LibriumArcana.Games

the diplomat wrote:The floodgates have opened. After the U.K. announced last Thursday that it would seek to join the Chinese-led Asian Infrastructure Investment Bank (AIIB), a trio of other European powers — Germany, France, and Italy — followed suit. With a March 31 deadline looming for countries to gain “founding member” status, expect more states – possibly including Australia and South Korea – to join in as well.

In another context, those decisions might have gone mostly unnoticed. However, the U.S. insured this would be global news by its stark opposition to the AIIB, and by its shocking sharp response to London’s decision to join — effectively accusing the U.K. of appeasing China. It’s been clear from the beginning that Washington was opposed to the creation of the bank and trying to keep its friends and partners from joining. But the stark criticisms leveled at London when it joined underlined just how badly Washington wanted to keep its allies away from the bank – and how powerless it ultimately is to convince them to stay away.

The irony is that the AIIB became a symbol of China-U.S. competition precisely because that is how Washington framed it. Aside from governance issues, the U.S. was worried the AIIB would undermine its own favored financial institutions, the World Bank and the Asian Development Bank. By encouraging allies to stay away from the initiative, the Obama administration turned a regional infrastructure back into a test case for its global influence – a case that the U.S. is now seen as losing. Gideon Rachman, writing for Financial Times, called Washington’s handling of the AIIB issue a “diplomatic debacle” that “will make America look isolated and petulant.”

That’s not to say that the U.S. should have embraced the AIIB with open arms. There are real concerns about the governance structure of the bank, including whether or not China will play an outsized role in determining who gets funding and who doesn’t. Such a set-up would only make it easier for China to wield its economic clout as a carrot (or a stick) to ‘encourage’ desired behaviors in other states. There are also legitimate worries about lax environmental and human rights safeguards for AIIB-funded projects.

However, as other analysts pointed out last fall, the best way to ensure that China doesn’t dominate the AIIB is to fill it with other regional powers, particularly those close to the U.S. Stacking the deck, as it were, with like-minded allies would result in much stricter governance rules and safeguards than an AIIB where China’s clout is unchallenged. That’s a major reason why a number of well-known China experts urged the U.S. itself to join the AIIB back in October – that and the recognition that there’s a real need for extra financial support for infrastructure projects in the reason.

In addition, the U.S. apparently underestimated the growing frustration with stalled reforms to the existing Bretton Woods organizations the U.S. prefers, the World Bank and the International Monetary Fund. “It’s not an accident that emerging economies are looking at other places because they are frustrated that, frankly, the United States has stalled a very mild and reasonable set of reforms in the IMF,” Treasury Secretary Jack Lew told Congress Tuesday. But it seems the White House didn’t recognize this issue when it mattered – before the AIIB floodgates opened.

There are no good options left for Washington at this point. If it continues to refuse to join, it will look like a stubborn outlier that refuses on principle to take part in Chinese-led initiatives – even when the regional consensus is clearly that the AIIB is a positive development. If Washington joins on, its lateness will make it clear that the U.S. only changed its policy once it proved unable to sway friendly nations to join its boycott. As Elizabeth Economy pointed out in a recent piece, the best move for the U.S. may be to simply sit this one out – quit pressuring its allies to stay away and, in Economy’s words, “let the AIIB rise or fall on its own merits.”

What’s past is past – there’s little point rehashing the failed U.S. approach to the AIIB except as a lesson for the future. The AIIB is far from the only regional project China has proposed that the U.S. will have to deal with. Beijing’s “one belt, one road” Silk Road projects are moving rapidly from theoretical to actual and Washington will soon have to formulate a response.

The lesson from the AIIB is clear: Washington cannot expect its partners to join it in boycotting China’s projects, particularly when they see benefits to be had by joining in. The U.S. has legitimate concerns over these initiatives and what they mean for expanded China influence, but it needs to find a better solution for voicing its objections than exerting diplomatic pressure on its friends. And Washington should seriously consider whether or not it might actually be best for it to take part as well, to ensure that “win-win cooperation” is the actual (and only) outcome of the Silk Road projects.

the washington times wrote:The battle of wills between Beijing and Washington over a China-sponsored development bank for Asia is turning into a rout, and the Obama administration has found itself isolated and embarrassed as its top allies lined up this week to join the proposed Asian Infrastructure Investment Bank.

