tag:theconversation.com,2011:/uk/topics/asian-infrastructure-investment-bank-13004/articlesAsian Infrastructure Investment Bank – The Conversation2018-10-30T04:56:57Ztag:theconversation.com,2011:article/1058532018-10-30T04:56:57Z2018-10-30T04:56:57ZLabor is making big promises for a Pacific development bank, but questions remain<figure><img src="https://images.theconversation.com/files/242899/original/file-20181030-76402-to298d.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Locals in Kiribati building a sea wall to protect the low-lying Pacific island from rising sea waters.</span> <span class="attribution"><span class="source">Elise Scott/AAP</span></span></figcaption></figure><p>This week, Opposition leader Bill Shorten used a <a href="https://www.lowyinstitute.org/publications/foreign-policy-next-labor-government">major foreign policy speech</a> at the Lowy Institute to announce that, if elected, a future Labor government would <a href="https://theconversation.com/shorten-proposes-investment-bank-to-help-pacific-nations-development-105820">establish an infrastructure investment bank</a> for the Pacific islands.</p>
<p>The announcement comes at a time of increased public scrutiny of Australian aid to the Pacific, driven by <a href="https://thediplomat.com/2018/07/australias-pacific-island-myopia/">concerns</a> over China’s heightened presence in the region. Many have argued that Australia’s “<a href="https://johnmenadue.com/andrew-farran-south-pacific-islands-responding-to-security-concerns/">benign neglect</a>” of the region has led Pacific governments to seek more assistance from China. </p>
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Read more:
<a href="https://theconversation.com/soft-power-goes-hard-chinas-economic-interest-in-the-pacific-comes-with-strings-attached-103765">Soft power goes hard: China's economic interest in the Pacific comes with strings attached</a>
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<p>Nowhere is this more evident than in <a href="https://www.lowyinstitute.org/the-interpreter/china-pacific-presence-improves-australian-aid">infrastructure</a>. China is believed to have a comparative advantage over Australia in infrastructure lending in the region, given its own rapid development in recent years. Infrastructure lending is also at the heart of the new China-led <a href="https://www.lowyinstitute.org/the-interpreter/misunderstood-aiib">Asian Infrastructure Investment Bank</a>, or AIIB.</p>
<p>Australian aid, by comparison, has been criticised for focusing too heavily on governance projects instead of infrastructure investments. The Vanuatu government, for instance, has <a href="http://chinamatters.org.au/wp-content/uploads/2018/04/China-Matters-Recommends-04-April-2018-PRC-Aid-Pacific.pdf">justified</a> the construction of a China-funded wharf and roads by saying: </p>
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<p>No donor was willing [to] help provide assistance on these projects although the economic benefits [are] huge.</p>
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<h2>A shift in Labor policy</h2>
<p>Though not entirely a surprise, Shorten’s announcement does represent a change in Labor’s approach to aid. In February, Shadow Foreign Minister Penny Wong gave a <a href="https://www.pennywong.com.au/speeches/development-assistance-in-a-time-of-disruption-labors-approach-2018-australasian-aid-conference-canberra/">speech</a> outlining Labor’s future aid policy that focused on health, education, gender and climate change, but made no mention of infrastructure. Then, in July, she shifted tone, calling for greater <a href="https://www.afr.com/news/policy/foreign-affairs/labors-penny-wong-eyes-infrastructure-push-to-boost-regional-influence-20180718-h12uhq">emphasis</a> on infrastructure in the Pacific. </p>
<p>The Coalition has also responded to rising Chinese influence in the region, <a href="https://www.afr.com/news/policy/foreign-affairs/australia-secures-solomon-islands-project-to-counter-chinas-rising-influence-20180411-h0ylzl">committing</a> to the construction of underseas internet cables to the Solomon Islands and Papua New Guinea to head off earlier bids by Chinese companies.</p>
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<img alt="" src="https://images.theconversation.com/files/242891/original/file-20181030-76413-7fow01.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/242891/original/file-20181030-76413-7fow01.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=450&fit=crop&dpr=1 600w, https://images.theconversation.com/files/242891/original/file-20181030-76413-7fow01.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=450&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/242891/original/file-20181030-76413-7fow01.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=450&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/242891/original/file-20181030-76413-7fow01.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=566&fit=crop&dpr=1 754w, https://images.theconversation.com/files/242891/original/file-20181030-76413-7fow01.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=566&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/242891/original/file-20181030-76413-7fow01.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=566&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">A dilapidated road in Vanua Levu, Fiji.</span>
<span class="attribution"><span class="source">Matthew Dornan</span>, <span class="license">Author provided</span></span>
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<p>Australia has for many years effectively delegated infrastructure lending to multinational development banks: the World Bank and Asian Development Bank (ADB). Shorten is now flagging that under a Labor government, Australia will itself provide concessional loans for projects like this on a bilateral basis.</p>
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<a href="https://theconversation.com/for-pacific-island-nations-rising-sea-levels-are-a-bigger-security-concern-than-rising-chinese-influence-102403">For Pacific Island nations, rising sea levels are a bigger security concern than rising Chinese influence</a>
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<p>None of this is to suggest that Australia has been completely absent from the infrastructure sector in the past, though its focus has traditionally been stronger in other areas, such as education and disability projects.</p>
<p>Australia has also invested heavily in “soft” infrastructure in the Pacific, or the technical and managerial expertise and institutions needed to manage new infrastructure projects, such as bridges, roads and ports. </p>
<p>Such support is important, even if outcomes are difficult to measure. Without managerial or technical expertise, as well as appropriate institutions, <a href="http://www.devpolicy.org/infrastructure-maintenance-in-the-pacific-challenging-the-build-neglect-rebuild-paradigm-20130702-2/">infrastructure projects often fall into disrepair</a>. A stark example is the tragic <a href="http://www.devpolicy.org/pngs-rural-decay-a-personal-perspective-20131018/">account</a> of the decline of a village in Papua New Guinea following the deterioration of its airstrip.</p>
<h2>A new reliance on concessional loans</h2>
<p>Australian aid has been used on occasion for infrastructure projects in the Pacific, mainly through grants to complement World Bank and ADB loans. But Australia has not been in the business of providing its own loans for infrastructure development. That much is clear. And in this respect, Shorten’s announcement is significant.</p>
<p>If Australia is determined to move more firmly into the infrastructure game to counter Chinese lending in the region, it <a href="http://www.devpolicy.org/should-more-australian-aid-to-pacific-be-spent-on-infrastructure-20180803/">makes sense</a> to fund such projects with loans. </p>
<p>Grants are ill-suited for infrastructure projects for which there is a strong commercial case (such as the <a href="https://www.afr.com/news/julie-bishop-defends-decision-to-fund-solomon-island-undersea-internet-communications-cable-to-solomon-islands-20180612-h11b2f**%20being%20built%20by%20Australia">Solomon Islands internet cable</a>). They distort market incentives and divert scarce aid resources away from other priorities.</p>
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<a href="https://theconversation.com/pacific-nations-arent-cash-hungry-minister-they-just-want-action-on-climate-change-105206">Pacific nations aren't cash-hungry, minister, they just want action on climate change</a>
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<p>There are clearly potential benefits for the region from a new infrastructure bank. The Pacific suffers from an enormous infrastructure deficit, particularly in remote rural areas. There is also considerable <a href="https://www.journals.uchicago.edu/doi/full/10.1086/380424">evidence</a> that points to the importance of infrastructure for economic development and poverty alleviation. </p>
<p>China Exim Bank loans, though concessional, are generally not great value for money, with higher <a href="https://onlinelibrary.wiley.com/doi/full/10.1002/app5.35">interest rates</a> and shorter repayment periods than those offered by other lenders, including presumably any new Australian infrastructure bank.</p>
<h2>A large number of unanswered questions</h2>
<p>Having said that, we should put the hubris in Shorten’s speech to one side. It makes no sense to aspire, as he said, for Australia to become the Pacific’s “partner of choice” for infrastructure projects. We can only finance a small fraction of the region’s needs, and Pacific nations will have good reason to look to other infrastructure providers, such as China. We’re not that special.</p>
<p>Turning from rhetoric to policy, more detail is needed before we can determine conclusively whether such a bank would be positive for the region. Shorten’s speech only indicated that Labor would: </p>
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<p>…actively facilitate concessional loans and financing for investment in these vital, nation-building projects through a government-backed infrastructure investment bank.</p>
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<p>That leaves a lot of questions unanswered.</p>
<p>Should the new bank lend to governments or the private sector, or both? To what extent will projects be selected on the basis of rigorous benefit cost analysis? How will “bankable” projects be identified? Will loans be available to all Pacific island countries, including those currently in debt distress? Will concessional loans come at the expense of existing aid priorities, including Australian funding for “soft” infrastructure? </p>
<p>The answers to such questions are important. After all, it is Australia’s overall approach towards infrastructure that will ultimately drive long-term impacts.</p><img src="https://counter.theconversation.com/content/105853/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Matthew Dornan receives funding from the Department of Foreign Affairs and Trade's Pacific Research Program</span></em></p>Australian aid to the Pacific has been criticised for not focusing enough on infrastructure. But rising Chinese influence is bringing a shift of priorities.Matthew Dornan, Research Fellow, Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/685842016-11-15T07:21:49Z2016-11-15T07:21:49ZAfter Trump’s win, can China dislodge Asian nations from the US orbit?<p>It will be in Asia – the economic centre of the 21st century – where the future of <a href="http://www.theatlantic.com/international/archive/2012/04/the-end-of-pax-americana-how-western-decline-became-inevitable/256388/">Pax Americana</a> (the peace that has ensued as a result of US hegemony) will be decided. </p>
<p>This continued existence of this peace will depend, to a significant extent, on Washington’s capacity to show that it remains a vital actor in the region despite China’s ascendancy. And, above all, that it is still the <a href="http://www.cfr.org/japan/us-japan-security-alliance/p31437">provider of security guarantees</a> to several of China’s neighbours, such as Japan and South Korea.</p>
<p>If Beijing can bring its neighbours to accept its regional leadership (including its claims in the South China Sea), China could dramatically reduce US influence in a region that holds <a href="http://www.worldometers.info/world-population/asia-population/">more than half of the world’s population</a>.</p>
<p>That this desire would emerge in Beijing is far from surprising. No aspiring great power gains status or respect by ceding responsibility for security in its backyard to a far away foreign nation.</p>
<h2>Chinese initiative and US pushback</h2>
<p>To garner regional support, China has launched a series of high-profile initiatives that involve its neighbours in institutional setups: the <a href="http://www.reuters.com/article/us-asia-aiib-investment-idUSKCN0UU03Y">Asian Infrastructure Investment Bank</a>, the <a href="http://www.postwesternworld.com/2015/03/21/cica-american-security-architecture/">Conference on Confidence Building Measures in Asia</a> security architecture, and economic corridors through Pakistan and Myanmar to the Indian Ocean.</p>
<p>Beijing’s efforts have been derided as “<a href="https://www.ft.com/content/abb35db2-a4cc-11e6-8b69-02899e8bd9d1">chequebook diplomacy</a>” and China has been accused of trying to <a href="https://www.ft.com/content/23968248-43a0-11e6-b22f-79eb4891c97d">buy friends</a>. But if successful, the country’s endeavours will contribute to the creation of an increasingly <a href="http://www.postwesternworld.com/2014/11/21/chinas-towards-sinocentric/">Sinocentric Asia</a>. </p>
<p>China’s most ambitious project is the New Silk Road Economic Belt, usually referred to as <a href="http://www.postwesternworld.com/2016/11/06/political-economy-chinas/">One Belt One Road</a>. This proposed economic corridor will stretch across Eurasia to connect China not only to the Middle East and Europe but also embed it within the region. </p>
<p>One Belt One Road is said to <a href="http://www.postwesternworld.com/2016/11/06/political-economy-chinas/">involve Chinese investments</a> of between US$800 billion and US$1 trillion, covering almost 900 projects in more than 60 partner countries – a truly monumental initiative. Several <a href="http://www.bloomberg.com/news/articles/2016-08-07/china-s-marshall-plan">commentators have drawn parallels</a> between the policy and the <a href="https://history.state.gov/milestones/1945-1952/marshall-plan">1948 US Marshall Plan</a> that helped rebuild postwar Europe. </p>
<p>The US reaction to China’s initiatives has been on two tracks. First, it sought to thwart the Asian Infrastructure Investment Bank, <a href="http://www.postwesternworld.com/2014/11/09/washingtons-opposition-development/">pressuring other countries not to join</a>. This effort failed spectacularly when the United Kingdom, the most important US ally, became <a href="http://www.postwesternworld.com/2015/03/14/camerons-masterstroke-development/">the first to break ranks</a>. The bank now has 50 members, including many US allies from around the world. </p>
<p>US policymakers also promoted <a href="https://theconversation.com/tpp-revealed-at-last-we-have-the-details-and-a-democratic-deficit-to-be-fixed-50232">the Trans-Pacific Partnership</a> (TPP), a trade agreement linking the United States, Japan, Malaysia, Vietnam, Singapore, Brunei, Australia, New Zealand, Canada, Mexico, Chile and Peru. If ratified by all participating countries’ legislatures, it will be the first real manifestation of President Barack <a href="https://theconversation.com/uncertainty-on-security-and-trade-worry-allies-in-asia-as-us-election-approaches-67868">Obama’s “pivot to Asia”</a>, which has so far consisted of little more than rhetoric.</p>
<p>China, which is excluded from the TPP, responded by promoting the <a href="http://www.postwesternworld.com/2015/08/21/tussle-regional-influence/">Regional Comprehensive Economic Partnership</a> (RCEP), which excludes the United States, and which would promote rapprochement between Beijing and Tokyo. The RCEP includes a vast array of rules concerning investment, economic and technical cooperation, intellectual property, competition, dispute settlement, and government regulation.</p>
<h2>Exceptional allies</h2>
<p>This jostling between the US and China for influence in Asia explains why alarm bells started ringing in Washington when the Philippine President Rodrigo Duterte <a href="http://www.businessinsider.com/philippines-rodrigo-duterte-separation-impression-americans-2016-10">announced a “separation” from the United States</a>. Indeed, quite a lot of Duterte’s rhetoric since his election has brought into question his nations’s <a href="https://theconversation.com/he-may-have-insulted-obama-but-duterte-held-up-a-long-hidden-looking-glass-to-the-us-65085">decades-long partnership with Washington</a>. </p>
<p>A month later, Malaysia’s Prime Minister Najib Razak <a href="http://nationalinterest.org/feature/what-are-the-philippines-malaysia-doing-when-it-comes-china-18298">initiated what seemed like a rapprochement</a> with Beijing when he announced the purchase of coastal patrol ships from China. This is the first substantial defense contract between Kuala Lumpur and Beijing and a significant signal, given the <a href="https://www.ft.com/content/76e53d98-a031-11e6-891e-abe238dee8e2">US had also hoped for a deal</a> with Malaysia.</p>
