China takes big leap forward with new bank
Creation of AIIB challenges American dominance in funding development
GENERAL MACARTHUR, PHILIPPINES
The new front in the battle for supremacy in Asia does not involve warships, warplanes or missiles — but that oldest of elixirs, money.
The U.S. has been pre-eminent for decades in the region, controlling the purse strings through the World Bank and the Japanese-led Asian Development Bank, based in Manila. Now China has upended the postwar financial order, creating the Asian Infrastructure Investment Bank (AIIB) and giving it US $50billion in seed money.
The move has caused apoplexy in Washington and Tokyo. The worry is Beijing will soon write the rules for international banking, effectively gaining a veto over many development projects in Asia. The old way of doing things was evident this spring near the Philippine town of General MacArthur.
Under a scorching sun, several dozen labourers worked on a U.S.-funded 77-kilometre stretch of highway and bridges that will speed up the movement of copra and other crops. But as American economic might wanes, there are likely to be fewer U.S.-funded projects in places such as General MacArthur, named after the commander whose name is synonymous with U.S. military triumphs in Asia. Worst of all, from the U.S. perspective, its closest business partners have rushed to join the new Chinese club. Canada is the notable exception, at least so far.
First off the mark was Britain. The Cameron government embraced the AIIB in exchange for the right to become the European clearing house for Chinese yuan. Within days, France, Germany and Italy had become founding members. The carrot in their case was the promise they could help write the new bank’s lending rules.
Joining South Korea in the stampede, Australian Prime Minister Tony Abbott submitted Canberra’s application Sunday, just beating the March 31 deadline for charter members to sign up.
His reasons are clear. Australia’s trade with China reached US$127-billion in 2013, while free-spending Chinese tourists are rapidly becoming the mainstay of its important tourism industry. As has happened so often on President Barack Obama’s watch, the U.S. has been caught flat-footed. It was also late in realizing many of its key allies were eager to jump on the new horse.
Most westerners tend to view China through the prism of their country’s trade relations with Beijing. This has obscured the fact the Communist government is involved in a huge number of colossal — although little noticed — projects outside its borders.
The Washington-based Center for Global Development reckons China financed 1,673 foreign development projects worth US$75-billion in 2001-11. They include US$4.6-billion to rebuild and extend a railway line from the Kenyan port of Mombasa to Uganda. Its goal is to gain access to the mineral-rich African interior, from South Sudan to Rwanda, Burundi and the Democratic Republic of Congo.
Chinese chequebook diplomacy has also been on show in Latin America, where Beijing has offered US$100-billion in trade credits and investments, the Financial Times reports. As in Africa, it wants to establish and control these new trade routes. It has invested $5 billion US in a multinational project to expand the Panama Canal and a Chinese company is overseeing a $50-billion plan to build a new canal across Nicaragua, linking the Atlantic and Pacific oceans.
In something of an understatement, Jack Lew, the U.S. treasury secretary, called the creation of the AIIB a threat to “our international credibility and influence.”
The world’s largest newspaper, Japan’s Yomiuri Shimbun, which sells more than 10 million copies a day, fretted “nothing has yet been revealed about the makeup of the AIIB’s management or its yardsticks for determining whether to approve loan requests.” Other concerns were Chinese companies might be given preference when approving mega-projects and China would “use some of the bank’s capital to increase its influence in Asia.”
Last week, the government-run China Daily mocked those claiming Britain had made “a surprise decision” to join the AIIB and added the U.S. had been dealt “a further blow” when other western countries joined.
“Such misrepresentation is harmful to both the existing and potential members of the AIIB, to international development and to the prospect of a more reasonable and harmonious world,” the paper said. “That the AIIB was proposed by and is headquartered is China does not mean it is Chinese or an instrument of Chinese soft power.”
Yan Xuetong, dean of Institute of Modern International Relations at Beijing’s Tsinghua University, was more forthright. He told Japan’s Nikkei Asian Review President Xi Jinping’s policy was “to allow smaller countries to benefit economically from their relationships with China … and in return we get good political relationships. We should ‘purchase’ the relationships.”
But not everything is going China’s way. Opinions such as those expressed by Yan and Beijing’s demand its citizens do most or all of the work on some of the biggest Chinese-funded foreign projects in Africa and Asia has caused political friction. In a thinly veiled attack on China, Maithripala Sirisena, Sri Lanka’s new president, decried “foreigners” who were using what looked like favourable loans and credits to to turn his people into “slaves.”
“This robbery is taking place in front of everybody and in broad daylight,” he told the Financial Times
“China is not a friend of the Philippines,” said Benny Cayacab, chief engineer on the U.S. road and bridge project running past General MacArthur. He added a cryptic summary of what China might be able to achieve through its leadership of the new bank.
“In terms of money, nothing is impossible,” Cayacab said as his work crew crowded around him. “I don’t know what will happen later in the Philippines. China is very rich. They can support what they want.”