman of the Federal Reserve, Ben

Bernanke,asthereasonthatChinadecidedtolaunchitsownmultilateralorganization,theAIIB

(Noble,2015).LarrySummers,formerSecretaryoftheTreasury,ismorepessimisticaboutthe

creationofthebankandbelievesthatthedevelopmentwillunderminetheleadershiprolethe

UShaslonghadonglobalfinance.Hegoesontosaythat“Inaworldwhereothershavegained

andinaworldwherewehavehadtroublemeetingourobligationsandlivinguptoandratifying

ouragreements,wehavelostinfluence,”(LarrySummers,2015).BenBernankemayberightin

conceding that the Congress may be responsible for pushing the Chinese to create an

organization in which it was better represented. However, Secretary Summers seems to

overemphasizetheimportancethatthisdevelopmentbankhastotheglobalsystem,andboth

BernankeandSummersseemtounderminethefactthattheAIIBwillnotassumetheroleof

globallenderoflastresortoftheIMF,anditisunlikelythatChinawillattempttochallengethat.

TheWorldBankhasalsoseenitsfairshareofcriticismfromdevelopingcountriesinrecentyears.

In2009,MexicanPresidentErnestoZedillopublisharecommendationforWorldBanktoreform

itsBoardtoequallyrepresentdevelopedanddevelopingcountries.Thereportalsohighlighted

thegrowingdiscordancebetweenthedesiresofthedevelopedworldtomaintainitsstatusquo,

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withthechangingattitudesofthedevelopingworldregardingtheBank’sloanconditionalityand

supportforlong-termdevelopmentaspirations.TheZedillocommissionalsocriticizedBankfor

seeking a “grandbargain” inpushing forth its governanceagenda, “inwhichparticipants are

willingtocompromiseonsomeoftheir interestsoastoachieveothers”(Brookings Institute,

2009).Thisfocusongovernanceratherthanthetraditionalinfrastructureprojectshasledthe

banktobemorerisk-averseanddistanceitselffromtheneedsofthepeopletheyaretryingto

serve. China’sAIIB enters the scene to fill in that growing gap in the need for infrastructure

financinginAsia.AlthoughtheminorreformtotheBank’svotingquotaspassed,thedisparities

betweenthevoicesofdevelopingcountriesandtheonesofdevelopedcountriesremainhigh

(BrookingsInstitute,2015).

OtherdevelopingcountrieshavealsobeenimpatientinwaitingfortheBWItoadvancereforms.

In2014,theBRICScountries,(China,Brazil,Russia,India,andSouthAfrica)announcedthatthey

wouldcreateanotherMDB,theNewDevelopmentBank(NDB).Thisbankisexpectedtohavean

initial capital of $50 billion and has equal voting shares allocated to each country. It is also

expected to pool another $100 billion for currency reserves, the Contingent Reserve

Arrangement(CRA),whichunliketheAIIB,posesamoredirectchallengetotheIMFisplugging

short-term liquidity gaps emerging economies. The bankwill be headquartered in Shanghai,

China,andhaveanIndiaserveasitsfirstpresident.UnliketheIMF,however,theCRAis“nota

fundbutatangleofbilateralpromisestomakeforeignreservesavailabletoBRICSintrouble.

Every countrywill be able to tap amultiple of its contribution,” (The Economist, 2014).The

Economistgoesontoarguethatthedisparateinterests,sizes,andtypesofeconomiesandthe

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political regimemaybea sourceof friction for thisMDB tobecomea true challenger to the

BrettonWoodsframework.

However, thegrowingappetite fornewmultilateral institutions isamatter thatpolicymakers

can’tcontinueto ignore.Americanpolicymakersneedtorevitalize the importanceof itsown

MDBstomatchthegrowingappetiteforinfrastructurefinancinginemergingeconomies.Inorder

fortheWorldBanktomaintain its financialprevalenceandkeeponsettingthedevelopment

agendainthefuture,developedeconomiestore-capitalizethebank,some,likeRaghuramRajan,

IndiancentralbankgovernorandformerchiefeconomistoftheInternationalMonetaryFund,

callsforanincreasein$253billiontosuccessfullycompetewiththeincomingplayerstothespace

(FinancialTimes,2015).AccordingtotheUnitedNationsConferenceonTradeandDevelopment

(UNCTAD),developingcountriesfacea$2.5trillionannualinvestmentgapinordertoensurekey

sustainable growth.When theaccounting for theneed in investmentnecessary to reach the

Sustainable Development Goals, that figure rises to $3.3 – $4.5 trillion per year for basic

infrastructure,foodsecurity,climatechangemitigationandadaptation,health,andeducation

(UNCTAD, 2014). These figures show that there is plenty of space for new players in the

developmentfinancingindustryandthatthestatusquonationsshouldembracenewentrants,

ratherthanchastisethem.