<p>These moves were particularly surprising because both the Philippines and Malaysia are claimants to disputed islands and reefs in the <a href="https://theconversation.com/explainer-what-are-the-legal-implications-of-the-south-china-sea-ruling-62421">South China Sea</a>. Washington had hoped that the tension there could be used to <a href="https://www.ft.com/content/76e53d98-a031-11e6-891e-abe238dee8e2">build an alliance to contain Beijing</a> in the region and put international pressure on China.</p>
<p>The Philippines is the only South China Sea claimant that is <a href="http://www.wsj.com/articles/china-philippines-set-south-china-sea-dispute-aside-1476959210">also a US treaty ally</a>. The two countries recently concluded the <a href="http://cnnphilippines.com/news/2016/01/13/what-you-need-to-know-about-edca.html">Enhanced Defence Cooperation Agreement</a>, allowing Washington access to five Philippines military sites.</p>
<p>But there are several reasons why the Philippines and Malaysia can be seen as outliers. Their leaders have specific reasons to tilt towards Beijing that don’t apply to other US allies in the region. </p>
<p>Duterte’s <a href="https://theconversation.com/philippines-cannot-build-a-nation-over-the-bodies-of-100-000-dead-in-dutertes-war-on-drugs-64053">controversial “war on drugs”</a>, involving systematic human rights violations, has generated US criticism. And, in Malaysia, Najib has been under pressure after US investigations revealed a giant fraud committed by <a href="https://theconversation.com/malaysia-in-turmoil-as-pm-focuses-on-survival-45422">1MDB</a>, a state investment fund.</p>
<h2>Where to now?</h2>
<p>It’s important to also keep in mind that pro-China rhetoric doesn’t always match actions. Malaysia now conducts military exercises with Beijing, but its ties to the US <a href="http://thediplomat.com/2016/11/malaysia-is-not-pivoting-to-china-with-najibs-visit/">are still stronger</a>. With the exception of North Korea, Laos and Cambodia, China’s neighbours are all still closer to Washington than Beijin. </p>
<p>And the United States remains far more popular than China among Asian people, reflected by the far larger number of Asians who aspire to move to the United States than to the Middle Kingdom. </p>
<p>Nonetheless, the US plan to maintain strong political influence in Asia and build alliances to contain China faces significant obstacles. Many US allies not trust each other (Japan and South Korea, for instance). And this may lead to collective action problems, such as what’s know in international relations theory as “<a href="https://blog.richmond.edu/fall10plsc250/2010/11/22/free-rider-problem-and-alliances/">free-riding</a>” – when actors benefit from public goods without making a contribution.</p>
<p>What’s more, many countries in the region are increasingly dependent on China’s economy, reducing their willingness to oppose Beijing. Even though, in principle, they are more likely to oppose China than support it, given its proximity and regional leadership ambitions.</p>
<p>As president-elect <a href="https://theconversation.com/donald-trumps-presidency-could-be-a-disaster-for-the-global-economy-68551">Donald Trump’s support for the Trans-Pacific Partnership</a> is very unlikely, and with China’s initiatives entangling the region’s economies with its own, time is clearly on Beijing’s side.</p>
<p>Countries in the region will <a href="http://thediplomat.com/2016/09/the-post-western-world-and-the-rise-of-a-parallel-order/">probably opt for a hedging strategy</a>: maintaining the United States as a security ally, but benefiting from broader economic integration with China. </p>
<p>Some of these, such as Vietnam and the Philippines, could emerge as the greatest beneficiaries of this dynamic, provided they play their cards right. Duterte, for instance, may <a href="https://www.ft.com/content/28eb69ca-99cc-11e6-b8c6-568a43813464">simply be trying to extract</a> stronger security guarantees from the United States, while obtaining more Chinese aid. </p>
<p>While mounting tensions between the West and Russia and continued instability in the Middle East remain relevant and will require US attention, it’s in China’s neighbourhood where the future of global order will be determined.</p><img src="https://counter.theconversation.com/content/68584/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Oliver Stuenkel does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>If Beijing can bring its neighbours to accept its regional leadership, China would have successfully achieved a dramatic reduction of US influence.Oliver Stuenkel, Assistant Professor of International Relations, Fundação Getulio VargasLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/570372016-04-05T20:07:24Z2016-04-05T20:07:24ZDevelopment banks threaten to unleash an infrastructure tsunami on the environment<figure><img src="https://images.theconversation.com/files/117134/original/image-20160401-6801-ctee53.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Major development banks are funding logging, mining and infrastructure projects that are having enormous impacts on nature. Here, forests are being razed along a newly constructed road in central Amazonia.</span> <span class="attribution"><span class="source">William Laurance</span>, <span class="license">Author provided</span></span></figcaption></figure><p>We are living in the most explosive era of infrastructure expansion in human history. The G20 nations, when they met in Australia in 2014, argued for <a href="http://us.boell.org/sites/default/files/alexander_multi-polar_world_order_1.pdf">between US$60 trillion and US$70 trillion</a> in new infrastructure investments by 2030, which would more than double the global total value of infrastructure.</p>
<p>Some of the key players in this worldwide infrastructure boom are huge investors such as the World Bank. The past few years and decades have seen the rise of major new investment banks, such as the recently founded <a href="http://euweb.aiib.org/html/aboutus/AIIB/?show=0">Asian Infrastructure Investment Bank</a> (AIIB), and the dramatic growth of funds such as the <a href="https://en.wikipedia.org/wiki/Brazilian_Development_Bank">Brazilian Development Bank</a> (BNDES). </p>
<p>The new banks, along with traditional big lenders such as the World Bank, the International Monetary Fund, and the Asian, African, and Inter-American Development Banks, are very fond of funding big infrastructure such as roads, dams, gas lines, mining projects, and so on. </p>
<p>Some people had hoped that these banks would promote sustainable and socially equitable development, but it now seems that they could end up doing precisely the opposite.</p>
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<span class="caption">The world’s rivers are imperilled by thousands of planned hydroelectric dams. Shown here is the Tapajós River in Brazil, for which a dozen mega-dams are currently planned.</span>
<span class="attribution"><span class="source">William Laurance</span></span>
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<h2>The infrastructure tsunami</h2>
<p>The next few decades are expected to see some 25 million km of <a href="http://www.nature.com/nature/journal/v513/n7517/abs/nature13717.html">new paved roads</a>, thousands more <a href="http://link.springer.com/article/10.1007%2Fs00027-014-0377-0#/page-1">hydroelectric dams</a>, and hundreds of thousands of new <a href="http://www.theecologist.org/News/news_analysis/2449005/africas_ecosystems_imperilled_by_mining_frenzy.html">mining, oil and gas projects</a>. </p>
<p>The environmental impacts of the modern infrastructure tsunami could easily dwarf climate change and many other human pressures, as thousands of projects penetrate into the world’s last surviving wild areas. Roughly <a href="http://www.iea.org/publications/freepublications/publication/transportinfrastructureinsights_final_web.pdf">90%</a> of the new projects are in developing nations, often in the tropics or subtropics which harbour the planet’s biologically richest and environmentally most critical ecosystems. </p>
<p>In these contexts, new infrastructures such as roads can open a <a href="http://www.nytimes.com/2015/04/13/opinion/roads-to-ruin.html?_r=1">Pandora’s box</a> of environmental problems, by promoting widespread deforestation, habitat fragmentation, poaching, fires, illegal mining and land speculation. </p>
<p>For instance, <a href="http://eventos.gvces.com.br/arquivos/Barber-et-al-2014-Amazon-roads.pdf">our research</a> in the Brazilian Amazon has shown that 95% of all deforestation occurs within 5.5 km of a legal or illegal road.</p>
<p>In Brazil, 12 new dams planned for the Tapajós River (and their associated road networks) are expected to increase Amazon deforestation by <a href="https://theconversation.com/the-worlds-forests-will-collapse-if-we-dont-learn-to-say-no-53979">nearly a million hectares</a>. Across the Amazon, more than 330 dams are now planned or under construction.</p>
<p>In the Congo Basin, an avalanche of new logging roads has opened up vast areas of rainforest to poachers armed with rifles and cable snares. As a result, the past decade has seen <a href="http://www.theguardian.com/environment/2013/mar/05/two-thirds-forest-elephants-killed">two-thirds</a> of all Forest Elephants slaughtered for their valuable ivory tusks.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/117135/original/image-20160401-6809-112abt9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/117135/original/image-20160401-6809-112abt9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/117135/original/image-20160401-6809-112abt9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=450&fit=crop&dpr=1 600w, https://images.theconversation.com/files/117135/original/image-20160401-6809-112abt9.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=450&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/117135/original/image-20160401-6809-112abt9.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=450&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/117135/original/image-20160401-6809-112abt9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=566&fit=crop&dpr=1 754w, https://images.theconversation.com/files/117135/original/image-20160401-6809-112abt9.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=566&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/117135/original/image-20160401-6809-112abt9.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=566&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Because of massive road expansion, there has been an epic slaughter of Forest Elephants in the Congo Basin.</span>
<span class="attribution"><span class="source">Ralph Buij</span></span>
</figcaption>
</figure>
<h2>Fears of fast-tracking</h2>
<p>Brazil’s BNDES has been heavily criticised for funding scores of environmentally and socially harmful projects, such as <a href="http://news.mongabay.com/2016/03/bndes-a-bank-loans-billions-to-tame-south-americas-wild-waters/">mega-dams in the Amazon</a>. Fears were raised that China’s AIIB would <a href="http://bankwatch.org/bwmail/63/new-beijing-backed-asian-infrastructure-investment-bank-struggles-convince-environment">behave similarly</a>, especially when it announced that it would be using <a href="http://news.xinhuanet.com/english/2015-05/22/c_134262848.htm">“streamlined” procedures</a> for evaluating its projects. </p>
<p>Such fast-tracked procedures would differ from those used by other major lenders such as the World Bank, which after years of criticism have gradually implemented measures designed to limit the environmental and social impacts of its projects. Even these safeguards are often inadequate, as I and others argued in a <a href="http://www.cell.com/current-biology/abstract/S0960-9822%2815%2900219-5">recent article</a>, but at least they are a big improvement over past practices.</p>
<p>When China opened up its AIIB to other countries, 30 nations initially joined as founding members. Many of these are western economies, including the United Kingdom, Germany, France, Italy, Norway, Australia and New Zealand.</p>
<p>At the time, many observers hoped that the bank’s broader membership would encourage the AIIB to moderate its <a href="http://europe.chinadaily.com.cn/epaper/2016-01/22/content_23193634.htm">hard-charging stance</a> — perhaps fostering environmental and social safeguards more akin to those of the existing major lenders.</p>
<h2>Race to the bottom?</h2>
<p>But in fact the exact opposite appears to be happening. Rather than the AIIB raising its game, the World Bank recently concluded <a href="http://consultations.worldbank.org/consultation/review-and-update-world-bank-safeguard-policies">a review of its environmental standards</a> — a move that has been criticised as <a href="https://www.devex.com/news/the-controversy-over-safeguard-policies-87679">weakening its environmental and social safeguards</a>. </p>
<p>It is doing so, it says, in order to keep up with “<a href="http://web.worldbank.org/WBSITE/EXTERNAL/PROJECTS/EXTPOLICIES/EXTSAFEPOL/0,,menuPK:584441%7EpagePK:64168427%7EpiPK:64168435%7EtheSitePK:584435,00.html">new and varied development demands</a>”. This is widely seen as a <a href="http://www.a-id.org/en/news/how-the-world-bank-is-relaxing-its-human-rights-standards/">response to increasing competition</a> with other investors such as the AIIB. </p>
<p>What will this mean? The global economy has slowed for the moment, giving environmental planners a tiny window of breathing space. But make no mistake, the infrastructure tsunami is <a href="https://theconversation.com/massive-road-and-rail-projects-could-be-africas-greatest-environmental-challenge-51188">still happening</a>. If the global economy rebounds to a degree, the feeding frenzy of projects seen in recent years could easily return. </p>
<p>This could be bad news for the global environment and <a href="http://www.forestpeoples.org/topics/safeguard-accountablility-issues/news/2014/07/press-release-world-bank-moves-undermine-rights">socially disempowered peoples</a>. For instance, a 2009 analysis found that many developing nations had become “pollution havens” for projects funded by <a href="http://elibrary.worldbank.org/doi/abs/10.1596/1813-9450-3505">China or Chinese investors</a>, who were attracted to nations with weak environmental controls. Notably, other advanced (<a href="https://en.wikipedia.org/wiki/Organisation_for_Economic_Co-operation_and_Development">OECD</a>) economies showed no such tendency.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/117129/original/image-20160401-6816-9cu6jt.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/117129/original/image-20160401-6816-9cu6jt.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/117129/original/image-20160401-6816-9cu6jt.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=598&fit=crop&dpr=1 600w, https://images.theconversation.com/files/117129/original/image-20160401-6816-9cu6jt.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=598&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/117129/original/image-20160401-6816-9cu6jt.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=598&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/117129/original/image-20160401-6816-9cu6jt.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=752&fit=crop&dpr=1 754w, https://images.theconversation.com/files/117129/original/image-20160401-6816-9cu6jt.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=752&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/117129/original/image-20160401-6816-9cu6jt.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=752&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">How badly will the global avalanche of new infrastructure affect nature? With development pressures rapidly escalating in the tropics, species such as this Golden Dove, found only in Fiji, could be especially vulnerable.</span>
<span class="attribution"><span class="source">William Laurance</span></span>
</figcaption>
</figure>
<p>Will other major lenders follow suit? Will there simply be a “race to the bottom” among big lenders in order to remain competitive? Only time will tell. </p>
<p>The other key question revolves around the role of western nations that are parties to the AIIB, such as the EU members and Australia. Do they have enough influence and determination to make a difference? With China, India and Russia holding the biggest shares of the bank’s capitalisation, it’ll be an uphill battle.</p>
<p>Right now, for the environment and human rights, the signs are all pointing in the wrong direction.</p><img src="https://counter.theconversation.com/content/57037/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Bill Laurance receives funding from the Australian Research Council and other scientific and philanthropic organisations. He is the director of the Centre for Tropical Environmental and Sustainability Science at James Cook University and founder and director of ALERT--the Alliance of Leading Environmental Researchers & Thinkers.
