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Consider the Counterfactual: Why the US Should Join the AIIB

17 Feb 2022
By Seamus Dove
Indian Prime Minister, Shri Narendra Modi in a group photograph at the Third Annual Meeting of the Asian Infrastructure Investment Bank (AIIB), in Mumbai on June 26, 2018. Source: Prime Minister's Office of India, Wikimedia Commons,

Washington has long opposed the Asian Infrastructure Investment Bank (AIIB), viewing it as a tool for propagating Chinese influence. Now, seven years on from its inception, membership to the AIIB could serve US interests.

Few international institutions have attracted as much scrutiny as the AIIB. The AIIB was designed to provide finance for infrastructure projects in Asia, both as a means of constructing necessary facilities and boosting regional economies. The bank was formally established in December 2015 after a lengthy diplomatic campaign, largely spearheaded by Beijing. Since then, the AIIB’s membership and capital holdings have ballooned. The institution has been awarded a AAA credit rating by multiple rating agencies, can claim more than US$100 billion in authorised capital, and has funded 167 projects. By nearly all accounts, the AIIB has been a success.  

Despite its name, the 105 AIIB member states are not all Asian. Australia, Germany, and the UK were among its founding members, and other Western states like France joined shortly afterwards. Non-Asian areas of the global south are also well-represented. Nineteen African countries have joined the AIIB, including Nigeria, Kenya, and Tunisia. The Americas are the least-represented region with only eight members. This distribution is partially explained by the AIIB’s membership rules. Existing membership of either the International Bank for Reconstruction and Development or the Asian Development Bank is a prerequisite for an AIIB application. The most glaring omission from the list of AIIB members is, of course, the United States.  

Washington’s Opposition  

Since its inception, the US and Japan have been stalwart opponents of the bank. In 2015, then-President Barrack Obama stated the US had doubts that the AIIB would be accountable and transparent. In a separate statement, the White House National Security Council expressed “concerns” that the bank would not meet the “high standards” of governance set by other multilateral development banks. 

Though Washington denies it, there remain allegations that the US attempted to dissuade other Western states from joining. These efforts were clearly insufficient. Attitudes toward China had not yet frozen over in 2015, and Beijing took active steps to assure potential members of its good intentions, even forgoing its initially planned veto power. Such a step was highly unusual — the US has veto power in the World Bank and the IMF.  

Whatever fears the US expressed should now have largely been assuaged. The AIIB revamped its transparency requirements in 2018, with AIIB President Jin Liqun noting “Transparency and accountability are the two main pillars of AIIB’s governance.” Since its official launch, the bank has generated little controversy.  

Washington’s actions may also be explained by pure self-interest. The AIIB follows a similar model to the Asian Development Bank (ADB) and the World Bank, where shares in the institution are bought by participating states. Shares can be used to vote for certain projects to be approved. Therefore, as a general rule, more shares equate to a greater degree of control over the projects that get financed. The AIIB’s closest parallel, the ADB, is largely controlled by the US and Japan, who together hold over 30 percent of total shares. The same can be true of the World Bank, where the US holds 16 percent of shares, more than double the holdings of Japan, the next largest shareholder. Comparatively, China holds 26.5 percent of all AIIB votes. India holds the next most at only 7.6 percent.  

This attitude towards the AIIB made sense seven years ago. It is also logical that the US would seek to steer funding and investment towards the institutions where it has the most power. But now, given the success of the AIIB project thus far, the US gains little from continuing to sit on the sidelines. With tensions on the rise in the Indo-Pacific, US policymakers would do well to reconsider their position.  

How Would Washington Join? 

Membership in the AIIB is open to all members of the ADB and the International Bank for Reconstruction and Development. The US is a member of both. Upon application to the AIIB, the US would become a prospective member following a special vote by the Board of Governors. After its first capital instalment and completion of basic membership procedures, the US would be an official member.   

Here emerges a difficulty for Washington. The AIIB is authorised to hold $100 billion in capital. Subscriptions, or shares, in the AIIB represent a portion of that amount. However, almost all that $100 billion, divided into 100,000 shares of $1 million each, is accounted for.  A mere 3070 shares remain available to purchase, about 600 fewer than Australia currently controls. It is also no guarantee that the full amount would be available for purchase. The number of shares offered to new members is at the discretion of the Board of Governors.  

Joining an institution under such circumstances would be unfamiliar territory for Washington. The US is used to important multilateral institutions being headquartered on its soil and being run on its terms. But while 3000 votes may not be much in comparison, the alternative is no influence at all.  

The Case for Admission 

The low number of shares the US would hold should not deter it from AIIB membership. For one, the AIIB authorised capital will likely rise in the long term, which will create new shares available for purchase.  Furthermore, there are a range of opportunities for the US to expand its soft power outside share ownership. AIIB member states are entitled to submit projects directly to the bank for consideration. This would allow Washington to formally push for infrastructure funding to be directed to regional allies on its terms. Though such states could push for funding themselves, the AIIB has so far concentrated funding in a reasonably small number of countries. For instance, the AIIB has approved 14 projects in India, and only one in the Philippines. The extra votes and diplomatic influence of the US could alter that balance. 

Washington would also be entitled to a representative on the Board of Governors, providing a crucial forum for it to vocalise its opinions on the bank’s practices. If China does attempt to use the AIIB as a reskinned Belt and Road Initiative (BRI), it would no doubt be preferable that the US has a voice in the room. Although Washington would have less influence than it is accustomed to in AIIB’s Beijing headquarters, US soft power can flow beyond its walls. Washington can corral its influence over states outside the AIIB into favourable outcomes within it.  

One could argue that joining the AIIB this late would be spun as a great admission of defeat. After all, Joe Biden was vice president of the US as the AIIB gained momentum, and he joined Obama in taking a hard line against it. But Biden has backflipped on Obama-era policies before. Biden chose not to take Obama’s stance toward Cuba, instead opting to maintain the restrictions implemented by the Trump administration.

It goes without saying that membership of the AIIB does not mean being China’s ally. Australia, for instance, remains a member despite countless diplomatic stoushes with Beijing over the past few years. The UK banned Huawei in 2020 and remains a member. But this hypothetical crisis of public relations should not concern the Biden administration. For one, the AIIB is a multilateral development bank. Quietly applying for membership is unlikely to garner serious domestic attention by US media. For another, Biden has a compelling narrative to deploy if he so wishes: the US would be joining to keep an eye on Beijing’s project.  

Washington’s reluctance to join the AIIB remains understandable. For many reasons, the move may be perceived as weak. But even if what the US stands to gain in hard power is limited, AIIB membership still represents a new opportunity to exert soft power on a critical region. As Beijing increases its push into the Indo-Pacific, the US must match it in lockstep. What’s more, for all the American fearmongering about the AIIB in 2015, it again has missed the counterfactual. If the AIIB is a tool for Chinese influence, it must assuredly still be preferable to inscrutable bilateral agreements brokered through the BRI. While the US wouldn’t have as much power in the AIIB as it does in the ADB or the World Bank, it would have enough. With tensions sharply rising, Washington must utilise every tool at its disposal to maintain its edge. 

Seamus Dove is the assistant editor of Australian Outlook. He is studying a Masters of Strategic Studies (Advanced) at the Australian National University.

This article is published under a Creative Commons License and may be republished with attribution.