In what one analyst dubbed a “diplomatic disaster” for the U.S., Britain became the first major European ally to sign on as a founding member of the Shanghai-based investment bank, joined quickly by France, Germany and Italy, which dismissed public and private warnings from the U.S. about the bank’s potential impact on global lending standards and the competition it could provide to existing institutions such as the U.S.-dominated World Bank.

Luxembourg, a major global financial center, revealed this week that it would sign up. China also is also wooing Australia and South Korea, two of America’s closest Asian allies, to join before the March 31 deadline. A South Korean wire service reported Wednesday that Seoul was “seriously considering” the offer.

The reason for the stampede is clear: China’s market and its huge hoard of cash to invest override any concerns voiced by the U.S. Treasury Department and State Department over Beijing’s half-ownership stake in the bank.

“Simply put, if you partake, you have a stake,” Thomas Koenig, a policy analyst with the European Union Chamber of Commerce, told the German broadcast service Deutsche Welle.

With 32 countries on board and more expected in the coming days, Chinese state media have begun to gloat about the failure of the Obama administration to rally even its closest allies and trading partners to shun the Asian Infrastructure Investment Bank. They noted that U.S. officials have long lectured China, now the world’s second-largest economy, to take a more active “stakeholder” role in global economic affairs, but then tried to undermine the investment bank almost from the time Chinese President Xi Jinping floated the idea of an Asian development fund during a trip to Indonesia in October 2013.

“Welcome Germany! Welcome France! Welcome Italy!” the official Chinese Xinhua News Agency wrote in a commentary published Wednesday.

“Despite a petulant and cynical Washington,” more and more major countries are joining, the commentary noted. “Holding sour grapes over the AIIB makes America look isolated and hypocritical.”

Chinese officials noted Wednesday that the Asian Infrastructure Investment Bank will be on the agenda for the summit of top Chinese, Japanese and South Korean diplomats Saturday in Seoul. Chinese Deputy Finance Minister Shi Yaobin told reporters in Beijing that the U.S. would still be welcomed as a founding partner.

Saying Asia’s booming infrastructure financing needs — estimated at a staggering $700 billion annually — aren’t being met by institutions such as the World Bank and the Asian Development Bank, China is putting up half of the planned initial $50 billion financing to launch the Asian Infrastructure Investment Bank. India, another U.S. ally, is the second-biggest investor, and a group of developing countries from Asia and the Middle East quickly signed on.

The Obama administration has been skeptical of the idea from the start, arguing that the proposed bank could prove redundant and could undercut lending standards on such issues as worker protections and the environment. China’s large stake also raised red flags, U.S. officials said, about whether the bank would favor Beijing’s economic and strategic priorities.

Clash over clout

Underlying the public debate was a clear clash between Washington and Beijing over clout in the globe’s leading financial infrastructure, set up largely by the United States in the wake of World War II and still largely dominated in the senior ranks by U.S., European and Japanese officials.

“We are wary about a trend toward constant accommodation of China, which is not the best way to engage a rising power,” an unidentified U.S. official told the Financial Times newspaper after news broke that Britain would join the bank.

Rising powers such as China, Brazil and India also have expressed mounting frustration that a proposed overhaul of the International Monetary Fund to reset voting rights to reflect the new global pecking order has been blocked because the Obama administration and the Republican-dominated Congress have been unable to pass it.

Analysts say Chinese officials have skillfully tried to meet concerns that Asian Infrastructure Investment Bank members will be drawn into a power clash. During a visit to Australia last month, Zhou Qiangwu, a point man for Beijing’s selling efforts, noted that the Asian Infrastructure Investment Bank would be run by a multinational secretariat and use the same management structure as the Asian Development Bank and World Bank.

