China is on the rise and on the move internationally. In recent times, Chinese diplomacy has made the conceptual leap from the combative retrenchment policies of the Mao era to a stance of confident engagement with the outside world. Since the mid-1990s, China has joined or co-founded a range of multilateral institutions, including the World Trade Organisation and the Shanghai Co-operation Organisation, respectively. The 2014 founding of the BRICS New Development Bank (NDB) and the expected establishment this year of the Asian Infrastructure Investment Bank (AIIB), both institutions in which China will play a leading role, suggest that China is seeking increased recognition for its capacity for global economic leadership. Most importantly, the application of a significant portion of the international community for membership in the AIIB indicates greater acceptance of, and support for, China’s leadership initiative.

China and the AIIB

Unlike the BRICS Bank, the AIIB has global legitimacy due to its expansive membership, which includes large European national economies and around two-thirds of the membership of the G20.[1] Although the US and Japan have not applied for membership, the list of the AIIB’s founding members is a coup for China. Furthermore, China is set to provide the greatest share of funding to the AIIB and will receive a concomitant level of influence in the bank’s governance. The AIIB’s Articles of Agreement make it clear that China will hold an effective veto over issues central to the bank’s operation, including the level of capitalisation, admitting new members and suspending existing ones.[2] This raises the obvious question of China’s intentions for the AIIB. As China’s international position continues to evolve, what is the likelihood that the Chinese government will change its stance toward the AIIB? Will the AIIB be allowed to act as a relatively independent provider of public goods in Asia, or will China seek to use the bank as a foreign policy tool, much as US policymakers view the World Bank and IMF?[3]

Uncertainty over this question can be linked to continuing tension between internal and external narratives regarding China’s development curve, position within the international system and future definition of its national interests. Internationally, China narratives often express concern about China’s outsized economic influence, growing military spending, unrepresentative government, and provocative territorial claims.[4] Domestically, however, narratives centre on President Xi’s concept of a “China Dream”. China’s ‘dream’ is an ambiguous concept expressed in vague terms so as not to detract from the sense of progress and raised ambitions. It is an all-encompassing affirmation of China’s rise that can essentially mean anything to anyone. When speaking to domestic audiences, President Xi refers to the “people’s dream”,[5] suggesting higher living standards, a cleaner environment and greater material wealth. At the international level, however, the ambitions contained in the dream are much grander in scale – to “gather the courage, wisdom and strength of millions upon millions of people to… realise the dream of the Chinese nation’s mighty revival”.[6]

The AIIB can be seen as a vehicle for projecting China’s revival internationally. With the AIIB likely to be regarded as ‘China’s development bank’ by many, China has an opportunity to be seen using its wealth and economic influence for global benefit, consequently allowing the country’s leaders to build reserves of global political capital and soft power. Firstly, the AIIB will serve as a form of risk management for China’s sovereign investments. China’s foreign currency reserves have been used to invest primarily in US dollar-denominated assets and US government bonds,[7] bringing those two economies closer but also increasing political friction. Infrastructure investment in Asia’s developing economies provides another avenue of investment for China’s capital reserves, although this is unlikely to reduce conflict with the US over global economic and governance issues in the short term.

Secondly, by building a new multilateral forum in partnership with many of the OECD countries, China has at one stroke side-stepped continued wrangling over the lack of reform in the IMF and World Bank and, with the decision of the US not to join, has provided itself with an international platform to make its voice heard clearly. However, the lack of US involvement in the AIIB is a double-edged sword for China. Although assuming a leadership role within the AIIB will bring a considerable boost to China’s international prestige, the AIIB’s effectiveness in delivering its goals of economic development, improved infrastructure connectivity and deeper intra-regional cooperation for Asia,[8] will impact either positively or negatively on China’s credibility as a leader of the global economy. An AIIB perceived as a responsible, proactive and generous sponsor of regional economic development would improve China’s standing and serve to refute the suspicious and derogatory narratives of China’s rise circulating in the West. Should an AIIB without the US come to be seen as unbalanced and subject to the whims of Beijing, China will face a much more difficult task in persuading the international community that it is a willing and responsible leader in multilateral situations.

Thirdly, the AIIB is a significant step in the process of China defining its own role within the international community. As such, it is an indication of a growing revisionist challenge to the current US-led system of institutions. The success of that challenge will depend largely on China’s demonstrated leadership of multilateral fora such as the AIIB. Lacking political credibility among other states, any future attempts by China to re-imagine the global institutional order are likely to fail.