</span></em></p>Big new investors such as the Asian Infrastructure Development Bank are key players in a worldwide infrastructure, and that could be bad news for the environment.Bill Laurance, Distinguished Research Professor and Australian Laureate, James Cook UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/486202015-10-07T13:32:43Z2015-10-07T13:32:43ZHS2: the trouble with relying on China for high-speed rail<figure><img src="https://images.theconversation.com/files/97592/original/image-20151007-7333-1luwm5s.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/sharonhahndarlin/8386623442/in/photolist-dM6CXU-dLZY9p-5u4oZB-5u8Nod-df4N9Y-hkECAT-8Y7BRt-8MBDdG-4AXdx3-8WnoZh-KV2mf-e91zaB-e91xw6-e97fzY-b7Rt3g-7uxwco-dLZLVD-nedUnD-6Goyry-gz13o3-7xSdSe-9YuZ6g-6BxAua-9dCNBf-dB42mN-df4NCh-3fybpK-3egXn-pognE7-av4FPF-aY5drc-df4Nkd-df4NUB-aY5enP-gz1rYk-8SkEnM-8RVEh6-8RYKJm-8Sfbgg-7j6eZ8-9pbZp8-pBRuH5-qmRR1C-bBCtw1-91MEBC-91MDxf-91MFkh-9m3NWB-o6zdqf-oaoMAt">Sharon Hahn Darlin</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span></figcaption></figure><p>George Osborne has made a major commitment to investing in UK infrastructure with the announcement of a new independent commission to oversee it. In particular, he has emphasised the role of railways in <a href="https://www.politicshome.com/party-politics/articles/news/george-osbornes-full-speech-tory-conference">making Britain “great”</a>. But, as with Osborne’s <a href="https://theconversation.com/serious-issues-for-george-osborne-on-chinas-role-in-the-uks-nuclear-future-48541">plans for nuclear energy</a>, he will be turning to China for help in building this costly infrastructure. </p>
<p>Osborne’s recent overture to the Chinese to bid to build the first phase of a new high-speed rail system between London and Birmingham (HS2) has left many in the UK perplexed and dismayed. The charge of kowtowing to the Chinese to take on this £11.8 billion project <a href="http://www.telegraph.co.uk/finance/economics/11883334/As-George-Osborne-kowtows-the-world-sinks-beneath-a-sea-of-Chinese-overcapacity.html">has been made</a> and the UK chancellor has also been accused of acting in contempt of the country’s legislature – as legislation enabling HS2 to proceed has yet to be formally signed off by the Queen. </p>
<h2>Underlying complexity</h2>
<p>Inevitably, the headlines understate the underlying complexity. On the one hand, the chancellor seems keen to link the UK with the newly-created Chinese <a href="https://theconversation.com/why-everyones-joining-the-asian-infrastructure-investment-bank-39256">Asian Infrastructure Investment Bank</a>. Such is Osborne’s commitment to this bank that he overrode strong objections from the Foreign and Commonwealth Office as well as the US president, Barack Obama, and the World Bank <a href="http://www.ft.com/cms/s/0/c256e788-d3bc-11e4-a9d3-00144feab7de.html#axzz3nsHmQTkZ">when he made the decision to join it</a>. </p>
<p>Through this source the chancellor is also hoping for Chinese investment in the new nuclear power station at Hinkley Point, which carries a price tag of £25.5 billion. High-speed rail is, however, a more popular investment prospect <a href="http://www.telegraph.co.uk/finance/newsbysector/energy/11885334/EDF-Investors-shun-Hinkley-Point-because-they-think-it-will-go-wrong.html">than nuclear power</a>. Canadian pension funds, for example, have already heavily invested in high-speed rail – it was only a few years ago that one <a href="http://www.railwaygazette.com/news/single-view/view/high-speed-1-concession-awarded-to-canadian-pension-consortium.html">acquired HS1</a>. And these funds have signalled strong interest in further investment opportunities, <a href="http://www.telegraph.co.uk/finance/newsbysector/transport/10901686/Owners-of-Channel-Tunnel-link-eye-HS2.html">including HS2</a>.</p>
<p>Yet there is a possible technical link here between the HS2 project and a new energy source like Hinkley Point. Quite simply, if the HS2 scheme achieves its design goal of an operating speed of 250mph, it will require access to a significant new power source. So there is some urgency to steer finance into both projects.</p>
<h2>Global leaders</h2>
<p>Certainly, the HS2 project appeals to Chinese interests in purely business terms. The Chinese government is keen to position itself as a global leader in the field after developing the technology domestically to link its widely dispersed nation of 1.5 billion people. Beginning in the 1990s, Chinese engineers bought trains and technology from foreign firms such as Japan’s Kawasaki, Germany’s Siemens, the French Alstom, and Bombardier in Canada. They then adapted and reverse-engineered the imported technology until they evolved their own. Since 2003, China has laid more than <a href="http://news.xinhuanet.com/english/photo/2015-01/30/c_133959250.htm">16,000km of high-speed track</a> – more than half the world’s total – with <a href="http://www.forbes.com/sites/sarwantsingh/2014/07/17/china-high-speed-rail-juggernaut-while-most-of-us-stands-by-and-waves-but-not-elon-musk-part-1/">9,000km more planned by 2020</a>. </p>
<p>But this rapid development has come at the cost of human life. First, in 2008, 72 people died when an express train from Beijing to Qingdao derailed. But in July 2011, in eastern Zhejiang province, another high-speed train crash killed 38 and injured 192. Failures in the signalling system caused a derailment of two trains and resulted in four carriages falling off a viaduct. </p>
<p>In a bid to stifle news or comment about this tragedy, officials ordered the burial of the derailed cars. People became reluctant to use the service as public confidence in high-speed rail eroded and China’s reputation in high technology faced international scrutiny. </p>
<h2>Learning from experience</h2>
<p>China claims to have learned from these accidents and now wants to build foreign earnings and influence using its hard-won experience in building the fastest high-speed rail systems in the most challenging conditions. Already Chinese rail builders have been selected to build a high-speed rail line <a href="http://www.telegraph.co.uk/sponsored/china-watch/technology/11540416/chinas-high-speed-rail-network.html">between Belgrade in Serbia and Budapest in Hungary</a>, as well as a new route to link <a href="http://www.theguardian.com/world/2015/jul/31/chinese-built-railway-line-cut-nairobi-national-park-kenya">Mombasa and Nairobi in Kenya</a>. There is even a possibility of China’s participation <a href="http://www.theverge.com/2015/9/17/9347723/china-las-vegas-high-speed-rail-los-angeles">in California’s high-speed rail project</a>. </p>
<p>Plus, it is difficult to think of another source which could meet the strict specifications for rail tracks, rolling stock and signalling set out in the plans for HS2 – which bring the total cost <a href="http://www.theweek.co.uk/hs2/55781/hs2-george-osborne-opens-bidding-in-china">to around £50 billion</a>.</p>
<p>Yet there is something which both the UK and China may need to consider as Chinese companies are persuaded to sign up for the HS2 scheme. As we have seen <a href="http://www.europeanfinancialreview.com/?p=2273">in Africa and South America</a>, Chinese businesses seeks to present themselves as scrupulously politically neutral when working overseas. It would be naive in the extreme to imagine that the progress of work on HS2 will not be attended and affected by local demonstrations and occupations. The prospect of middle-class protesters chained to mechanical diggers while dismayed Chinese project managers look on and police seek to clear the way for a very time and cost-sensitive project, is not one Chinese PR managers will want to see on the British tea-time news.</p><img src="https://counter.theconversation.com/content/48620/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Michael Synnott does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Is the UK chancellor’s new commitment to infrastructure undermined by a reliance on China?Michael Synnott, Senior Teaching Fellow in Strategy and International Business, University of WarwickLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/426812015-06-30T20:15:19Z2015-06-30T20:15:19ZWith the AIIB the world gets a new banker, and a chance to shape China’s view<p>Beijing was in full party mode this week as delegates from 50 countries gathered to sign the articles of incorporation for the Asian Infrastructure Investment Bank (AIIB). Seven more countries are due to sign by the end of the year when the bank is expected to formally open its door for business.</p>
<p>This marks yet another milestone in the establishment of a China-led development lender that, according to its charter, aims to finance investments in infrastructure and other “productive” activities in Asia.</p>
<h2>The mean and the lean</h2>
<p>The share and governance structures of the bank have been under the radar. On one hand, China has vowed to bring something new to the table with a “new type” of multilateral development bank. On the other hand, western countries, whether those that have jumped aboard the bandwagon or those remaining on the sideline (particularly the US and Japan), have been wary. They are concerned the AIIB is part of Chinese plans to expand its geopolitical and economic interests at the expense of “international best practice”.</p>
<p>The proposed structure of the bank has been a compromise between China’s ambition and western concerns. Contributing almost US$30 billion of the institution’s US$100 billion capital base, China collects 30.34% of stake and 26.06% of voting rights within the multilateral institution. This makes China the largest shareholder in the bank, followed by India, Russia and Germany, with Australia and South Korea being equally fifth in shares.</p>
<p>What is notable is that China offered to forgo outright veto power in the bank’s routine operations, which helped win over some key founding members. However, a 26% voting right will give China veto power over “important” decisions that require a “super majority” of at least 75% of votes and approval of two-thirds of all member countries.</p>
<p>According to a report by the Wall Street Journal, the new lender will be overseen by <a href="http://www.wsj.com/articles/how-china-plans-to-run-aiib-leaner-with-veto-1433764079">a lean staff</a>, in the form of an unpaid, non-resident board of directors. Established development banks (such as the World Bank) have been accused of being over-staffed, costly, and bureaucratic. But the AIIB approach tilts the power balance to the bank executives who will be based in Beijing and led by a Chinese-appointed governor. More institutional details must be worked out to strike a better balance between transparency, accountability, and efficiency.</p>
<h2>Be in it to win it</h2>
<p>The fact that a host of its allies have flocked to join China’s AIIB despite a campaign of dissuasion from Washington has sparked some serious soul searching in the power circle of the United States. Ben Bernanke, former chairman of the Federal Reserve, <a href="http://www.ft.com/intl/cms/s/0/cb28200c-0904-11e5-b643-00144feabdc0.html#axzz3eSU4PnUU">blamed the US Congress</a> for the impasse in approving reforms to the IMF in granting emerging powers, particularly China, greater clout in the institution. Lawrence Summers, former US Treasury secretary, <a href="http://larrysummers.com/2015/04/05/time-us-leadership-woke-up-to-new-economic-era/">wrote recently</a> that America’s blunder on the AIIB may be remembered as the moment it “lost its role as the underwriter of the global economic system”.</p>
<p>Indeed, Washington could have kicked the ball back to Beijing if it had taken a more participatory approach. The articles of association prove external concerns can be addressed through negotiation and compromise, but one needs to be at the table rather than pointing fingers from outside the room.</p>
<p>The current institutional framework suggests that previous fears of an unfettered Chinese influence within the bank were overblown. Yes, China could exert its veto power on important decisions, but conversations with Chinese bureaucrats suggest China is very unlikely to invoke it. After all, hijacking the agenda with its veto power has been the very way the US governs the institutions under its control, from which China is trying to distance itself.</p>
<p>In addition, it is less noted that the voting rights of the “Western” block, in its widest terms, (including South Korea and Singapore), are more than 30% in total. This means a mutual veto between China and western interests. In practice, this delicate balance tends to lead to negotiated consensus rather than open confrontation.</p>
<h2>Engaging the new banker</h2>
<p>For a long time, China has been urged to be a “responsible stakeholder” for the international community. The AIIB could well be a touchstone for China to demonstrate its ideas and ways of leadership. As Lou Jiwei, Chinese finance minister, <a href="http://www.ftchinese.com/story/001062764/en#s=d">said:</a> </p>
<blockquote>
<p>“This is China assuming more international responsibility for the development of the Asian and global economies.”</p>
</blockquote>
<p>It is time to turn the table around. Instead of an endless debate on China’s strategic intentions as an emerging power, what we should do is explore ways to shape China’s behaviour to be more aligned with international expectations.</p>
<p>The new development bank presents a rare opportunity to achieve this in a multilateral context. So far China has largely acted on the sidelines in major international institutions, such as the World Trade Organisation and the G20 (before the Brisbane summit), and had leadership experiences in mostly regional settings, such as the Shanghai Cooperation Organisation. </p>
<p>The world has a new banker. However, it lacks expertise in international development finance; it lacks international governance experiences; and its ideas are untested.</p>
<p>These are not reasons for pessimism about the bank’s future. On the contrary, these are the very reasons we should join the initiative. By doing so, we could more effectively shape China’s view of the world and its role in the world when it is in need of ideas, expertise, and most importantly, support. </p>
<p>Whether China will be a friend or foe largely depends on whether we treat it as a friend or foe. After all, as Hillary Clinton <a href="http://www.theguardian.com/world/us-embassy-cables-documents/199393">once said</a> of the US relationship with China: “How do you deal toughly with your banker?”</p><img src="https://counter.theconversation.com/content/42681/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Hui Feng does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Western powers signing on for the Asian Infrastructure Investment Bank could more effectively shape China’s view of the world.Hui Feng, Research Fellow, Griffith Asia Institute and Centre for Governance and Public Policy, Griffith UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/399782015-04-09T20:45:47Z2015-04-09T20:45:47ZChina’s new investment bank challenges US influence on global economics<p>Financial news outlets have extensively covered the formation of the Asian Infrastructure Investment Bank (AIIB) in the past few weeks. If you’re not involved in the world of economics or finance, this is the sort of issue that understandably causes your eyes to glaze over.</p>
