With the Trump administration openly critical of multilateralism and many of the international institutions the United States pioneered, China has actively sought to fill the vacuum by promoting global cooperation and supporting international organizations. China’s leadership ambitions are exemplified with its regional development bank, the Asian Infrastructure Investment Bank (AIIB), which is the first international institution created by a non-Western power. Under the assertive leadership of President Xi Jinping, China has challenged the U.S.-dominated global order.
What is the Asian Infrastructure Investment Bank?
The AIIB is a multilateral development bank first proposed by Chinese President Xi Jinping in 2013, with 21 countries signing an initial memorandum of understanding in October 2014. By the time of the AIIB’s official launch and the release of its Articles of Agreements in June 2015, 57 countries had signed on, notably the United Kingdom, Germany, France, and Australia (despite U.S. opposition and much to China’s surprise).
The U.S. Treasury Department criticized the bank as a deliberate effort to undermine the World Bank and the International Monetary Fund, international institutions established after World War II and that are dominated by the United States. Former Treasury Secretary Lawrence Summers wrote that May 2015, “may be remembered as the moment the United States lost its role as the underwriter of the global economic system… I can think of no event since Bretton Woods comparable to the combination of China’s efforts to establish a major new institution and the failure of the US to persuade dozens of its traditional allies … to stay out of it.” The United States also argued that China’s authoritarian government would use the AIIB to unfairly benefit Chinese companies abroad and would dismiss standards and norms on issues like the environment, transparency, and accountability. As Rebecca Liao of Foreign Affairs wrote, the AIIB represents a “potential vanguard for an alternative world order.”
Western states’ aid, following liberal economic theory, utilizes their own institutional frameworks to spread liberal democracy around the world. China, on the other hand, has stuck to its policy of distancing itself from the domestic affairs of other nations. In fact, the AIIB’s Articles of Agreement have remarkably similar (and broad) operating guidelines to banks within the Bretton Woods framework, but bar members from influencing political affairs. To ensure compliance with the agreement, the Bretton Woods framework created the World Bank and the International Monetary Fund—to structure the spending guidelines and exchange rates for countries in financial need. Lending from the World Bank is contingent upon “satisfactory assessment of performance against a set of indicators in the form of institutional or policy reform measures that reflect progress in implementing a country-owned reform programme.” Critics have argued that because the United States is an instrumental decision maker in the World Bank, Washington can indirectly demand countries change their political institutions as a criteria for loans.
The AIIB’s Purpose and Significance
First, the AIIB only finances Asian infrastructure construction. At present, many Asian countries are either at the initial or acceleration stage of industrialization and urbanization. They have a great demand for the infrastructure of transportation, energy, and communication, but suffer from insufficient construction funds and raw materials, along lack of technology and experience. China has an overcapacity in major industrial sectors such as construction, and supplies the developing Asian countries with the materials. European countries, in contrast, seek high-return investment opportunities on their capital around the globe. The AIIB connects all three parties together.
Second, the AIIB has the potential to increase China’s authority in the international sphere. The AIIB provides leverage from the threat of “exit,” offering an alternative to the existing Bretton Woods system of multilateral development lending, and in turn, to the U.S.-dominated institutions that provide it hegemony and expand liberal internationalism.
The importance of the AIIB should not be underestimated. As Philip Golub from The American University of Paris notes, China’s initiative “significantly challenges the authority of traditional rule-makers, whose ability to set the international agenda and shape the global environment is waning.”
Despite the 87 countries that have joined, it is the Western states like the United Kingdom and Germany that will indicate the AIIB’s ongoing vitality. The AIIB’s decision-making and operations cannot stray too far from Western members preferences, which are broadly supportive of the existing rules, practices, and norms surrounding multilateral development financing. As the then-UK Chancellor of the Exchequer George Osborne stated when the UK joined the AIIB in 2015, “the UK will play a key role in ensuring that the AIIB embodies the best standards in accountability, transparency and governance.”
The AIIB demonstrates that multilateralism does not need to be directed by Western states. It also demonstrates that China can foster a reputation as a responsible rising power that is actively building and supporting a stable and prosperous global system. The AIIB may not replace the World Bank and IMF, but it does signal that the days of Western states dominating international development lending are coming to an end.