The recently established Asian Infrastructure Investment Bank (AIIB) is joining the likes of the Asian Development Bank (ADP), International Monetary Fund (IMF), World Bank and a host of other global banks meant to spur development around the world. Proposed by China, the AIIB was formally recognized on October 24, 2014 with its purpose to provide financing for infrastructure projects in Asia. Despite 21 countries initially signing the treaty to establish the bank, the United States and some of its allies weren’t present at the signing due to the U.S.’s complex feelings towards the bank.
Asian Infrastructure Investment Bank
The original intentions of the AIIB mirror many of those for existing international banks. China has led the initiative for the AIIB, despite the existence of the Asian Development Bank, due to an ongoing funding gap in the region. In order to promote development, the AIIB will help to build roads, construct telephone and Internet lines, and other various infrastructure improvements, with an initial $50 billion in capital. This $50 billion is significantly less than the $160 billion and $223 billion invested in the World Bank and Asian Development Bank, respectively, which begs the question of why China was motivated to form the AIIB.
Motivation for the AIIB
China led the path towards AIIB establishment due to its exasperation with the then-existing enterprises that were helping developing Asian nations. The World Bank and the ADP, while funded with over $383 billion in combined capital, still recognize that their funding alone is not enough to cover infrastructure projects in Asia. The ADP estimates that by 2020 Asia will require over $8 trillion in capital in order to sufficiently fund all necessary projects. China cites this funding gap as the single biggest reason for the creation of the AIIB.
While the funding gap is the original impetus for the AIIB, China and AIIB supporters are also motivated by frustration with the politics and machinations that go into securing funding through the ADP and World Bank. Too often the established world lenders are motivated by western needs, and infrastructure funding is frequently delayed repeatedly by rigorous procurement standards.
The 21 countries originally signed up to the AIIB included the following Asian nations: China, India, Thailand, Vietnam, the Philippines, Malaysia, Singapore and Pakistan (the total recognized “founding members” is now up to 33 as of publication). After creation, Indonesia and additional Asian countries have signed up to the treaty. Most notably, and of more concern for the U.S., has been the introduction of western nations including the United Kingdom, Germany and Italy into the AIIB.
American AIIB Hesitation: Public Comments
The U.S. is visibly absent from the initial group of member nations of the AIIB, and both its public and private reactions to the AIIB have been well-documented. In public, the U.S. has merely expressed concerns about the bank based on governance standards, not about the actual creation of the bank. While the U.S. doesn’t formally oppose the AIIB and recognizes that it would serve a purpose in Asia, it wonders whether or not the bank will be held to the same environmental, corruption, and governance standards of other world lenders. Before taking financial contributions from countries and corporations, the U.S. has made it very clear that it needs assurances from the AIIB that all standards are going to be upheld. After the UK signed up to the AIIB, the U.S. reiterated its stance by publicly recognizing that the U.S. and UK have never spoken about the AIIB standard practices and that the UK had not notified the U.S. of their intentions to join.
American AIIB Hesitation: Private Views
In private, the U.S. reaction to the AIIB reflects less concern about banking standards and more concern about Chinese influence in world affairs. As China continues to grow as a world power, the U.S. is working to maintain its role in Asian development and keep the dollar as the main global currency. The AIIB is a threat to both of these aims.
Through the IMF, the World Bank and the ADP, the U.S. is able to exert its influence over Asian development as a leader in global lending. The U.S. uses majority voting powers or alignment with western nations to select specific projects for development in Asia. A concern for the U.S. with the AIIB is that China will now be able to use its influence to determine what does and doesn’t get developed in Asia. Instead of looking to the U.S. as a dominant power, developing Asian countries will look to China for their leadership, a trend the U.S. doesn’t want to see occur.
In addition to a growing concern over Chinese leadership in Asia, U.S. AIIB hesitation includes the growing threat of the Chinese yuan as a global currency. Since the end of World War II, the U.S. dollar has consistently maintained its status as the world’s reserve currency. As China continues to grow economically, the yuan gains strength against the dollar, and the AIIB could continue this trend. The U.S. is apprehensive towards the AIIB because the dollar naturally maintains value over time due to its status as the world’s reserve currency. Demand for the dollar as a reserve currency allows the U.S. to avoid depreciation in its currency.
American AIIB Hesitation: Private Actions
The U.S.’s privately held views have led it to take action against the AIIB outside of its public statements concerning governance standards. U.S. allies have shared that the U.S. is lobbying them to join the AIIB, including the United Kingdom, Australia, Japan and South Korea. Despite outward comments to the contrary, U.S. fears over growing Chinese power in Asia have inspired the U.S. to take action against the AIIB rather than just worries over world banking standards.
The U.S. is fearful of AIIB creation because the U.S. risks losing influence in Asia and could see a devaluation of the dollar as the AIIB and China grow. While the U.S. publicly claims its apprehension stems from banking regulations, the government is privately.worried about its status as a leader in Asia and the world economy.