<p>But the significance of this new bank really cannot be understated. With only a small degree of hyperbole, Larry Summers, former US Secretary of the Treasury, <a href="http://www.ft.com/cms/s/2/a0a01306-d887-11e4-ba53-00144feab7de.html#axzz3WXrFQiRO">declared </a>in a Financial Times op-ed that, “This past month may be remembered as the moment the United States lost its role as the underwriter of the global economic system.” </p>
<p>So why all the hand wringing? Why should those who don’t routinely follow financial news care? </p>
<p>The new bank’s significance can be best judged in the context of two related issues. The first concerns the current debate in the US about the significance of China’s phenomenal growth. The second concerns the relative importance of each country in the aftermath of the global financial crisis that began in 2007.</p>
<h2>Hawks and Doves</h2>
<p>Let’s look at how the debate over China divides between foreign policy hawks and doves. Hawks, dating back to the end of the Cold War, have focused on policies that ensure no other country emerges that can question America’s global <a href="http://www.foreignaffairs.com/articles/52239/william-kristol-and-robert-kagan/toward-a-neo-reaganite-foreign-policy">supremacy</a>. That dominance relies, broadly speaking, on two factors: America’s unrivaled military power and its role as the center of the global economy, a position it has largely occupied since 1945. Hawks now regard China as the rising power that if left unchecked, will soon challenge American supremacy.</p>
<p>In contrast, many American liberals take a more “dovish” approach to China. Famed Harvard political scientist Joseph Nye recently reiterated that the best way to deal with China is by a process of <a href="http://belfercenter.ksg.harvard.edu/publication/25204/china_challenge.html%5D">engagement</a>, a position he has maintained for well over a decade. Some are less sanguine, such as Robert Zoellick, former Deputy Secretary of State and subsequent president of the World Bank. A decade ago, he famously implored China to become a “<a href="http://2001-2009.state.gov/s/d/former/zoellick/rem/53682.htm">responsible stakeholder</a>” in the global community, rather than pursuing its narrow self interest. </p>
<p>The media routinely invokes these two images of China – as challenger and as a partner to the US. And both doves and hawks each have a story to tell, each reliant on reasonably accurate facts. They are just different facts.</p>
<p>The hawks focus on China’s rapidly growing military expenditures, even though it is about <a href="https://www.cia.gov/library/publications/the-world-factbook/geos/ch.html">half </a>the GNP expenditure of the US. They point to China’s effective use of <a href="http://www.rigzone.com/news/article.asp?a_id=91521">checkbook diplomacy</a> across Africa, Asia and Latin America in exchange for natural resources, China’s capacity for trade and investment at a <a href="http://www.economist.com/node/18586448?story_id=1858644">cost of human rights</a>, its low-level use of <a href="http://www.huffingtonpost.com/franzstefan-gady/chinese-cyberattacks-will_b_5384845.html">cyber espionage</a>, and its growing claims to <a href="http://www.wsj.com/articles/SB10001424052702303281504579221993719005178">sovereignty </a>in the air and on the seas of Asia. Hawks see China steadily moving to challenge the global rules and institutions constructed by the US after 1945.</p>
<p>The liberals stress the significance of China’s <a href="http://www.economist.com/news/special-report/21631799-asia-has-built-web-economic-interdependence-which-china-would-be-ill-advised">integration </a>into the global economy; the indispensable <a href="http://ias.sagepub.com/cgi/reprint/2233865915573638v1.pdf?ijkey=LJrI8wePiziePaz&keytype=finite">role </a>it played in supporting the world’s economic system during the depths of the Great Recession; the growth of China’s <a href="http://www.theglobeandmail.com/news/world/francis-fukuyama-discusses-chinas-long-march-to-democracy/article21154653/?page=all">middle class</a> as a force in favor of democracy; and its oft-repeated goal of a process of “<a href="http://www.china.org.cn/english/2005/Dec/152669.htm">peaceful development</a>.” For doves, time and patience are required as China inevitably moves towards its position as America’s economic and political partner.</p>
<h2>The role of the AIIB in the debate</h2>
<p>The establishment of the new AIIB now becomes very significant in this debate. The AIIB potentially threatens to disrupt a system set up by the US after World War Two. At that time, the US created several important economic organizations. The International Monetary Fund was designed to oversee global financial policy; and the World Bank was intended to provide assistance for development aid in what we today call the Global South. Although countries received voting rights in proportion to their monetary contributions, the US has ensured it retains a controlling vote in both organizations, often leading to <a href="http://newleftreview.org/II/7/robert-wade-showdown-at-the-world-bank">accusations </a>that both institutions are simply instruments of American power. </p>
<p>Although their roles have waxed and waned over the decades, the importance of these two organizations was largely uncontested – until the Great Recession. Then a cash-rich China began to <a href="http://www.ft.com/intl/cms/s/0/488c60f4-2281-11e0-b6a2-00144feab49a.html#axzz1RFIPRpT0">spend more money</a> on development aid than even the World Bank. And unlike the World Bank, the Chinese make no demands in terms of labor or human rights, as the World Bank generally does. Indeed, Chinese firms often even <a href="http://www.ft.com/intl/cms/s/0/2ab8c5a8-45e1-11e0-acd8-00144feab49a.html">provided the labor </a>for infrastructure development, exporting Chinese nationals to build the roads, bridges or ports. And those roads often led to mines or refineries – with the Chinese being <a href="http://www.rigzone.com/news/article.asp?a_id=91521">repaid</a> with natural resources. In other words, the Chinese introduced a whole new conception of aid: loans without the protection – or even use – of local workers and infrastructure in exchange for resources. </p>
<p>Still, many countries needed the cash injections and agreed to these terms, even if they later had “<a href="http://www.economist.com/node/18586448?story_id=18586448">buyers regret</a>.”</p>
<p>The US, sensing the significance of these developments, has resisted China’s expanding economic influence. Since 2010, the US Congress has refused to approve China being awarded voting rights consistent with their economic contributions at the <a href="http://www.reuters.com/article/2014/01/15/us-china-imf-idUSBREA0E1PT20140115">IMF </a>. Moreover, the Obama Administration has not encouraged cooperation between the World Bank and the Chinese because of then country’s disregard for human and labor rights.</p>
<p>The Chinese response, in effect, has been to organize the creation of new financial institutions. One, the <a href="http://www.forbes.com/sites/realspin/2014/12/22/brics-new-development-bank-threatens-hegemony-of-u-s-dollar/">BRICs Bank, </a>is a possible challenger to the IMF’s central role. Both the <a href="http://www.reuters.com/article/2014/11/08/us-china-diplomacy-idUSKBN0IS0BQ20141108">Silk Road Fund</a> and, now, the AIIB are designed to encourage infrastructural development across Asia. They both offer an alternative to the World Bank.</p>
<p>The AIIB therefore represents a snub towards the US, the World Bank and – regionally – the Asian Development Bank. American policymakers tried for months to discourage US allies and partners from signing on as members. But this resistance was effectively broken when the British signed on. A cascade of applications followed, with the total reaching 53 by the deadline at the end of March. This included some of America’s <a href="http://finance.yahoo.com/news/us-isolated-allies-line-join-075105032.html">closest allies</a>: Western European nations, Australia, New Zealand and South Korea. Even Japan is considering joining. Every applicant has to be approved – by the Chinese.</p>
<p>The US has clearly lost this diplomatic offensive; American officials are reputedly <a href="http://finance.yahoo.com/news/europe-u-stumbled-spat-over-125300542.html%5D">furious</a> at what they regard as the defection of close allies. Now, all parties are trying to save face or maintain decorum by talking about how these various organizations can work together.</p>
<p>But clearly, the creation of the AIIB, the fact that so many close US allies defied US pressure, and the potential marginalization of America’s cherished World Bank all symbolize an important turning point for the US. The AIIB’s impact goes well beyond the pages of the financial section and into the realm of global political influence.</p>
<p>What the Chinese decide to do with that influence – and whether the hawks or the doves are correct – will only emerge over time.</p><img src="https://counter.theconversation.com/content/39978/count.gif" alt="The Conversation" width="1" height="1" />
The creation of the Asian Infrastructure Investment Bank is a blow against US influence in global financial markets.Simon Reich, Professor in The Division of Global Affairs and The Department of Political Science, Rutgers UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/394062015-04-06T10:16:50Z2015-04-06T10:16:50ZUS should stop blocking China’s AIIB and join allies in new club<figure><img src="https://images.theconversation.com/files/77049/original/image-20150403-9328-emy6c5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">China's made it clear, all nations allowed. </span> <span class="attribution"><span class="source">Clubhouse from www.shutterstock.com</span></span></figcaption></figure><p>China’s growing economic clout is complicating US efforts to maintain its grip on the world’s leading multilateral economic institutions – as it’s done since the end of World War II. </p>
<p>The creation of the Asian Infrastructure Investment Bank (AIIB), established last year by China and many other Asian countries, has brought this challenge and how to address it front and center. </p>
<p>The AIIB is similar to the Asian Development Bank (ADB) and the World Bank – in that it’s intended to finance infrastructure investments – except that it will serve more as an instrument of Chinese rather than Western influence.</p>
<p>Thus far, the US has reacted by trying to marginalize the bank’s impact, urging other Western powers to follow its lead and steer clear. As we’ve seen in recent weeks, that strategy has failed miserably, with Australia, the United Kingdom, France, Germany and even Taiwan now <a href="http://www.theguardian.com/business/2015/mar/29/australia-confirms-it-will-join-chinas-asian-infrastructure-investment-bank">interested</a> in becoming founding members. Of the major powers, only Japan has continued to follow its ally’s lead. </p>
<p>This represents a serious setback for the White House’s ability to lead the international economic order on its own terms. While the narrative of the day is that of a <a href="http://www.vox.com/2015/4/1/8311921/asian-infrastructure-investment-bank">policy</a> <a href="http://www.washingtonpost.com/posteverything/wp/2015/03/27/anatomy-of-a-whole-of-government-foreign-policy-failure/">defeat</a> for the Obama administration, some larger points are worth noting. </p>
<h2>Manage multilateralism, don’t block it</h2>
<p>First, the very existence of the AIIB is a self-inflicted problem for the US. It could have been avoided had the US been willing to cede some power at the IMF and ADB. </p>
<p>Second, objections to European and other Western countries joining it are shortsighted because the best way to influence its actions is by being on the inside. </p>
<p>Finally, the AIIB is a good thing for both China and the US over the long term as it shows the rising power’s interest in taking on more global responsibilities – exactly what the White House has sought – so arguments against it are counterproductive.</p>
<h2>Hoisted on its own petard</h2>
<p>The AIIB is intended to solve a problem by providing money to support the <a href="http://www.asifma.org/uploadedFiles/Events/2014/Annual_Conference/Closed%20Door%20Regulator%20Meeting%201%20-%20Infrastructure%20Financing%20-%20Michael%20Cooper%20HSBC.pdf">trillions of dollars</a> of infrastructure investment that emerging markets will need in coming years. </p>
<p>With a veritable ocean of foreign exchange at its disposal, creating a regional development bank right now makes perfect sense for China. It is a vehicle for the Chinese government to help aid regional development as well as a signpost to demonstrate its international prestige. </p>
<p>But China would not have been so willing to create its own international bank had it felt appropriately valued in the ones that already exist. What is frequently omitted in the discussion of the AIIB is the extent to which this problem was created by dysfunction between Washington and Tokyo over reforming the Asian Development Bank, as well as within Washington around International Monetary Fund reform. </p>
<p>The Asian Development Bank has been dominated by the US and Japan since its creation in 1966. China is the largest economy in Asia, while only the <a href="http://www.adb.org/site/investors/credit-fundamentals/shareholders">third-largest</a> shareholder in the Asian Development Bank. As it has been custom that the president of the ADB is Japanese, Chinese attempts to gain influence within the bank commensurate with its economy’s size have been blocked. </p>
<p>Similarly, IMF reform was proposed in 2010 by the G20. <a href="https://www.imf.org/external/np/sec/pr/2011/pdfs/quota_tbl.pdf">Under the proposed reforms</a>, China’s voting power was to double, making it the third-largest shareholder at the IMF behind only the US and Japan. Brazil and India would both become top-ten “quota-holders” as well, displacing Saudi Arabia and the Netherlands. In this manner, global economic governance would be reinvigorated, as these emerging economies would receive a voice at the IMF equivalent to their influence. </p>
<p>Though IMF reform has been approved by more than 150 countries, including many that would lose influence under the proposals, the US Congress has refused to budge. </p>
<p>Despite <a href="http://www.reuters.com/article/2014/04/11/us-g20-economy-idUSBREA3A1FC20140411">warnings from the rest of the G20</a> underscoring the urgency of passing the reforms, Congress has sought to squeeze <a href="http://www.politico.com/story/2014/01/international-monetary-fund-internal-revenue-service-spending-bill-102347.html">compromises on the IRS and healthcare</a> from the White House in exchange for its support. </p>