The AIIB and potential changes to the global political economy

Even before issuing a single development loan, the act of establishing the AIIB has altered the global political economy in several key ways. The decision of large EU member states such as the UK, France, Germany and Italy to join the AIIB indicates a degree of willingness among certain global donor states, to test China’s ability to act according to international norms in a multilateral leadership position.[9] The rise of neoclassical market liberalisation in global development discourses has contributed to the ‘austerity’ policies witnessed around the world as a response to the economic crises since the 1970s.[10] Since then, market-guided development has led to the potential exit of Greece from the EU,[11] as well as contributing to fiscal restructuring, sovereign debt defaults and financial crises in countries as diverse as Argentina,[12] Indonesia,[13] and Iceland.[14] The politicisation of the debate surrounding the effectiveness of neo-classical economics and austerity policies,[15] suggests a successful Chinese-led AIIB could well see the rise to prominence of alternative development theories.

Further, the AIIB provides developing Asian countries with a feasible alternative source of development funding. Development and financial assistance from the Bretton Woods institutions and the Asian Development Bank will now be subject to competition from the AIIB. The AIIB’s Articles of Agreement state the AIIB will:

…Foster sustainable economic development, create wealth and improve infrastructure connectivity in Asia… and promote regional cooperation and partnership… by working in close collaboration with other multilateral and bilateral development institutions.[16]

There is no suggestion the AIIB will be required to consult with civil society or domestic interest groups in the way other multilateral development banks have increasingly been obligated.[17] This situation could act as a political boon for developing nations in which the domestic legitimacy of state institutions rests primarily on increasing economic growth.

Although a European state, Greece serves as a recent example of the political effects of conditionality imposed by the western world. With both sides engaging in extreme brinkmanship during negotiations over future bailout deals, both the EU and Greece’s national government have been destabilised and their political legitimacy weakened.[18] The AIIB, with its obvious focus on Asia, is clearly not a viable option for assisting Greece. However, it could potentially play a role in assisting Asian states caught in similar circumstances to Greece in the future. Existing development banks may, therefore, find their influence in Asia declining if they are not prepared to react more responsively to the negotiating positions of individual states. The establishment of the AIIB therefore looks likely to reset the politics of development finance in Asia.

Moreover, the AIIB will lead to changes to competition for geopolitical leadership in Asia. Previously, China’s rivalry with Japan and the US had been based on political, historical and geostrategic issues. Now, however, a new economic front is opening up across the region. China is no longer seeking merely to ‘catch up’ to its regional competitors. It is actively asserting itself beyond traditional issues of contention. Contemporary territorial disputes over the Diaoyu Islands and the South China Sea, although primarily political, are underpinned by the economic realities of energy reserves in those areas.[19] This stands in contrast to issues such as the status of Taiwan, the causes of which are rooted firmly in history and political symbolism. The establishment of the AIIB will serve to deepen regional great power economic competition.

The ‘Beijing Consensus’

Given that Beijing has adopted de facto leadership of the AIIB, the question that arises is what agenda does China intend to pursue? Will it be possible in the future to be able to speak of a ‘Beijing Consensus’ founded in particular economic theories and development models? In the short-term, this looks exceedingly unlikely. China remains some distance from completing its own economic developmental curve.[20] China is still in the process of acquiring interests around the world. Only in the past decade has this process begun in earnest as Chinese firms, often with links to the government, sought to secure supplies of energy and vital minerals.[21] However, this does not mean the status quo will necessarily remain in place. The tendency towards realist thinking among Chinese foreign policy elites,[22] suggests relative gains are likely to be China’s focus over the next several decades. As China’s economy continues to grow and its economic interests continue to spread around the globe, it seems likely China will use its status within the AIIB to impose conditions that serve its interests.

Joint infrastructure projects in Pakistan, Central Asia and Myanmar serve economic as well as political purposes for China.[23] Similar to developed western states, whose export credit agencies often serve to hedge or even underwrite the investments and business activities of corporations in developing countries,[24] the intimate links between Chinese business and government mean Chinese corporations operating globally are likely to be used as policy tools advancing the interests of the Chinese state. In addition, China’s possession of an effective veto over much of the bank’s operations,[25] is likely to result in the AIIB’s future lending and development programs carrying a strong Chinese policy influence.

It seems certain the AIIB’s operations will be determined in large part by Chinese foreign policy. Will this influence be enough to create a ‘Beijing Consensus’? It must be noted that the Washington Consensus arose against the background of the battle of ideas that underpinned the Cold War. The collapse of the Soviet Union signaled the end of global competition between economic development models, leaving the US to focus on economic deregulation, faith in the markets and emphasis on free trade as the policy prescription of choice all over the world.