InDecember2015,theIMFannouncedthatitwouldaddtheChinesecurrencytoitsSDRcurrency

basket. This is symbolic since the yuanonly represents less than1%of the currencyused to

finance international trade (The Economist, 2015), a minor fraction when compared to the

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American dollar and the to the British pound. Though this decision does notmean that the

currencytraderswillbuytheyuaningreatquantity,itdoesmeanthattheIMFnowdeemsthe

currency“freelyusable”andsafeenoughassetthatinvestorscanusetoparktheirwealth,and

for countries to use as reserve currency. This historic shift in the the IMF fund is possibly

representativeof the impatienceof the IMF’smanagingdirector, Christine Lagarde,with the

gridlockinCongresstopassvotingreformstotheIMF.Thismoveobviouslywon’tchangethe

trackofthecreationoftheAIIB,butitshowsthattheBWIarewillingtocooperatewithChinato

strengthenthetiesoftheliberalworldorder,despitepoliticalgridlockintheUS.

TheAsianInfrastructureInvestmentBank

After having analyzed how Chinese bilateral aid proved to resemble Western aid, and the

dissatisfactionthatleddevelopingcountriestocreatenewdevelopmentbanks,wewillexplore

thedirectionthatIkenberry’sliberalism3.0isheadedtodetermineiftheliberalworldorderis

doomed,orifthenewdevelopmentbankscanexistinthecurrentgovernancestructure.

Thecreationofamultilateralbank

ThefactthatChinadecidedtocreateafundforinfrastructuredevelopmentisenlighteningtothe

discussionofthecontinuationoftheliberalworldorder.Duringthefirstthreedecadesofthe

PRC’sexistence, itremainedahighly isolatedfromIGOs,speciallywhen itcametotheglobal

financialmarkets,choosingforself-sufficiencyratherthanconnectivitywiththeglobaltrading

system. After theDen Xiaoping started to liberalize the Chinesemarkets through a series of

reformsandpursueanactiveengagementwiththeWest,itreapedmassiveeconomicgrowth

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and poverty alleviation. In 2001, it ascended as amember of theWorld Trade Organization

(WTO), which allowed China’s economy to receive an enormous amount of foreign direct

investment, and to gainmarket access tomarkets all around theworld,withGDPgrowthof

around9%ayearfrom2001-2011.Theseliberalizingmeasuresallowedittobecometheworld’s

biggestexporterandsecond-biggestimporter.AlthoughtheChineseeconomyhasalongwayto

go in opening up its servicemarkets, its capital accounts, and state-owned enterprises, it is

unlikely that itwill try todestabilizeworldorder for its individualbenefit.China isnoweven

attempting to change its status to change its status from non-market economy to market

economyintheWTO(FinancialTimes,2015).

Thepushtocreateanewinstitutionwhereitisbetterrepresentedcanbeinterpretedtherefore

asapositive sign that thePRC iswilling toplayby the rulesof the international community.

Beyond a move to circumvent the lack of representation in the BWI, China also wanted to

legitimize its aid disbursement, which had been heavily criticized in some Sub-Saharan and

SoutheastAsiancountries,likeZambiaandNigeria.ThesecountriesviewedChineseaidasaform

of imperialism,due to the fact that it supportedprojectson the condition that the theyuse

Chinese contractors and Chinese-made products (Hung, 2015). The AIIB is indeed a feat of

multilateralism, in which 57 members from across the world decided to become founding

members,despitetheWhiteHouse’seffortstodiscourageitsalliesindoingso.Inastatement

aboutBritain’sdecisiontosigntheAIIB’sArticlesofAgreement(AoA),theWhiteHousetoldThe

Guardian“OurpositionontheAIIBremainsclearandconsistent.TheUnitedStatesandmany

majorglobaleconomiesallagreethereisapressingneedtoenhanceinfrastructureinvestment

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around the world. We believe any new multilateral institution should incorporate the high

standardsoftheWorldBankandtheregionaldevelopmentbanks,”(TheGuardian,2015).This

statement shows that the Obama administration is wary not only that that the AIIB will

decentralizedevelopmentaid,thusreducingitsefficacy,butalsothatinsteadofadheringtothe

standardsthattheBWIfollow,itwilluseChinawillusethebankforitsnarrowpoliticalpurposes.

ThisideabodeswellwiththeWesterncommentaryaboutUSdeclineandthethreateningriseof

China.

Asmentionedearlier, thisthreat isoverstated.Concernsmaybemootedbythefactthatthe

president-designate of the Asian Infrastructure Investment Bank, Jin Liqun, is an Asian

DevelopmentBank(ADB)andBWIveteran.JinLiqunservedastheVicePresidentoftheADB,

managing over 60% of ADB’s portfolio, served as the Director General of the World Bank

Departmentat theChineseMinistryofFinanceprior to that (Brookings Institute,2015).This

commitmenttorecruitingsomeonewithvastexperienceworkinginBWIshouldbeinterpreted

asapositivesignintheWest.HavingworkedwiththeBWI,JinLinqunisapositiontosethigh

standard for development agendaof the newbank. The president has said that as the bank

prepares its first loans, itwill include projects co-financed by theWorld Bank and the Asian

Development Bank, a move expected to reduce skepticism that this exclusively a Chinese

institution.TheADBandtheWorldBankhavebothissuedpositivestatementscongratulatingthe

foundingmembersoftheAsianInfrastructureInvestmentBankandhaveapositiveoutlookona

chancetoco-financingprojectsinAsia.