<p>While the Obama Administration wants the reforms, it has refused to sacrifice its signature health care law or link it to other measures. So at this point, IMF reform simply won’t happen in the current Congress. Given China’s inability to produce reforms of the existing development banks that would address China’s concerns, its move to create its own development bank was its only way forward. </p>
<h2>US objections are shortsighted</h2>
<p>Washington has been on the wrong side of this issue by dismissing the AIIB rather than celebrating it. </p>
<p>For the past year, the White House has <a href="http://www.nytimes.com/2014/10/10/world/asia/chinas-plan-for-regional-development-bank-runs-into-us-opposition.html">raised concerns</a> about how the new bank would operate, suggesting that the AIIB would have insufficient safeguards. </p>
<p>The AIIB might undercut the World Bank and the Asian Development Bank, the argument goes, as countries might prefer the promise of cheap money from Beijing without the strings the other lenders attach. But questioning Chinese governance of the bank not only reminds our allies of our shortcomings in IMF reform, it also overlooks the surest route to reforming the AIIB. </p>
<p>Cooperation is always more difficult in large groups with divergent preferences than smaller ones. The growing list of AIIB members (including South Korea, Norway and Denmark) means that the Chinese will have to accommodate those countries concerned about safeguards. </p>
<p>Rather than push back on AIIB, the US should welcome the participation of many countries. It will fall to China to figure out how to reconcile this diverse membership. This will ensure that fighting climate change and improving environmental standards will not be sacrificed in favor of growth at any cost. </p>
<h2>Chinese engagement should be welcomed</h2>
<p>For years, Washington has sought to encourage China to be a “<a href="http://2001-2009.state.gov/s/d/former/zoellick/rem/53682.htm">responsible stakeholder</a>” in the global economy. The AIIB demonstrates that China seeks to embrace this challenge, and the fact that it is doing so <em>multilaterally</em> rather than <em>bilaterally</em> should not be overlooked. </p>
<p>The US has helped to support regional development banks in Africa and Europe, so a new one in Asia should not be the threat that it is made out to be. The need for infrastructure in emerging Asian economies is so acute that the two banks need not be in competition. </p>
<p>Embracing AIIB will help keep US-Chinese relations moving forward by moving beyond the sharp rhetoric of recent weeks. It will also give us a means to smooth over relations with European allies. More importantly, joining the AIIB gives the US a seat at the table, and a way to work with allies to moderate Chinese behavior. </p>
<p>What will make the difference in the long term in shaping US relationships with Asia is working with allies to address common challenges. Multilateral diplomacy is not just a means to an end, but an end in itself, and enmeshing China in a network of international organizations, regardless of who created them, provides the best route for deepening cooperation between the US and the People’s Republic of China.</p><img src="https://counter.theconversation.com/content/39406/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Martin Edwards has received funding from the National Science Foundation and Fulbright Foundations.</span></em></p><p class="fine-print"><em><span>Katayon Qahir does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The US has only itself to blame for the growing number of allies that have agreed to join China’s development bank despite American objections.Martin Edwards, Associate Professor of Diplomacy and International Relations, Seton Hall UniversityKatayon Qahir, Diplomacy graduate student , Seton Hall UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/392472015-03-29T18:54:36Z2015-03-29T18:54:36ZStakes are high for Australia in Asian infrastructure bank<figure><img src="https://images.theconversation.com/files/75908/original/image-20150325-4213-166f8l2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">China's demand for infrastructure finance cannot be met by existing development banks.</span> <span class="attribution"><span class="source">Image sourced from Shutterstock.com</span></span></figcaption></figure><p>Australia will likely join more than 40 countries signing on to the China-initiated Asian Infrastructure Investment Bank (AIIB), following <a href="http://www.pm.gov.au/media/2015-03-29/asian-infrastructure-investment-bank-0">news</a> it will sign a Memorandum of Understanding to participate in negotiations to set up the bank.</p>
<p>America’s continued effort against the bank has significantly set back diplomacy between the two nations. A flurry of its European allies have expressed interest in becoming founding members of the new development bank, including four of the G7 countries, <a href="https://theconversation.com/why-everyones-joining-the-asian-infrastructure-investment-bank-39256">the UK</a>, France, Germany and Italy. </p>
<p>With interest mounting just days before the formal conclusion of the expressions of interest process on March 31, Washington has been left with little time and space to react. </p>
<p>A decision by Australia to join would bring the bank’s membership to 41, and would include eight of the top ten economies in the world - except the US and Japan.</p>
<p>Washington has every reason to worry that the AIIB will challenge the existing US-dominated international regime of development finance. However Jin Liqun, tasked with establishing the bank, has repeatedly sought to assure the West. He says the bank will be designed “not to compete but to complement” the established institutions such as the Asian Development Bank (ADB), the IMF and World Bank. </p>
<p>Ultimately the bank serves China’s political and diplomatic purposes; China will contribute up to half of the bank’s capitalisation, host its headquarters, and appoint its top management team. So it’s fair to say China will play a major role in a new institution that would have profound implications for the global political and economic landscape.</p>
<p>However, it is in Australia’s interests and therefore a right decision to join the bank as a founding member. This is despite reasonable concerns within the international community regarding Beijing’s intention and capacity to operate such an institution. </p>
<p>No matter what Beijing’s strategic considerations, Australia and the broader region in Asia stand to benefit from the initiative. Australia has high stakes in the long-term prosperity of the region.</p>
<p>The AIIB could be one of the financial arms of Chinese president Xi Jinping’s ambitious strategy to deepen China’s trade and investment links with Asian and European countries. But in essence, it is more like a Chinese Marshall Plan - a way to utilise China’s excess capacity in response to the decline in external demand. The export of China’s expertise and capacity in infrastructure building, to be partially financed by the bank, could well stabilise and boost the Chinese economy out of deflation.</p>
<h2>Infrastructure shortfall</h2>
<p>According to <a href="http://www.adb.org/publications/infrastructure-seamless-asia">an estimate by the ADB</a> in 2010, there is demand for about US$8 trillion of infrastructure investment over the ten years to 2020 in developing Asia, including US$2.5 trillion for roads and railroads, US$4.1 trillion for power plants and transmission, US$1.1 trillion for telecommunications, and US$400 billion for water and sanitation investments. </p>
<p>Beijing’s own estimate is that from now to 2020, the annual demand for infrastructure spending in Asia will be US$730 billion, well exceeding the combined capacity of the World Bank, the IMF and the ADB in this region. The new development bank is poised to narrow the structural financing gap for infrastructure in the region, fostering long-term growth.</p>
<p>This type of growth in China and in the wider Asian region would create more sustained demand for Australia’s major export products in mining, resources and agriculture. </p>
<p>China expects to conclude the negotiations on the bank’s governing structure by June and formally launch operations by the end of this year. By joining the bank, Australia, together with other member countries in and outside the region, should help elevate its internal governance structure to the required international standard. Beijing has also demonstrated its willingness to have an “open” and “inclusive” negotiation of the bank’s charter.</p>
<p>In fact, China has relinquished its veto power in the bank’s decision making in exchange for the support of the European countries, which would result in a more consensus-based governance regime. It has also been recruiting former staff from the World Bank in an effort to increase the bank’s credibility in governance and management.</p>
<p>Australia has squandered six months in hesitation as Canberra weighed the membership against the uneasiness in Washington. We could have played a leading role as one of the first members of the bank, but instead will be a last-minute follower. But that’s better than being a bystander when future rules of a game Australia has high stakes in are crafted.</p>
<p>The negotiations on the bank’s charter will be an uphill battle. Apart from the governance issue, Australia’s priority should be to secure its membership as a regional (Asian) one, which will grant Australia a larger share of equity (hence voting rights) within the bank. Under the rules of the AIIB, non-Asian member countries are restricted to 25% of equity in total; the remaining 75% goes to Asian countries, which would be allocated on the basis of their relative weight in GDP. </p>
<p>For Australia, being an Asian member would see it ranked 4th on equity among current planned members (at 5.69%), after China, India and Germany. This is higher than the 5.32% of France (a non-Asian country) despite the latter having a GDP almost twice that of Australia.</p><img src="https://counter.theconversation.com/content/39247/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Hui Feng does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Australia may be a little late to the party, but the it still has a lot to win as it negotiates its position in the Asian Infrastructure Investment Bank.Hui Feng, Research Fellow, Griffith Asia Institute and Centre for Governance and Public Policy, Griffith UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/393122015-03-27T00:09:50Z2015-03-27T00:09:50ZAIIB: Abbott’s incredible investment backflip<figure><img src="https://images.theconversation.com/files/75909/original/image-20150325-4171-o4nehp.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption"></span> <span class="attribution"><span class="source">AAP/Jason Reed</span></span></figcaption></figure><p>Even for a government that has recently made an artform of policy backflips, the Abbott government’s belated, but seemingly inevitable decision to join China’s proposed Asian Infrastructure Investment Bank (AIIB) represents a manoeuvre of Olympian proportions.</p>
<p>While most of the attention has understandably been on the very public divisions within cabinet and between Australia and the US, there is arguably a more enduring lesson to be learnt about influence and institutional development.</p>
<p>One of the reasons that the Americans have been so concerned about the AIIB is that they – rightly – fear that it will dilute their own influence and that of extant regional institutions, such as the Asian Development Bank (ADB). Japan has been the principal actor in the ADB, but Japan is also a close – some would say highly dependent – ally of the US, and therefore poses less of a threat to America’s regional influence. </p>
<p>China is a very different proposition. While Japan may not have been any greater admirer of the Washington consensus than China is, Japan could generally be relied upon to at least look as if it did. China has no such inhibitions or filial loyalties. </p>
<p>Although China’s own developmental model has yet to be definitively articulated by its ruling elite, we have a pretty good idea what it looks like in practice. China’s hands-on approach to investment in Africa provides an insight into what large-scale infrastructure investment might look like closer to home.</p>
<p>Two points are important to consider in this regard. First, that China is going its own way and actually following a Japanese-style tradition of neo-mercantilism is more surprising than it might seem – at least as far as many observers in the West are concerned. True, China is adopting a well-established East Asian, state-led template, but many thought things would turn out rather differently.</p>
<p>The great hope and expectation among many Western governments was that simply by participating in the international institutions the US had helped establish and subsequently dominated, Chinese policymakers would be “socialised” into appropriate behaviour. In short, Chinese elites would become more like “us”.</p>
<p>While there is no doubt that this has undoubtedly happened to some extent – China is an increasingly effective player in many international institutions – the question is how much its elites have taken on the norms, ideas and goals of their counterparts in places like the US and Australia. Do they still have a very different idea about how institutions should operate and how they might be utilised to pursue national rather than collective goals?</p>
<p>This leads to a second consideration. Is China attempting to use the AIIB to quite literally cement its place at the centre of regional production networks that give material expression to its growing regional importance and influence? The reality is that China is already central to the so-called “factory Asia” of trans-regional production structures that have been established across north and southeast Asia.</p>
<p>As The Economist recently <a href="http://www.economist.com/news/leaders/21646204-asias-dominance-manufacturing-will-endure-will-make-development-harder-others-made">pointed out</a>:</p>
<blockquote>
<p>China produces about 80% of the world’s air-conditioners, 70% of its mobile phones and 60% of its shoes. The white heat of China’s ascent has forged supply chains that reach deep into South-East Asia. This “Factory Asia” now makes almost half the world’s goods.</p>
</blockquote>
<p>China’s planned investment in badly needed regional transportation infrastructure will entrench its economic dominance and importance. There are few countries in East Asia that don’t have China as their number one trade partner. China-centric transportation links and the reconstitution of the old Silk Road will only reinforce this economic leverage and make disagreeing with China increasingly difficult and costly.</p>