Similar to the Cold War period, there is now a growing political and ideological gap between the two leading great powers.[26] The gap in both countries’ approach to economic development is considerable: the state-led, investment-focused China historically emphasising the development of domestic productive capacities, and the market and corporate-dominated, consumption-dependent model of the US. The gap may not be as wide as during the Cold War in that there are many global issues drawing the two together, but contention certainly exists about the role of the state in national economies. The US position in the current debate is heavily entrenched, as it needed to be to withstand the earlier Soviet challenge. However this means that now, as the US economy is seen by some to be in long-term decline,[27] the US lacks maneuverability and responsiveness in global economic debates. The most likely candidate for altering future global development discourses is, therefore, China. Until recently, China has maintained a low profile. However, Chinese leadership has now begun to articulate its own theories of development on a global stage. The NDB and the AIIB are the first steps in this process. If they are seen to be successful, China’s position will gain credibility and possibly pave the way for a new consensus development model. However, gaining international credibility and increasing the legitimacy of the NDB and the AIIB will be a long-term, incremental process, and the perceived heavy-handed state response to China’s recent stock market decline has only increased the doubts of China’s eventual success.[28]

Australia and the AIIB

The AIIB’s role in promoting economic development in Asia is currently very much a case of speculation. Without past histories of success (or failure) and a lack of available analysis of negotiations between bank partners, the best that can be done is to extrapolate current political trends and make tentative predictions. The deadlock over the World Bank and IMF voting reform has crystallised the need for greater representation for China in global economic institutions. While existing institutions remain deadlocked, China is seeking to build its international leadership credentials by creating multilateral economic fora, suggesting a neoliberal institutionalist policy approach from China towards the AIIB, at least in the short-term.

Arrayed against this, however, is the reality of China’s growing foreign economic interests, the growing contention between Chinese and western conceptions of the state’s role in national economies, and the broadening of competition for regional leadership in Asia. Although impossible to predict with certainty, development loan conditionality to protect Chinese interests in Asia remains a plausible and likely long-term outcome for the AIIB.

Where does this leave Australia? Unfortunately, Australia’s haphazard approach to applying for membership earlier this year may have communicated uncertainty to outsiders as to Australia’s view of the AIIB.[29] In truth, the AIIB is a vehicle for potentially broadening regional cooperation and ameliorating tension as well as providing the core benefit of greater infrastructure funding for the Asian region. As a significant contributor to and a regional member of the AIIB, Australia has considerable leverage with which to potentially influence the bank’s operations. Firstly, since nine of the bank’s twelve directors are to be drawn from regional members,[30] the Australian government should be promoting the stability and strength of Australia’s financial and banking sector by identifying strong local candidates and ensuring one of the directorships is held by an Australian. Although the President of the bank is likely to always be Chinese, the bank’s Articles of Agreement explicitly allow for the President to come from any regional member.[31] As one of the wealthier, developed regional members, Australia should also test the reception within the organisation towards pursuing this avenue of representation.

Secondly, Australia should be leveraging its close relationships with Japan and the USA to urge them to apply for membership in the new institution. Regional stability does not benefit from unchecked great power rivalry in any form, whether it is geostrategic, economic or via the leadership of rival institutions. In the short term, China needs the AIIB to establish its credentials as a leader, and an AIIB with Japan and the US as members would provide greater legitimacy to the institution as a whole, as well as providing the US with some potential leverage over China’s domination of the AIIB. Were Australia to play a major role in encouraging Japan and the US to apply for membership, and be seen to do so by China, it would do a great deal to demonstrate Australia’s commitment to the success of the AIIB.

Thane Bourne is currently teaching English in China while on leave from the MIR program at the University of Melbourne.

[1] Asian Infrastructure Investment Bank (2015) Prospective Founding Members, http://www.aiib.org/html/pagemembers/, accessed 18 August 2015.

[2] Asian Infrastructure Investment Bank (2015) Articles of Agreement, http://www.aiib.org/uploadfile/2015/0814/20150814022158430.pdf, accessed 18 August 2015.

[3] US Department of Treasury (2015) Testimony of Secretary Lew before the House Financial Services Committee on the National Advisory Council on International Monetary and Financial Policies, http://www.treasury.gov/press-center/press-releases/Pages/jl9999.aspx, accessed 19 August 2015.
[4] Kim, Jihyun (2015) “Territorial disputes in the South China Sea: Implications for security in Asia and beyond” in Strategic Studies Quarterly, Vol. 9, No. 2, p. 107.

[5] Xi, Jinping, “Zai Di Shi’er Jie Quanguo Renmin Daibiao Dahui Diyici Huiyishang Jianghua” in Xinhua (online), 17 March 2013, http://news.xinhuanet.com/2013lh/2013-03/17/c_115055434.htm.

[6] Li, Keqiang (2014) Li Keqiang Zai Bo’ao Yazhou Luntan 2014 Nian Nianhui Kaimushishang de Zhuzhi Yanjiang, http://www.gov.cn/guowuyuan/2014-04/11/content_2656979.htm, accessed 20 August 2015.

