No consensus about Beijing’s new bank

EPA/Takaki Yajima

China’s decision to establish an Asia Infrastructure Investment Bank (AIIB) may prove to be one of the most important regional initiatives in recent history. At the very least it is yet another revealing indicator of Beijing’s growing international impact. However, it is not simply China’s economic weight that makes this venture so potentially significant. The AIIB could entrench China’s position as both a key source of much-needed capital and for ideas about how best to use it.

The possibility that some countries might look to Beijing rather than Washington for policy ideas about how to develop is ringing alarm bells in the US. This is why senior figures from the Obama administration have been leaning on allies like Australia not to take part in the AIIB. Deciding how to respond is revealing deep divisions within the Abbott government as it struggles – yet again – to reconcile economic and strategic imperatives.

For most of the last 50 years or so, the market-oriented ‘Washington consensus’ has provided the – often deeply unpopular – blueprint for economic reform in what is still rather patronisingly known as the ‘developing world’. The emergence of the less doctrinaire, more pragmatic ‘Beijing consensus’ represents a real alternative model that has clearly worked in China’s case.

So successful has China’s development been, in fact, that they quite literally have more money than they know what to do with. At one level, the AIIB offers a constructive alternative to simply recycling this wealth into US Treasury bonds. No doubt this reality and American vulnerability to changes in China’s outward capital flows hasn’t escaped the notice of policymakers in the US. But they are likely to be even more concerned about the shifting balance of power and influence in a region they once dominated.

The simple reality is that China can underwrite its ambitions in a way they US finds increasingly difficult. The Asian Development Bank, in which the US and Japan are the principal shareholders, only lends about US$10 billion a year for infrastructure development. The AIIB, by contrast, has start-up capital of $50 billion and expectations that this will rapidly increase to $100 billion.

It is not only its financial heft that promises to make the AIIB significant, however. Some of the proposed projects could transform the Asian continent. The possible resurrection of the fabled Silk Road, which includes a rail link between Beijing and Baghdad, will cement China’s place at the centre of an inter-connected Asia and reinforce the importance of existing institutions like the Shanghai Cooperation Organisation (SCO), which China also dominates.

If anyone doubted the ability of China’s increasingly sophisticated policymaking elites to successfully operate within multilateral institutions, the SCO suggests otherwise. It also suggests that the long-held belief – among many commentators and policymakers in the west, at least – that ‘China’ would be transformed by its participation in institutions and diplomatic practices that were designed by Americans and Europeans, also looks increasingly illusory.

One of the key motivations for the AIIB is China’s unhappiness about the continuing domination of key institutions like the IMF and the World Bank by the US and its allies. Ironically enough, however, China’s accession to the WTO actually accelerated its own development, squashed any vestiges of internal opposition to taking the capitalist road, and gave China the capacity to reshape the very order from which it has benefited so spectacularly.

The key questions now are: what does China hope to achieve, and how should countries like Australia respond? Significantly, Jim Yong Kim, the US-appointed head of the World Bank, ‘fully supports’ the Chinese initiative and sees it as a valuable source of much needed infrastructure development. He has a point. There is still much development work to be done in Asia beyond its highly successful northeastern core.

Even if China is intent on winning friends and influencing people, so what? The beneficiaries of China’s largesse may have much to be thankful for, especially if the Chinese model of development actually works. But even if it does, the US and Australia shouldn’t panic: the recipients of Chinese aid are not mindless dupes. The US and the World Bank ought to know just how difficult it is to transform entire societies or even local elites unless they actually think it’s a good idea, too.

Any country that’s serious about lending money for potentially worthy and necessary developmental projects should be encouraged. Isn’t this what being a good international citizen is actually supposed to be about? Why is Chinese aid any worse than American – always supposing they’re still in a position to provide some?

Rather than unthinkingly siding with the US, Australian policymakers could show a little independence for once and support an initiative that could have important economic and even diplomatic benefits in its immediate neighbourhood. Needlessly irritating the Chinese by refusing to take part in an initiative that enjoys the strong personal support of Xi Jinping looks short-sighted, counterproductive and unnecessary. It also looks like the usual suspects ganging up to thwart Chinese ambitions that appear largely benign.