<p>Are the US and Australia right to be concerned about the geopolitical consequences of all this? Possibly so. But what, exactly, does an alternative strategy look like? And what would its consequences actually be? The US – much less Australia – can’t stop China playing a prominent role in the region of which it is a part. It would be counter-productive to try to do so.</p>
<p>One of the reasons that China is trying to set up its own institutions and agreements is because it is either locked out of some – like the proposed Trans-Pacific Partnership – or underrepresented given its weight in the international economy. The US’s continuing veto power in the IMF is perhaps the most glaring example of the latter possibility.</p>
<p>Barring some – not inconceivable – economic crisis, the region will have to get used to becoming ever more dependent on China’s growing economic power. This is not necessarily bad news. It’s not China’s fault that we squandered the windfall provided by the resource boom. </p>
<p>Even more pointedly, for regional countries desperate for infrastructure investment China potentially offers vital assistance without the ideological, reformist baggage associated with the Washington consensus. </p>
<p>It could prove an irresistible combination and one that may help to enhance China’s influence in the region at the expense of America’s – despite continuing concerns about China’s geopolitical ambitions. How times change.</p><img src="https://counter.theconversation.com/content/39312/count.gif" alt="The Conversation" width="1" height="1" />
Even for a government that has recently made an artform of policy backflips, the Abbott government’s belated, but seemingly inevitable decision to join China’s proposed Asian Infrastructure Investment…Mark Beeson, Professor of International Politics, The University of Western AustraliaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/390522015-03-19T03:35:47Z2015-03-19T03:35:47ZUS puts Australia on the spot with zero-sum game on China’s bank<p>Until last week, the only developed economies to have signed on to China’s proposed Asian Infrastructure Investment Bank (<a href="http://www.economist.com/blogs/economist-explains/2014/11/economist-explains-6">AIIB</a>) were Singapore and New Zealand. The choices of those minnows of the global economy were not thought significant as all the major wealthy economies stayed away. </p>
<p>Then, suddenly, Britain <a href="https://theconversation.com/geopolitics-versus-geoeconomics-the-new-international-order-38824">announced</a> it was going to sign up as a foundation member. France, Germany and Italy <a href="http://www.ft.com/intl/cms/s/0/0655b342-cc29-11e4-beca-00144feab7de.html#axzz3UnAzmvsO">promptly followed</a>.</p>
<p>This rush of support for the <a href="http://www.internationalaffairs.org.au/australian_outlook/australia-now-expected-to-join-asian-infrastructure-investment-bank/">China-led initiative</a> resulted in a rather surprising <a href="http://www.theguardian.com/us-news/2015/mar/13/white-house-pointedly-asks-uk-to-use-its-voice-as-part-of-chinese-led-bank">public spat</a> between the US and the UK governments. The two long-term allies have not always agreed with one another but they have normally kept their disagreement from public. </p>
<p>The UK’s decision, evidently taken with little consultation with the US, was criticised in surprisingly strident terms. The UK was portrayed as kow-towing to Chinese power.</p>
<h2>Strategic powerplay backfires</h2>
<p>The US has for some time sought to keep its allies and friends from supporting the bank and has done so very publicly. Its <a href="https://theconversation.com/chinas-development-bank-plans-test-rising-powers-strategic-shift-33436">stated concerns</a> that the AIIB might undermine existing multilateral financial institutions, that it might lower standards in governance and the environment and that its decision-making processes were decidedly opaque are quite reasonable.</p>
<p>The problem is that the US has not been especially constructive in its attitude toward the bank and has not sought to work with China and others to resolve these problems.</p>
<p>The reason for this, many believe, is that lurking not far below these technical concerns about the bank’s putative structure and operation is America’s real worry: that the bank will allow China greater strategic influence in Asia.</p>
<p>It was these issues that led the Australian government to turn
down the invitation to join. The cabinet was <a href="https://theconversation.com/division-over-bank-as-australia-caught-between-china-and-us-33153">reportedly divided</a> on the issue. Trade Minister Andrew Robb and Treasurer Joe Hockey were in favour of joining. Others, led by Foreign Minister Julie Bishop, argued against due to largely strategic concerns.</p>
<p>Now, on the back of the Europeans opting in, Australia looks <a href="http://www.afr.com/news/world/asia/business-welcomes-australian-shift-on-asian-infrastructure-investment-bank-20150316-1m00ub">poised to reverse</a> its initial decision. Briefings and media appearances indicate that Australia is likely to join by the March 31 deadline. </p>
<p>This is not only the latest in a long line of backflips by an Abbott government clearly lacking in policy direction, but it is illustrative of the gravitational force that China is having on world politics.</p>
<h2>Forced to make a choice</h2>
<p>The Australian thinking about China’s rise has been dominated by the idea of choice. Prominent scholars and analysts argued that the changing geoeconomic balance meant Australia had to move away from its close alliance with the US to strike a better balance between its interests in the region. </p>
<p>However, governments of both persuasions claimed that Australia <a href="http://www.smh.com.au/comment/america-or-china-one-day-we-will-have-to-choose-20130527-2n7a0.html">did not have to choose</a> between China and the US. Australia’s circumstances meant that would did not have to trade off its economic and security interests.</p>
<p>Yet the efforts to create something that, on the face of it, should be uncontroversial – a bank to finance the region’s desperate need for infrastructure investment – has shown that hard choices do indeed have to be made. And, as a result, increasingly the US has diplomatic egg on its face as more and more allies and friends opt not to follow its lead.</p>
<p>The policy decision about the AIIB did not have to boil down to the kind of stark choice between China and the US that it has become. The problem is that rather than engaging in a more collaborative and consultative approach, the US very publicly opted to pressure partners to remain aloof. This created precisely the kind of zero-sum decision-making everyone had hoped to avoid. </p>
<p>Even if the diplomacy around the AIIB had been more deft, we cannot ignore that managing the international implications of rising great powers is very difficult. It inevitably involves hard choices.</p>
<p>China is so large, its interests so great and of such global consequence that it simply cannot be stitched into a set of existing international arrangements. More importantly, China has a view of the kind of international order it wants. This plainly does not conform with the views emanating from the US. </p>
<p>The current trajectory of Australian and American policy in Asia is informed by
the misguided notion that China can and should conform to the prevailing
institutions and structures, and that everyone’s interests can be reconciled within the current order. The messy diplomacy around the AIIB’s formation shows that this thinking is at best misguided and at worst positively dangerous. </p>
<p>If these latest developments do not prompt some change in both tactics and strategy, the region will change much more quickly and in ways Australia and the US do not like.</p><img src="https://counter.theconversation.com/content/39052/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Nick Bisley does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The US gravely miscalculated in trying to get China to accept the existing global order. Forced to make a choice, America’s closest allies are joining the Asia Infrastructure Investment Bank.Nick Bisley, Executive Director of La Trobe Asia and Professor of International Relations, La Trobe UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/388582015-03-17T01:00:59Z2015-03-17T01:00:59ZAustralia has little to lose from joining Asian infrastructure bank<p>At the end of this month, a new development bank will have arrived, the <a href="http://www.economist.com/blogs/economist-explains/2014/11/economist-explains-6">Asian Infrastructure Investment Bank</a>, with close to 30 founding members. It will be housed in Beijing, predominantly financed by China, and will have a governance structure that reflects the GDP of each participating country. </p>
<p>Now that the UK and New Zealand have joined as founding members, there is no real political impediment left to Australia joining up. Our treasurer, Joe Hockey is <a href="http://www.theaustralian.com.au/business/joe-hockey-hints-at-joining-china-led-infrastructure-bank/story-e6frg8zx-1227261971774">warming up to the idea</a>, with no conspicuous dissenters. The prospect of being able to influence how US$50-100 billion of mainly Chinese money gets spent in the region will probably entice Australia to sign up as a founding country before the deadline at the end of this month.</p>
<p>We of course shouldn’t expect to have much say in this bank. Since voting rights will be according to the GDP of each participating country, and Australia representing roughly 2% of world GDP, we won’t have much influence and will mainly have to watch others decide on things. Since we seem unlikely to put in substantial amounts of money, given the large deficit the government now runs, we will have very little skin in the game to lose.</p>
<h2>An embryonic bank</h2>
<p>We don’t really know what the new development bank will do. The Chinese have been pushing this bank as an alternative to the US-EU dominated World Bank and IMF, as well as the Japan-dominated Asian Development Bank, which the Chinese see as doing the bidding of those powers. They have promised to put up 50% of the US$50 billion initial capital of the new bank, with an option to increase the “authorised” amount of capital to $US100 billion. </p>
<p>The intention seems to be to fund large infrastructure projects in the Asian region, including the new Silk Road through Central Asia and new ports and (rail)roads throughout the Asian region. Yet, $50 billion is only a drop in the ocean compared to national government budgets and infrastructure needs, so the bank would have to become much bigger to deliver a lasting impression on the region.</p>
<p>We also don’t know how funds will be allocated: those “details” are yet to be decided. The Chinese have promised a lean and fast lending process, hence without the checks-and-balances that make the World Bank and the Asian Development Bank notoriously slow and difficult. The flip-side of that coin is that they are not going to look too closely at whether the money is spent wisely or whether dictators will pocket some of it themselves. It is hoped that a large board of governors will steer things in a good direction, but there’s no guarantee.</p>
<p>One main reason for China to set up a new development bank is that they were kept from the decision-making tables at the other development banks: despite being of roughly equal size now to the US, their voting rights in the IMF are about one third of that of the US, and their say in the Asian Development Bank is similarly paltry. Probably believing that the ability to lend helps with political influence over countries, they decided to put up their own bank, in which the voting rights would reflect economic size more directly. </p>
<p>The decision by China to put GDP up as the measure of influence in this new institution was somewhat surprising. This will favour China for some time but may come back to haunt it when India (which is also a founding member) really becomes big. It will certainly lead to additional pressure on the “proper” measurement of GDP.</p>
<h2>How influential will the bank be?</h2>
<p>In terms of size, this is a small bank to begin with. Compared to the size of big commercial banks, the new bank will be puny: the top four banks in China have combined assets of around US$11 trillion, compared to which the new bank is a non-entity. It will also be small compared with other development banks. The International Bank for Reconstruction and Development, which is part of the World Bank Group, has an asset base of US$360 billion, with around US$230 billion of “subscribed” capital, lending out up to US$20 billion a year. The Asian Development Bank lends out some US$13 billion a year. Unless the new bank increases dramatically in size, it will be smaller than either. </p>
<p>Its effect on the region will be to make loans cheaper, particularly if the bank is ramped up in size. This will have overspill effects on loans in the whole world, much like cheap Chinese loans helped fund the spending bubble in the US before the global financial crisis. There is an inevitability about this though: the Chinese now have trillions of dollars in surplus money earned via a huge trade surplus, and they are going to lend it out cheaply one way or another. World interest rates will be low for some time to come.</p>
<h2>Why join?</h2>
<p>All in all, I think it is a good idea for Australia to join: we have little reason to stay out, and getting a seat at the table early on means we, potentially together with the other Anglo-Saxon countries involved, will have some say in how it operates. We won’t get any money out of it ourselves, since the bank is expressly oriented towards infrastructure in Asia, but perhaps our involvement might persuade the Chinese government that it can do business with the Australian government and that we are a place to give cheap loans to in the future.</p>
<p>What is an unknown is how this will fit in with the vaunted G20 plan to have a <a href="https://theconversation.com/building-big-does-australia-need-a-global-infrastructure-hub-32026">global infrastructure fund</a>, potentially based in Australia. For one, the G20 talked about trillions, orders of magnitude bigger than the AIIB. Also, the new bank will only invest in Asia. So by the looks of it, this new bank has little to do with the G20 pronouncement.</p><img src="https://counter.theconversation.com/content/38858/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Paul Frijters received ARC funding to do research on China, which is gratefully acknowledged.</span></em></p>It makes sense for Australia to join Britain and New Zealand in the newly created AIIB, but it’s unlikely we will have any significant influence over the organisation.Paul Frijters, Professor, Economics, The University of QueenslandLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/388242015-03-14T12:08:59Z2015-03-14T12:08:59ZGeopolitics versus geoeconomics: the new international order<figure><img src="https://images.theconversation.com/files/74849/original/image-20150314-7039-120vjgg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption"></span> <span class="attribution"><span class="source">EPA/Andy Rain</span></span></figcaption></figure><p>Britain’s decision to join China’s new Asian Infrastructure Investment Bank is a revealing example of one of the key realities of the new international order. Not only are geopolitics and geoeconomics intimately linked, but the latter will increasingly trump the former in the absence of outright war.</p>