[7] Yu, Qiao, “Relocating China’s foreign reserves” in Brookings (online), 21 November 2013, http://www.brookings.edu/research/papers/2013/11/21-relocating-foreign-reserves.

[8] Asian Infrastructure Investment Bank, above n 2.

[9] UK Foreign & Commonwealth Office (2015) UK-China: a Global Partnership for the 21^st Century, https://www.gov.uk/government/news/uk-china-a-global-partnership-for-the-21st-century, accessed 29 September 2015.

[10] Schui, Florian (2014) Austerity: The Great Failure. Yale University Press: New Haven, p. 115; Yanofsky, David, “American masochism: The fiscal cliff is one of the most severe austerity policies in the world” in Quartz (online), 24 October 2014, http://qz.com/18170/american-masochism-the-fiscal-cliff-is-one-of-the-most-severe-austerity-policies-in-the-world/.

[11] Elliott, Larry, “Greek crisis allows Osborne to peddle myths: The Tories have been able to win votes even as they slash Britons’ living standards” in The Guardian: London. 9 May 2011, p. 24.

[12] Anonymous, “Austerity, or bust” in The Economist: London. 21 July 2001, p. 49.

[13] Anonymous, “East Asia’s new faultlines” in The Economist: London. 14 March 1998, p. 18.

[14] Hilmarsson, Hilmar (2015) “The Collapse of the Icelandic banking system and the (dis)honest and/or (in)competent response of the international community” in Regional Formation and Development Studies, Vol. 16, No. 2, p. 24.

[15] Schui, above n 10, p.1.

[16] Asian Infrastructure Investment Bank, above n 2.

[17] Tran, Mark, “World Bank suspends lending to Cambodia over eviction of landowners” in The Guardian (online), 11 August 2011, http://www.theguardian.com/global-development/2011/aug/10/world-bank-suspends-cambodia-lending.

[18] Henley, Jon, “Greek bailout: Alexis Tsipras steps down to trigger new elections” in The Guardian (online), 21 August 2015, http://www.theguardian.com/world/2015/aug/20/greek-bailout-alexis-tsipras-call-snap-elections; The Economist, “Europe’s future in Greece’s hands” in The Economist (online), 4 July 2015, http://www.economist.com/news/leaders/21656662-whatever-its-outcome-greek-crisis-will-change-eu-ever-europes-future-greeces.

[19] US Energy Information Administration (2014) East China Sea, http://www.eia.gov/beta/international/analysis_includes/regions_of_interest/East_China_Sea/east_china_sea.pdf, accessed 21 August 2015.

[20] World Bank (2015) China: Overview, http://www.worldbank.org/en/country/china/overview#1, accessed 21 August 2015.

[21] Yan, Jiangning, “Chinalco to invest US$19.5nln in Rio Tinto” in Caijing (online), 2 December 2009, http://english.caijing.com.cn/2009-02-12/110055559.html.

[22] Lynch, Daniel (2013) “Securitizing culture in Chinese foreign policy debates: Implications for interpreting China’s rise” in Asian Survey, Vol. 53, No. 4, p. 629.

[23] Yuan, ZL (2014) Shangwubu Jiedu ‘Yi Dai Yi Lu’ Zhengce: Qiye Ke Cong Ba Da Lingyu Xunqiu Shangji, http://intl.ce.cn/specials/zxxx/201412/13/t20141213_4114813.shtml, accessed 21 August 2015.

[24] Rich, B (2007) “Exporting destruction” in Hiatt, Steven (ed), A Game As Old As Empire: The Secret World of Economic Hit Men and the Web of Global Corruption. Berrett-Koehler Publishers: San Francisco, p. 197.

[25] Asian Infrastructure Investment Bank, above n 2.

[26] The Economist, “Bridge over troubled water” in The Economist (online), 15 November 2014, http://www.economist.com/news/leaders/21632452-weeks-summit-beijing-helped-great-power-rivalry-still-threatens-pacific-bridge.

[27] Colby, E & P Lettow (2014) Have We Hit Peak America? The Sources of US Power and the Path to National Renaissance, https://foreignpolicy.com/2014/07/03/have-we-hit-peak-america/, accessed 21 August 2015.

[28] British Broadcasting Corporation, “What does China’s stock market crash tell us?” in BBC (online), 22 July 2015, http://www.bbc.com/news/business-33540763.

[29] Anonymous, “Editorial” in The Age: Melbourne. 30 March 2015, p. 16.

[30] Asian Infrastructure Investment Bank, above n 2.

[31] Asian Infrastructure Investment Bank, above n 2.