Banking on China

Sreeram Chaulia

Mar 24, 2015

Despite misgivings about the risks posed by a muscle-flexing, militaristic China, Asian countries are open-minded about the benefits of China as a regional economic dynamo

China’s government and state-owned media are on cloud nine. “Welcome Germany! Welcome France! Welcome Italy!” screams a joyful Xinhua news agency to celebrate the latest decision of these continental European nations to follow Britain in joining the Chinese-conceived Asian Infrastructure Investment Bank (AIIB).

G-7 member countries turning into shareholders and endorsing China’s leadership of an upstart multilateral financial institution are no mean achievements. What particularly gives the Chinese, who are nationalistic anti-American, is that the AIIB, with an authorised capital of $100 billion, is soaring in spite of a negative campaign by the United States to scuttle it. China’s establishment is revelling in its diplomatic coup of effecting a “decisive crack in the anti-AIIB front forged by America” and exposing what the Chinese press holds as Washington’s “isolation and hypocrisy.”

The US’ policy of opposing the formation and growth of AIIB, which challenges the America- and Japan-led Asian Development Bank (ADB), is now reaping a bitter harvest. European cosying up to China is a slap on the face for Washington from its own Western allies. It is another signal that America’s declining capacity to keep the entire “West” under its control is waning.

Just as the crisis in Ukraine bared geopolitical incongruence between the US and the European Union (EU) on tackling Russia, the fallout over the AIIB conveys that Washington is facing a transformed world marked by multiplicity of choices for countries that hitherto had no option but to shelter under an overwhelming American tent.

The European states, which are hitching their wagons to the AIIB, are justifying their defiance of American wishes by citing practical motives of chasing investment opportunities for their corporations in the gargantuan $11 trillion market for infrastructure funding in fast-growing Asia. The hunger with which European governments and firms have been eyeing China as an export destination and a source of inward FDI also factor into their calculation to hop on to the AIIB gravy train.

American obstruction of AIIB and European accession to the same are also reflective of the power differentials involving China, the US and EU member countries. No single European nation or even a collective group of EU members can imagine competing with China or fighting its rise because these former colonialists no longer have the material strength to assert themselves as big players in Asia.

The political will to thwart China’s ascent is pretty much absent in Europe, which lacks global power projection and ambition. The farthest European geostrategists can punch these days is North Africa, which is in their backyard. In Asia, Europeans are content to shop for business deals. They have abandoned the colonial instinct of shaping the regional dynamics.

The mantle of trying to remain the arbiter of Asia’s security and order is still borne by the US, although it is proving itself ill-equipped in responding to institutional innovations like AIIB that China is rapidly designing. As Feng Zhongping of the China Institute of Contemporary International Relations (CICIR) says in the Guardian, “The US consider they are the power in Asia-Pacific and, more than anyone in Europe, consider China’s rise as a losing game for them.”

Jeffrey Bader, a former Obama administration insider who oversaw foreign policy towards China, has written that Washington realises it cannot prevent Beijing from surging but wants “to ensure that China’s rise serves to stabilise, not destabilise, the Asia-Pacific region.” The manner in which the US lobbied to scupper the AIIB and preserve the multilateral lending status of the Japan-directed ADB dovetails with this strategy.

US President Barack Obama keeps assuring interlocutors in Asia with bromides that “our goal is not to contain China”, but the US military’s positioning in the western Pacific Ocean, the US’ plans for a Trans-Pacific Partnership (TPP) which excludes China, and the US’ overall strategy of “rebalancing” or “pivot” to Asia are all viewed in Beijing as instruments through which China is being encircled and leashed.

China is pushing back against this perceived American containment through a mixture of dangerous military manoeuvres of its own in East Asia, and conceiving new economic institutions which situate China as the hub and its partners as spokes. The AIIB is one of three Chinese economic arrows aimed at breaking out of the American web of constraints. The other two arrows are the “21st-Century Silk Routes” — a complex $40 billion connectivity initiative that revives China’s historic centrality in land and maritime commerce between Asia, Africa and Europe — and the Free Trade Area of the Asia-Pacific (FTAAP) — a preferential trade agreement that has alarmed the US as it’s seen as Beijing’s trick to stymie Washington’s dream project of the TPP.

China’ rhetoric while weaving new multilateral economic networks is that they are “inclusive” and will help to spread prosperity across Asia, Africa and Europe. To some extent, this pitch is working. AIIB has already secured membership of 33 countries, including India, Vietnam and the Philippines, three Asian neighbours that are quite wary of China’s power and suspicious of its hegemonic intentions. Likewise, Beijing’s proposal to create a Regional Comprehensive Economic Partnership (RCEP) agreement has found favour with these three traditional Asian rivals of China.

Despite misgivings about the risks posed by a muscle-flexing, militaristic China, Asian countries are open-minded about the benefits of China as a regional economic dynamo. They are also frustrated by the shenanigans of Western-governed financial institutions like the World Bank and the International Monetary Fund (IMF), and the limitations of the US-Japan’s ADB. When the Chinese state media proclaims that “AIIB and the US-led World Bank will be both competitive and cooperative”, it plays well with developing country audiences that detest the Bretton Woods institutions as vehicles for American intervention and neocolonialism.

Is the AIIB’s success in attracting Asian and European capital a portent of China’s lordship over a revamped global institutional architecture? Beijing must be careful in pushing the envelope. If it overplays its hand, the so-called “inclusive” institutional ideas it is churning out can be construed as expansionist and hegemonic. The resistance Beijing faces on the Maritime Silk Route concept in South and Southeast Asia holds out lessons to shed arrogance and domineering behaviour that are becoming disturbing hallmarks of Chinese foreign policy.