<p>In this regard, Australia may be one of the last American allies still privileging the idea that it enjoys a “special relationship” with the US. And yet the signs are that even Australian policymakers are reluctantly coming around to the idea that narrowly conceived national interests may not be worth sacrificing in the name of the alliance. </p>
<p>In the new world order in which the old multilateral institutions created under American auspices are no longer as effective or capable of addressing global problems, states everywhere are increasingly looking to regional powers and organisations to solve collective action problems. </p>
<p>Given the current obsession with terrorism and so-called asymmetric threats, it is possible to forget that inter-state warfare, by contrast, still remains rare and exceptional. Even in East Asia where the danger of conflict has undoubtedly increased, it remains unlikely – at least as the consequence of coolly calculated strategic advantage.</p>
<p>In such circumstances, geoeconomics – or war by other commercial means, to paraphrase Clausewitz – is the principal focus of inter-state competition. While there may be many real, relatively uncontroversial, benefits to be had from the establishment of a regional infrastructure bank, there is no doubt that China sees the creation of the AIIB as one way of employing its growing economic leverage to achieve long-term geopolitical goals.</p>
<p>The creation of a new “Silk Road”, linking Beijing to its immediate neighbours, will not just dramatically increase regional productivity and trade. It will stand as an enduring, very tangible expression of China’s material centrality in Asia and beyond. </p>
<p>That Britain recognises how economically important “the Far East” has become, and just how high the potential costs of exclusion might be from the region China once again dominates, is telling evidence of this. It is also a dramatic illustration of America’s reduced ability to influence the foreign policies of even its closest and formerly most reliable allies.</p>
<p>But it is not only traditional alliance relationships that are in play here. Chancellor George Osborne’s <a href="http://www.ft.com/intl/cms/s/0/31c4880a-c8d2-11e4-bc64-00144feab7de.html#axzz3UJjNeMFf">frank admission</a> that British enthusiasm about the joining the AIIB is motivated by the “unrivalled opportunity for the UK and Asia to invest and grow together” is only part of the story. By signing up as a member of the AIIB, Britain is becoming a player in a wider geopolitical and geoeconomic game.</p>
<p>As a recently released <a href="http://www3.weforum.org/docs/WEF_Geo-economics_7_Challenges_Globalization_2015_report.pdf">report</a> by the World Economic Forum (WEF) points out, some of the real losers of the new international order are the global institutions associated with American hegemony – even if the WEF baulks at describing it in quite that way. </p>
<p>However, the WEF does borrow another bit of Marxist-inspired jargon to describe the development of “core-periphery relations” as a key feature of the new geopolitical landscape.</p>
<p>Seen in this context, the AIIB also has a potentially important ideological role. The struggle to define the norms, rules and practices that will determine the environment in which states and corporations operate in the 21st century is one of the most important expressions of heightened geoeconomic competition. </p>
<p>For better or worse, the so-called Beijing consensus is gaining ground on its rather discredited rival from Washington.</p>
<p>This is why the US is so concerned about what might otherwise be seen as a welcome, productive and positive expression of China’s growing economic power. Otherwise, who could possibly object to the creation of an institution designed to provide infrastructure funding in a part of the world where it remains sorely need?</p>
<p>There is no doubt that many countries in the Asia-Pacific are profoundly disconcerted by China’s rise and the difficulty of deciding whether it represents more of an opportunity or a danger. The desire to “hedge” against a possible Chinese military threat explains the strengthening of alliance relations with the US across the region in the wake of America’s own strategic “pivot” toward East Asia.</p>
<p>The challenge for all these increasingly nervous lesser powers is not just whether they can retain a degree of policy independence, but whether they can reconcile potentially incompatible geopolitical and geoeconomic goals. This is the defining foreign policy conundrum for Australia, too.</p>
<p>It is no coincidence that apparent splits within the Abbott cabinet on whether Australia should join the AIIB <a href="https://theconversation.com/no-consensus-about-beijings-new-bank-33587">mirrored</a> wider geopolitical and geoeconomic imperatives. That such debates may have been resolved in the affirmative suggests that Chinese geoeconomic power may trump American geopolitical power in the absence of more traditional threats to national security. </p>
<p>Interesting times, indeed.</p><img src="https://counter.theconversation.com/content/38824/count.gif" alt="The Conversation" width="1" height="1" />
Britain’s decision to join China’s new Asian Infrastructure Investment Bank is a revealing example of one of the key realities of the new international order. Not only are geopolitics and geoeconomics…Mark Beeson, Professor of International Politics, The University of Western AustraliaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/374262015-02-12T07:56:35Z2015-02-12T07:56:35ZAfghan overtures show China getting comfortable with life as a US deputy<figure><img src="https://images.theconversation.com/files/71748/original/image-20150211-25700-adcj6c.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">A show of force. Will China assert itself?</span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/stage88/4550658574/in/photolist-7W8jfA-qbTHU-g5Vsxo-7viaEx-4rzRVA-dpvXQx-qbU6f-658bGh-658bDb-apfxYW-g5W1MH-aWNYhP-qbTZT-qbTPm-qbUdr-gvFaB-fBt32u-qbU3a-91FDoA-qbUa9-5WF9BM-fBdH8D-aAebNU-qbTV2-K3Nat-8LPubh-9susLh-4UCtba-bSy7r4-joEtS6-4Qi71r-9P6ypk-4v1xGP-4AGC3t-8wifc2-2mWPU-aAbpHT-4QniR5-aAe4dw-762C8d-75XJnB-4Qi8Lp-4Qi892-4Qi9qF-653UwD-aAbKzc-joFZC4-3oZQ1m-3oVfLr-aAejid">Sam Ilić</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc/4.0/">CC BY-NC</a></span></figcaption></figure><p>Whether you fear or welcome a challenge to the world’s existing power structure, the main focus of attention is on when China will begin to translate its increasing influence into genuine global leadership. And after a period when China has widely been seen as wanting to have power without leadership or responsibility, there are some signs that things are beginning to change. </p>
<p>To be sure, we need to retain a sense of proportion. When China does something new it can often garner much greater attention than the ongoing continued activities of others. For example, while China has been identified as <a href="http://www.herald.co.zw/china-supports-africa-in-battle-against-ebola/">being on the “frontline”</a> in the battle against Ebola, its actual contribution has been relatively modest compared to that of what the Guardian called the <a href="http://www.theguardian.com/world/2014/oct/17/un-ebola-ban-ki-moon-international-community">“usual suspects” of development assistance</a>. </p>
<p>Furthermore, much of the new(ish) proactive Chinese international strategy has Chinese national and commercial interests very much front and centre; the promotion of <a href="http://www.xinhuanet.com/english/special/silkroad/">a new maritime silk road</a> seems to be a rather apt example here. But with these caveats in mind, something interesting seems to be happening in terms of <a href="http://blogs.wsj.com/chinarealtime/2015/02/10/as-u-s-exits-china-takes-on-afghanistan-role/">China’s growing involvement in Afghanistan</a>.</p>
<h2>Taking Kabul by the horns</h2>
<p>In October 2014, China for the first time hosted a meeting of the Istanbul Ministerial Process established to promote peace and co-operation between Afghanistan and its neighbours. In the <a href="http://www.fmprc.gov.cn/mfa_eng/xwfw_665399/s2510_665401/2511_665403/t1203950.shtml">words of a foreign ministry spokeswoman</a>, the simple act of holding the event was an opportunity for China to promote its leadership credentials and allowed China to:</p>
<blockquote>
<p>Showcase the world’s support to the peaceful reconstruction in Afghanistan, and build consensus of regional countries on strengthening co-operation on Afghanistan and jointly safeguarding security and stability in Afghanistan and the region.</p>
</blockquote>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/71770/original/image-20150211-25676-14babt9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/71770/original/image-20150211-25676-14babt9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/71770/original/image-20150211-25676-14babt9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=328&fit=crop&dpr=1 600w, https://images.theconversation.com/files/71770/original/image-20150211-25676-14babt9.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=328&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/71770/original/image-20150211-25676-14babt9.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=328&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/71770/original/image-20150211-25676-14babt9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=412&fit=crop&dpr=1 754w, https://images.theconversation.com/files/71770/original/image-20150211-25676-14babt9.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=412&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/71770/original/image-20150211-25676-14babt9.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=412&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">New dawn? Sunrise in Kabul.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/defenceimages/11967967256/in/photolist-jeyXH3-fEnTNd-fEnTgs-fEnTpU-fE6hD8-fE6hN2-3bGmkB-3bGCeK-9NHbdf-aB7J3-doodo5-v77jX-gfTP7n-c5adv-c5ae6-c5agj-5TU76k-5TYrUE-6Bm9HU-bFUmf8-4AAtN2-9gdbm2-9gggzY-aCLy5A-6eEPRM">UK Ministry of Defence</a>, <a class="license" href="http://creativecommons.org/licenses/by-nd/4.0/">CC BY-ND</a></span>
</figcaption>
</figure>
<p>China’s leaders also used the opportunity to increase its financial aid to Kabul, pledging extra funding, training, and technical assistance. So far so normal – China has established a track record in using high-profile meetings such as APEC, the Forum on Africa-China Co-operation and so on to make announcements of new funding and aid initiatives. </p>
<h2>Hey Mr Taliban..</h2>
<p>But then something different happened as China began to provide some sort of mediating role and directly involved itself in Afghani politics by holding talks with both the Afghan government <a href="http://foreignpolicy.com/2013/06/21/why-is-china-talking-to-the-taliban/">and the Taliban</a>. As the US prepares to withdraw from Afghanistan, China seems increasingly willing to step in to fill the void and – for some analysts – to increase its <a href="http://www.wsj.com/articles/as-u-s-exits-china-takes-on-afghanistan-role-1423539002?mod=e2tw">international standing as a putative global leader</a> in the process. </p>
<p>Perhaps it might even have more success than the other great powers that have tried, and failed, to pacify Afghanistan over the years. At the very least, it does not carry the same historical baggage as others in Afghanistan (or indeed, in the Middle East in general). </p>
<p>Of course, there are very good reasons for China to act. In the past, China claims that Afghanistan and al-Qaeda provided a safe haven for Muslim military separatists committed to “splitting” China and creating an <a href="http://www.bbc.co.uk/news/world-asia-china-24757974">independent Islamic East Turkestan state</a>. </p>
<p>This might explain why China was prepared to accept US-led military action in Afghanistan in the first place, notwithstanding China’s usual commitment to defending state sovereignty. Contributing to peace and stability in Afghanistan, then, is not just an act of altruistic leadership, but one that has a clear national interest dimension for China as well. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/71771/original/image-20150211-25693-1p1vla3.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/71771/original/image-20150211-25693-1p1vla3.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/71771/original/image-20150211-25693-1p1vla3.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/71771/original/image-20150211-25693-1p1vla3.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/71771/original/image-20150211-25693-1p1vla3.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/71771/original/image-20150211-25693-1p1vla3.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/71771/original/image-20150211-25693-1p1vla3.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/71771/original/image-20150211-25693-1p1vla3.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Campaigners for East Turkestan.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/kathmandu/14858456974/in/photolist-oCZtAE-oBsFXJ-oEY3Yn-oDd9Fv-omHLh7-oEY5SH-oDda7R-omHQbu-oBbspd-oDd2WD-omHCWW-omJbNR-oBbjTm-oBbj5h-omHGq9-oBbmTy-omHj85-omHZgH-omJazi-omZWNX-oBbmi5-oBbkFU-oDdcqZ-omHKDy-oBbgB1-oBbnq5-omHAoa-oCWuF8-omHQdU-oEXZkv-oCWodZ-oDbktU-oDd9iB-oEY8Wi-oDbiRL-omHFUF-oCZyBG-oDcZbZ-omHEWi-omJfor-oDd9zD-oBboiC-oCZtrS-oBbqM5-omHy6e-omHDS4-oEY24R-oCZsBL-omJ4A4-omJ8CH">S Pakhrin</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
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<p>That said, other global leaders have often acted out of self interest as well; the <a href="http://www.nber.org/chapters/c6869.pdf">global financial order built at Bretton Woods</a> at the end of World War II was not exactly free from the influence of US economic considerations. </p>
<p>So how should we judge China’s emerging role as a provider of some form of global public goods?</p>
<h2>Overtaking manoeuvre</h2>