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TheAIIB’sstrategywill,however,differthanthatofAmerican-ledMDBs.MuchlikeChineseaid,

theAIIBwillnotsetconditionsonlendingliketheBWIdo.Onthis,Mr.Jinstatedthat“noprivate

sectorcompanieshavearesidentboard,”(FinancialTimes,2015).Thebankalsointendstobreak

even,thereforeitwillmostlikelyconcentrateoncommerciallyviableprojectsinitsinception,

movingontoconcessionaryloansasitscreditratingissecured.However,muchliketheBWI,it

will recruit international talent, and it is committed a universal procurement process. Scott

Marris, from the Center for Global Development, an influential think-tank in Washington,

expressedoptimismaboutthetransparencyofthetheArticlesofAgreement,oftheAIIBsigned

by 57 nations on June 29, 2015, accounting for 34 regional countries and 19 non-regional

countries.Inhiscommentary,heseemsspacefortheAIIBtopartnerwithorganizationsinnon-

membercountrieslikeUSAIDortheJapan’sInternationalCooperationAgency.Thearticlesalso

leavegreater room forpublicprivatepartnerships than in traditionalMDBsbyallowingnon-

sovereignmembership.Thiswillallowthebanktofindmoresuitablepartnersforlargefinancing

projects,andleverageoutsideexpertiseinaleanerfashionthantraditionalbanks.TheArticles

alsoadoptanon-residentboardofdirectors,which reduces significantly thecost incurred to

compensatehighlevelexecutives(Morris,2015). Insummary,theArticlesofAgreementhave

beenapprovedandsignedbycountriesallovertheworld,acrossthepoliticalspectrum.Lauded

by the development community, the article seems like a progressive departure from the

constitutionsoftheBWI,adoptingcreativenewstrategiestotackledevelopmentissuesinthe

region.

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AStepClosertoLiberalism3.0

MuchliketheUSdidincreatinginstitutionsinthepostwarperiod,Chinahadtocedesomeofits

powerinordertocreatealegitimateorganizationthatcanstarttoinstitutionalizeitssoftpower.

Inworkingwithotherpartnersacrossthedevelopedanddevelopingworld,Chinawasableto

securethecreationoftheinstitutionthattiltsthebalanceofpowerinthedevelopmentfinance

industryback to thedevelopingworld.ByacceptingEuropeannationsas foundingmembers,

China also tied its hands to its civic constituency, attuned to environmental and civic

responsibilitiesofadevelopmentbank.TheAIIBwillsurelytreadthesesafeguardslightlyinorder

tomaintainitsreputation.IntheArticlesofAgreementoftheAIIB,theChinese,muchlikethe

UnitedStatesdidwiththeBWI,chosetomaintainvetopowerforsupermajoritydecisionsinthe

BoardofGovernorssince it isputtingcloseto$30billion intothebank(30.34%stake) (Asian

InfrastructureInvestmentBank,2015).Thesedonotincludevetoforproject-leveldecisionby

theChinese,but itdoesmeanthat theChinesewillhaveapprovetheappointmentofBank’s

president,andmakechangestothecapitalbasetoaccommodatethelongwaitlistofcountries

whowanttobecomemembers.Intheend,theworldshouldwelcomethisnewcommitmenton

behalf of China to promote economic development in the region, while at the same time

constrainingitspowertoactunilaterallyinordertodoso.

TheAIIBisnottheonlyexampleofChineseincreasedcontributionstointernationalpublicgoods.

Justin2015,itwasabletoagreeonasignificantbilateralagreementwiththeUnitedStateson

reducinggreenhousegasemissions(WhiteHouse,2015),aswellasaninternationalagreement

undertheUNFrameworkConvention forClimateChange(TheDiplomat,2015), itcommitted

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over 8000 soldiers to UN Peacekeeping Operations (The Economist, 2015), and has made

progressontheestablishmentoftheNewDevelopmentBank(BloombergBusiness,2014).Allof

theseinternationalagreementsshowthatChinaiscommittedtousingitsincreasingsoftpower

tocontributeandimproveupontotheliberalordercreatedafterWorldWarII.Moreover,new

MDBswiththescopeoftheAIIBandtheNDBmightpressuremoreheavysetorganizationslike

theWorldBankandtheADBtoreformthemselvesandbecomebetterequippedtoreachtheir

twingoalsoferadicatingpovertyandincreasingsharedprosperity.

Complementary to Chinese efforts, theUnited States has already approved the Trans-Pacific

Partnership, an agreement that some like Zhiqun Zhu writing for The Diplomat think will

“establish the next generation of rules of commerce, or “software” for deeper economic

integration.TheAIIB,workingasacomplementtotheWorldBankandAsianDevelopmentBank,

couldhelpfinancethe“hardware”orinfrastructure,inAsia’semergingeconomies,”(Zhu,2015).

AlthoughitseemsunlikelythattheUSwilleverjointheAIIBduelikelyrejectionbyCongress,the

USmayfinditstrategicallyimportanttocooperatewiththenewdevelopmentbank.

20

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