The proposed bank would “follow the international practice and give highest attention to environmental impact and resettlement” issues, he said, with strong safeguards against corruption.

Treasury Secretary Jacob Lew tried to moderate the U.S. line against the Asian Infrastructure Investment Bank in testimony on Capitol Hill this week, insisting that the administration’s primary goal was to ensure that the bank did not undermine lending standards.

“I hope before the final commitments are made anyone who lends their name to this organization will make sure that the governance is appropriate,” Mr. Lew said.

But the White House and the State Department said this week that it was the “sovereign decision” of each country on whether to participate in the bank.

Mr. Lew did acknowledge that the longtime U.S. and Western primacy in the global financial sphere was being challenged by China and other rising powers, which may not share Washington’s priorities.

“New players are challenging U.S. leadership in the multilateral system,” Mr. Lew said, pleading for passage of the IMF reform package. “Our international credibility and influence are being threatened.”

But private analysts say that credibility and influence have taken major hits from the rush to join the Asian Infrastructure Investment Bank.

C. Fred Bergsten, a senior fellow at the Washington-based Peterson Institute for International Economics, wrote this week that the Obama administration made a huge mistake by trying to undermine the bank, not only failing to persuade allies to stay out but also strengthening the voices in Beijing who argue that the U.S. is trying to keep China down.

“The U.S. hostility reinforces the Chinese view that U.S. strategy is to contain and suppress it,” he wrote, “so increasing rather than decreasing the prospect of uncooperative Chinese behavior.”

Financial Times columnist Gideon Rachman said this week that the saga “is turning into a diplomatic debacle for the U.S.”

“By setting up and then losing a power struggle with China,” he said, “Washington has sent an unintended signal about the drift of power and influence in the 21st century.”

General Havoc wrote:Does every single article about China have to be more Yellow Peril scare story bullshit?

General Havoc wrote:If there's "interesting conclusions" to draw, then please draw them.

rhoenix wrote:I didn't put words in your mouth and then accuse you of having them, Havoc. Kindly don't do so to others.

I'll respond to the salient point of your reply.

General Havoc wrote:You're right, I should not have accused you of saying those things. In fact I should not have accused you of saying anything, as "there are interesting conclusions to draw from this" is the sort of non-speach that politicians engage in when they wish to say something without being accused of having said it. I should instead have responded to the article, an ignorant hack-piece of shallow understanding which uses two lines of facts to push the same damned Yellow Peril agenda for the rest of its runtime, either as a means of right wing sabre-rattling or as a stick to beat the US.

General Havoc wrote:The Asia Pivot initiative was a multilateral shift of priorities away from more settled matters in Europe to areas of developing interest to the United States. We did not pivot towards Asia because Europe is now irrelevant and doomed. We pivoted to Asia because Europe is no longer in danger of exploding every ten minutes into WWIII, and the issues outstanding between us and the Europeans do not require our full attention to resolve.

General Havoc wrote:The twin rises of China and India, the tensions with North Korea, the South China Sea, ongoing terrorism in the Straights of Malacca and the Indian Ocean, and all the other myriad issues becoming more and more important along the western shore of the Pacific, are the sorts of things that reward our full attention more than beet quotas imposed by French farmers or the endlessly quixotic efforts to get the Europeans to pay their share of NATO. Part of this has been to try and get the Chinese and other Asian nations more closely involved in world economic systems such as the World Bank. China remains suspicious of such things for many reasons, some good and some less good. This new investment bank of theirs is designed to give them more leeway for operating in international finance markets, something we opposed and the Europeans decided to join. But of course we can't frame it that way, because it's something China did that we didn't like, which clearly means the US is a doomed nation destined to crumble to dust before our eyes or be smashed under the heel of our jack-booted Chinese overlords and their insidious mandarin masters in Beijing. This is, after all, how you get website clicks.