<p>Chinese strategists refer to the current era as one of strategic opportunity. Not least because of the consequences of the global financial crisis, a global power change has been accelerated, that has seen China rise while existing powers (most notably in Europe) decline. This has created a great opportunity for China to push to change the global order to one that is more reflective of Chinese power and Chinese interests. </p>
<p>But this opportunity is constrained by the residual power of the US which will remain, in Chinese eyes, the predominant global power for some time to come. Indeed, <a href="http://www.thechicagocouncil.org/event/us-china-shared-vision-global-economic-partnership">vice premier, Wang Yang, said as much in Chicago in December</a> when he reaffirmed China’s commitment to a US-led rule based world order which China has “neither the ability nor the intent” to overturn. </p>
<p>The challenge for China is not (yet) how to replace the US, but how to act as its No.2. In the case of Afghanistan, the No.1 seems relatively comfortable with a greater Chinese role. But it’s not always the case that the No.1 seems amenable to accommodating China’s further rise. Where it isn’t, China has begun to take action to build its own alternatives. </p>
<p>So if the US won’t ratify changes to voting power at the IMF that would give China a greater say – and the power structure at the ADB continues to favour others – then China is prepared to launch its own organ of financial governance <a href="http://www.economist.com/blogs/economist-explains/2014/11/economist-explains-6">in the form of the Asian Infrastructure Investment Bank</a>. Here we see China competing for some form of leadership by replicating existing ways of doing things, rather than trying to fundamentally challenge the very nature or essence of global governance and the global order.</p>
<p>China as No.2, then, seems increasingly prepared to take on some degree of leadership – as long as that leadership simultaneously serves other domestic ends. China’s leaders have also become skilled at using major international events to put over a preferred national image of what China is and what it stands for to an international audience. </p>
<p>Given the renewed focus on environmental issues <a href="https://theconversation.com/chinese-state-and-citizens-must-battle-airpocalypse-together-23940">in light of China’s airpocalypse</a>, the Paris climate change conference at the end of the year might be very interesting indeed for students of China’s changing global role.</p><img src="https://counter.theconversation.com/content/37426/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Shaun Breslin does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Whether you fear or welcome a challenge to the world’s existing power structure, the main focus of attention is on when China will begin to translate its increasing influence into genuine global leadership…Shaun Breslin, Professor of Politics and International Studies, University of WarwickLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/336272014-11-12T19:31:01Z2014-11-12T19:31:01ZWhy we should question G20 claims of a global infrastructure shortfall<figure><img src="https://images.theconversation.com/files/64100/original/8jf38vd4-1415597673.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">China recently launched its US$50 billion Asian Infrastructure Investment Bank in Beijing</span> <span class="attribution"><span class="source">AAP</span></span></figcaption></figure><p>The <a href="https://www.g20.org/g20_priorities/g20_2014_agenda/investment_and_infrastructure">G20 infrastructure agenda</a> cites an OECD prediction the global infrastructure gap will be worth US$70 trillion by 2030. It is predicting this gap will grow.</p>
<p>Yet it’s difficult to assess the credibility of this claim. It is even more difficult to determine what infrastructure projects they include. Any assessment of a gap should only include projects that add more to society than their opportunity cost. However, debate around infrastructure needs is invariably clouded by politics and opaque decision-making.</p>
<p>There have been a number of recent global infrastructure initiatives. These include China’s Asian Infrastructure Investment Bank and the proposed G20 infrastructure hub. </p>
<p>Even with these initiatives, funds compared to projects are still limited. Governments and investors must clearly analyse the benefits and costs of different options to maximise the potential of these funds.</p>
<h2>Selecting the best projects to pursue</h2>
<p>Good economic management requires assessing different investment options to select those with the highest returns. It involves a number of steps. </p>
<p>First, articulate the key problem the proposed infrastructure investment is to solve. Often the investment is part of a comprehensive vision of planned developments for a city or region over time. This vision may require active government input and community consultation.</p>
<p>The second step is to assess the options that best meet these needs. For example, providing cost-effective transport may involve considering: road pricing and congestion charges; how public transport interplays with private transport; and whether to build new roads or widen old ones. Other factors may need to be considered such as the burden on other infrastructure including water and electricity. </p>
<h2>Who should make the investment?</h2>
<p>The private sector can provide some infrastructure services such as utilities. In these areas, governments need to establish a decision-making environment where private sector interests are aligned with the best use of limited national resources.</p>
<p>Where infrastructure services have high costs of exclusion or where equal access is important, government investment is likely to be the default option. This may include road, health and education infrastructure.</p>
<p>In areas where government policy is a major source of uncertainty, government may have to make the initial investment in the project. It may aim to transfer the project to the private sector at a later time.</p>
<p>The third step is to undertake a benefit-cost assessment. This is important for government-funded infrastructure investments and large projects above A$50 million. The assessment compares the potential benefits to society with the opportunity costs of allocating resources to the project compared to other parts of the economy. The analysis should be transparent, open to scrutiny and made public.</p>
<p>Invariably, knowledge about the value of key benefits and costs will be imperfect. Sensitivity analysis should be performed to show the effects of different assumptions and to appraise the robustness of the assessment.</p>
<p>Only those infrastructure investments with a benefit-cost ratio greater than one fit the description of an infrastructure gap. That is, they would add more to society welfare than their opportunity cost. Where available funds are limited, the priority listing of projects would be ranked by the benefit-cost ratio.</p>
<p>Fourth, undertake a comprehensive appraisal in terms of long-term government budget projections. This appraisal can include analysis of government and private funds for the investment, returns from the sale of the infrastructure services, the impact on tax revenues and operating costs. </p>
<p>This set of processes places scrutiny on the priority of projects. It increases the likelihood of further funding if investors can be confident that projects have been well chosen and thought through. Transparency also adds to politicians’ credibility and increases investor confidence that any change of government will not impact the investment decision.</p>
<p>An important fifth step is to monitor and evaluate the progress and outcomes of each project. Past experience can then be used in adjusting the planning, selection and management of future projects.</p>
<p>The relative benefits and costs of infrastructure options have to be assessed if countries are to derive the best for their citizens. Too often government-funded infrastructure projects are chosen for short-term political reasons without appropriate analysis. What is needed is a formal and publicly available assessment of all available infrastructure options.</p><img src="https://counter.theconversation.com/content/33627/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>John Freebairn does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The G20 infrastructure agenda cites an OECD prediction the global infrastructure gap will be worth US$70 trillion by 2030. It is predicting this gap will grow. Yet it’s difficult to assess the credibility…John Freebairn, Professor, Department of Economics , The University of MelbourneLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/338302014-11-09T19:30:25Z2014-11-09T19:30:25ZAbbott’s awkward APEC moment over Asian infrastructure bank<figure><img src="https://images.theconversation.com/files/63918/original/hx5qzt96-1415323810.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Tony Abbott is meeting Chinese President Xi Jinping in Beijing this week</span> <span class="attribution"><span class="source">Lukas Coch/AAP</span></span></figcaption></figure><p>Forget shirt-fronting Russian President Vladimir Putin. Prime Minister Tony Abbott’s most challenging task this week will be breaking an uncomfortable silence with Chinese President Xi Jinping. And he will have to do it twice: first at the APEC meeting in Beijing and again at the G20 in Brisbane. </p>
<p>After vigorous lobbying by the United States and Japan, Australia’s involvement in the China-led Asia Infrastructure Investment Bank (AIIB) was scuttled by the National Security Committee of federal cabinet on <a href="http://www.theaustralian.com.au/national-affairs/foreign-affairs/strategy-fears-sank-china-deal/story-fn59nm2j-1227107789280">strategic grounds</a>.</p>
<p>This does clarify the matter because trying to make sense of rejecting the proposal on the basis of economic reasoning is nigh on impossible. In 2011 the Asian Development Bank (ADB) estimated Asia required US$750 billion each year through to 2020 to finance infrastructure needs. In 2012 the amount the ADB lent for infrastructure was just <a href="http://www.treasury.gov.au/PublicationsAndMedia/Publications/2014/Economic-Roundup-Issue-1/Economic-Roundup-Issue-1/On-a-highway-to-help">US$7.5 billion</a>. It is no surprise that among the government ministers it was Treasurer Joe Hockey and Trade Minister Andrew Robb who were keen on Australia joining the AIIB. </p>
<p>The decision to rebuff China’s invitation is awkward to say the least. Australia made reducing barriers to infrastructure investment a focal point of the G20 agenda. There is also the small matter of the <a href="http://www.afr.com/rw/2009-2014/AFR/2012/04/10/Photos/35495470-82b6-11e1-882e-4b6185e4a6fc_China%20Infrastructure%20MOU%20final%20text%204%20April.pdf">memorandum of understanding</a> the Australian and Chinese governments signed in 2012 on enhancing cooperation in infrastructure construction. </p>
<p>What then is the strategic test the AIIB failed? </p>
<h2>The reasoning behind Australia’s refusal to join the AIIB</h2>
<p>The reason Abbott has repeated is the AIIB is a <a href="http://www.afr.com/p/special_reports/opportunityasia/australia_offered_top_role_in_china_o7ATw7ydjWD132gTYGSW3H">unilateral institution</a> dominated by just one country. This means its lending decisions might be used by China to peddle its own interests. What we want to join is an AIIB committed to being a multilateral institution along the lines of the ADB or the World Bank. </p>
<p>The AIIB is indeed dominated by China. The 21 founding member countries agree the basic parameter determining the capital structure of the new bank will be relative GDP. Taken at face value, this would give <a href="http://data.worldbank.org/indicator/NY.GDP.MKTP.CD">China</a> a 67.1% shareholding, with the next in line being India at 13.3%. </p>
<p>Of course the complaint the AIIB is a unilateral institution relies on painfully circular logic. If the US, Japan, Korea and Australia refuse to join, then any hopes of the AIIB becoming a multilateral institution are neutered. If these four countries were on board, China’s share would immediately fall to 24.5%. </p>
<p>For its part, China not only invited Australia to participate but also offered the country a senior role in its running. Chinese Finance Minister Lou Jiwei has made it clear he expects China’s shareholding <a href="http://usa.chinadaily.com.cn/business/2014-10/24/content_18799068.htm">will be diluted</a> as other countries come on board.</p>
<p>It is also not hard to guess how China would take to being told that the World Bank and ADB are models of multilateralism. In 2010, after years of trying, the World Bank agreed to <a href="http://blogs.worldbank.org/voices/world-bank-gets-capital-increase-and-reforms-voting-power">raise China’s voting share</a> from 2.8% to 4.2%. This still left it trailing Japan on 6.8% and the US on 15.8%. Yet China’s GDP is already double that of Japan and its population is more than ten times larger. </p>
<h2>Why Abbott’s arguments fall short</h2>
<p>The argument that we should stay away from the AIIB because China may use it to advance its own nefarious purposes falls short on several counts. </p>
<p>China is already more than capable of pushing its own interests through existing institutions such as the China Development Bank. The idea it would sponsor a new institution and then invite countries such as Australia to become partners in crime fails any test of common sense. </p>
<p>Then there is the point made by the former Australian ambassador to China, <a href="http://www.afr.com/p/futureforums/asian_infrastructure_there_snub_VSC8h5e0vChwG33t6lUE4J">Geoff Raby</a>. That is, if transparency in lending decisions is a genuine concern, the most effective way of dealing with it is from the inside. Clearly this was the view taken by Singapore, a country that routinely ranks higher than Australia on international surveys of transparency and governance. </p>
<p>AIIB members all have very different broader strategic interests. Vietnam and the Philippines are engaged in heated territorial disputes with China in the South China Sea. Yet this did not stop them uniting for the common goal of improving regional infrastructure. </p>
<p>The only strategic end being served by not joining the AIIB is that Australia is supporting the US and Japan in their attempt to preserve the status quo in the Asia-Pacific. The problem is the status quo ended in 1979 when China began its reintegration into the global economy.</p><img src="https://counter.theconversation.com/content/33830/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>James Laurenceson does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Forget shirt-fronting Russian President Vladimir Putin. Prime Minister Tony Abbott’s most challenging task this week will be breaking an uncomfortable silence with Chinese President Xi Jinping. And he…James Laurenceson, Deputy Director and Professor, Australia-China Relations Institute (ACRI), University of Technology SydneyLicensed as Creative Commons – attribution, no derivatives.