Bitter pill for the US over China’s new bank

IT will only be formally launched at the end of the year but China’s new Asian Infrastructure Investment Bank (AIIB) has already been a huge success. Without lending one yuan the bank has achieved far more than the Chinese government could ever have hoped for. It has pushed the two countries China is most passionate about — the US and Japan — out into the cold, dangling and unsure what to do next. As this week’s deadline for founding membership approached, Japan finally indicated it might sign up in a few months while the US is likely only ever to seek observer status.

Better still for China is that the US’s ham-fisted effort to stymie international support for the AIIB has seen China secure the moral high ground on the issue. It is a position China rarely holds, which makes it all the sweeter.

During the past three weeks the Chinese media has been dominated by talk of how China has upstaged the US by enticing America’s traditional allies to ignore governance-related warnings about the new bank and sign up for membership.

In the zero-sum game that is global politics, China, it seems, has scored big time. The US has lost and looks to be out of touch.

Late last year when representatives from 21 Asian countries signed the initial agreement to establish a development bank which would be led by China and provide funds to build roads, mobile-phone towers and other infrastructure in poor areas of the region, few commentators took the $50-billion (about R600-billion) bank seriously.

There was already the Japanese-controlled Asian Development Bank and the US-controlled World Bank, not to mention the New Development Bank (known as the Brics bank).

Until early last month, US lobbying efforts seemed to have persuaded most of its global allies to steer clear. Then came the unexpected announcement that the UK, long considered the US’s closest European ally, was signing up as a founding member.

This marked the beginning of what seemed like a cruelly choreographed process. Every other day a new name was called out and added to the list of countries keen to curry favour with the Chinese by becoming a founding member of its new financing institution. France, Germany and Italy were followed by Russia, Denmark, Sweden, Finland, the Netherlands and Egypt. News that Australia and South Korea had tossed in their names was the final blow. Both are firm allies of the US.

Like many of China’s neighbours, South Korea and Australia look to the US for protection against China flexing its considerable military muscle in the region.

Signing up to the AIIB seems confirmation that economic factors now take precedence over military ones. Fears of being frozen out of the opportunities arising from China’s continued economic growth and its ambitious development plans for the region are now evidently far greater than fears of military aggression by China.

Even for Japan, things are changing. As the 70th anniversary of the end of World War 2 looms, Sino-Japanese relations become increasingly fragile.

Japan has long taken comfort from knowing that China was encircled by hostile neighbours and had few formal allies across the globe. The rush to sign up to the AIIB suggests this may no longer be true; not that everyone now loves China, but China now wields more political clout.

By early this week Japan’s business and finance leaders seemed to be winning over the diplomatic corps as talk surfaced of membership at a later stage.

China’s success on the AIIB issue not only reflects the desire among other countries to be seen as Chinese allies but also the need for infrastructure development in the region, which is of course not guaranteed. In addition, US concerns about the bank’s possible governance weaknesses seem inappropriate given the criticism by developing nations of the World Bank’s governance structure and lending policies. The US government has blocked the necessary changes.

Crotty has just returned from a three-week trip to Beijing