This week, Germany, France, Italy and Britain all decided to join the recently created China-led Asian Infrastructure Investment Bank (AIIB) despite the express opposition of the United States. The United States worries that the new bank will apply looser standards with regards to the environment, transparency, and governance. Perhaps more to the point, the United States is concerned that the new institution will undermine the World Bank; an institution in which the United States and its allies retain a dominant say.

The AIIB together with the new BRICS bank are heralded as evidence of China’s growing geopolitical clout. Fareed Zakaria rang the alarm bells last fall:

[..] if China uses its growing clout to keep asking countries to choose between the existing arrangements or new ones, it might create conditions for a new kind of Cold War in Asia. It will certainly help to undermine and destroy the current international order, which has been a platform on which peace and prosperity have flourished in Asia for seven decades.

There is little doubt that the creation of these new institutions reflects China’s growing economic might as well as China’s desire to use this economic power for political purposes. There is plenty of evidence that Western governments and Japan have used the multilateral development banks that they control in exchange for favors in the international arena (such as votes in the United Nations) or to influence the domestic politics of poorer countries. Banks in which China exerts more influence will surely behave in similar ways. This will have some consequences. But it is too soon to think that these initiatives will have such drastic effects that they will “undermine and destroy the current world order.”

To start with, so far the total amount of lending by these banks is $0. There is a long list of international institutions that were created with much fanfare only to be relegated to the footnotes of world history (if that). UPenn political scientist Julia Gray estimates that of formally existing international economic organizations 10 percent are essentially dead and 38 percent are “comatose.” I suspect that the AIIB will not fall into either category in the near future (I am less confident about the BRICS bank). But the jury is still out on just how important a player it will be. AIIB lending may replace some World Bank lending but it will also replace some Chinese bilateral aid and some Asian Development Bank lending. It is not really clear at all why modest shifts in the distribution of where aid comes from will have seismic geopolitical consequences.

Second, and more importantly, China has had a much harder time reforming or replacing global institutions in policy areas other than development lending. Stanford political scientist Philip Lipscy argues in a recent article in the American Journal of Political Science that the extent to which the world’s institutions adjust to changes in the global distribution of power depends strongly on whether member states have attractive outside options.

If you are unhappy with the World Bank, and you have resources, it is rather straightforward to just start giving aid bilaterally or to create a multilateral bank with like-minded countries. All you need is money (countries that are willing to accept the money are easy to find). That’s why we already have two dozen multilateral development banks.


If you are unhappy with the International Monetary Fund (IMF) it is much harder to create an alternative. In the past few decades, the IMF has mostly been concerned with the maintenance of global financial stability. Lipscy argues that there are considerable benefits associated with having a universal organization in this area. Given financial interdependence global surveillance and universal coverage are far superior to a patchwork of regional arrangements. You also often need very large sums of money quickly in times of crisis. Other than money, a lender of last resort needs to be credible and needs to provide political cover for painful measures, tasks much easier accomplished by a universal organization than a regional one.

This is why most regional alternatives to the IMF, such as the proposed Asian Monetary Fund, have failed. Or, why in times of financial crises countries, such as South Korea and Indonesia, turned to the United States and the global institutions for help rather than the the Chiang Mai swap agreement. Lipscy shows that as a result of the paucity of alternative options IMF voting rules have adjusted much less rapidly to changes in the global distribution of power than have World Bank voting rules.

Similarly, China is not trying to undermine the key global security institutions and continues to rely very heavily on the key trade institution: the World Trade Organization (WTO). It is true that many states, including China, are very active in signing bilateral and regional trade agreements that sometimes challenge aspects of the WTO regime. Yet, this patchwork of agreements does not form a substitute for the global market access that the WTO provides.

Development lending is a particularly difficult area for the United States to stop China from changing the globe’s institutional infrastructure. If China has the money, it can create institutional arrangements to lend it to others. Most states accept that this is going to happen anyway. They thus decide that they may as well join to benefit or to influence proceedings from the sidelines. But that doesn’t mean that this is the first step toward destroying the international order all together. China lacks the incentives and/or the ability to fundamentally undermine the world’s most important institutions.