The system-shaping power of global financial institutions has the potential to be exploited for national self-interests by powerful states. With functionality eroded, and leadership boards stacked, institutions can be made ripe for changes that threaten their longstanding liberal foundations and ultimately global stability.

The Obama administration lobbied against the formation of the Asian Infrastructure Investment Bank (AIIB) and was shocked when the United Kingdom joined, followed by Australia. The US objections were rooted in concerns about anti-corruption, labour, and environmental governance standards. Additionally, there was a profound unease about the long-term influence of multilateral institutions and the Communist Party of China (CPC) wielding system-shaping structural power. The ideology of an institution, fashioned by the dominant member(s), provides assumptions that inform goals, legitimises and defines terminology, holds precedence of method, shapes and constrains enquiry, and ultimately determines what outcomes occur for which individuals, people, firms, and states.

The CPC has deflected several incidents that have inferred undue influence and intend to change the function of multilateral financial institutions, both in its Asia Infrastructure Investment Bank (AIIB) and the post-WWII US-led Bretton Woods institutions. Recently, Chief of Communications, Canadian Bob Pickard, resigned from the AIIB, citing a toxic culture dominated by the CPC, stating, “I don’t believe that my country’s interests are served by its AIIB membership.” In 2021, US-headquartered law firm Wilmer Hale found China influenced World Bank staff to manipulate data and lift its “Doing Business” report rankings from 85th to 78th –  giving China a higher than indicated score for its business environment.

The CPC’s influence over multilateral financial institutions has increased significantly due to its initiative to establish the AIIB, where its voting share (a quarter of the vote) provides power to centralise and control the purpose and structure of the bank. When combined with influence in the World Bank, International Monetary Fund, and the Asian Development Bank, the CPC can leverage its power through allies and voting blocs. Members adhering to China’s interests within the AIIB carry these purposes into the other institutions. The present contentious issue is a proposed IMF 50 percent quota increase, which would “… enhance the IMF’s permanent resources and strengthen the quota-based nature of the Fund by reducing the reliance on borrowing and thus ensuring the primary role of quotas in Fund resources.” The proposal, supported by the US and to be finalised on 15 December, is being resisted by China, subject to an increase in the voting shares of emerging market economies. People’s Bank of China Governor Pan Gongsheng stated on 14 October that the goal is to “…strengthen the voice and representation of emerging markets and developing countries.”

What does the CPC want to do with increased power over multilateral financial institutions? Beijing’s specific goal is to establish China as the dominant state within thirty years through the completion of socialism with Chinese characteristics. The use of power, viewed through the Leninist ideal of a vanguard party, seeks to awaken the working and peasant class to their political interests, being the control of capitalism by the Chinese socialist state. Concepts such as the China Dream carry the Party’s banner into the global rules-based system as a revisionist state seeking redress for the Century of Humiliation and restoring an imagined historical hegemony. Specific policies such as Made in China 2025 set industry policies intended to surpass Western technology. The legitimate use of power includes methods such as hostage diplomacy (i.e., Michael Kovrig, Michael Spavor, Cheng Lei, Yang Hengjun), systemic theft of intellectual property, and most troubling for the stability of the global economy economic coercion (Australia suspended its WTO dispute) and assertion of Party political interests that disrupt market function (as exemplified by the treatment of business leaders like Alibaba’s Jack Ma).

The ideological basis of the present system is liberalism, with an acceptance of mercantilist competition within the liberal rules negotiated and practised through global financial institutions. All states can compete and succeed. A shift to socialism based on critical theory led by the CPC threatens functionality and may subject financial institutions to CPC goals and methods. The credibility of multilateral financial institutions is vital for their function. The League of Nations failed when states pursued self-interest and conflicting goals. The forty-four states at Bretton Woods successfully agreed to a common agenda and constrained self-interest for collective system-building benefit.

Global financial institutions have system-shaping power, so they must be accepted as impartial, independent actors seeking forthcoming outcomes for all states. They should allow competition, but also enhance the distribution of capital, create markets, and provide development outcomes that benefit the society of states rather than lift one member above the others. The CPC’s intent and methods should be chastised, and all members’ relative bargaining power within global financial institutions should be considered primarily against the requirement to maintain function and impartiality.

Jonathan Ping is an associate professor of political economy at Bond University and the director of the East Asia Security Centre @DrJHPing