US Should Work with the Asian Infrastructure Investment Bank

Op-ed in the Financial Times

March 15, 2015

China's decision to create a new development bank for Asia is proving a highly divisive enterprise. The Asian Infrastructure Investment Bank (AIIB), due to open its doors later this year, has sparked deep divisions between Beijing and Washington. The latter argues that the bank will undermine existing international institutions and that it will be a vehicle for a broader expression of Chinese strategic interests. Now the AIIB has also become a source of major discord between the United States and some of its chief allies, including the United Kingdom, which has decided to become a founder member of the new institution.

The United States should bless the desire of its friends in Asia and Europe to join the Asian Infrastructure Investment Bank to help counter any untoward Chinese actions.

That sparked an angry response in Washington, a sorry development that reflects the huge mistake the United States has made in opposing a bank aimed at helping to meet Asia's need for trillions of dollars of investment in energy, power, transportation, telecommunications, and other infrastructure sectors.

China and 20 other Asian countries agreed in October to establish the AIIB. Beijing will provide the bulk of capital, and founding members include India, the second largest shareholder, as well as two Gulf Arab states, Kuwait and Qatar. A number of nonregional countries were invited to be founder members, an offer rejected by the United States, which then lobbied allies, including Australia, South Korea, the United Kingdom, and other European states, not to join.

Washington argues there is no need for a new development lender, given the World Bank and the Asian Development Bank. There are dark mutterings in DC that AIIB's Chinese leadership may ignore international lending norms and support projects that promote Chinese political, or even military, interests.

The United States is wrong to adopt this position. President Barack Obama has called for more Asian infrastructure investment. The existing institutions are only scratching the surface of those needs and have adopted different priorities in recent years. Competition is good for development lending as well as other markets. Concerns about backsliding from standards on transparency, procurement, and anticorruption are justified, but the way to address them is to join the institution and work from within; it is nonsense to argue that carping from outside will be more effective.

Most importantly, this issue represents a fresh skirmish in the inevitable competition for leadership of the world economy in the 21st century. As the incumbent power, the United States naturally wants China to support the international rules and institutions that it has led for 70 years. As the rising power, China naturally challenges a status quo it had no role in creating and wants to begin shaping a modified order itself.

The United States has correctly urged China to exercise leadership consistent with its expanding power and to provide more resources to support development and other global goals. When the Chinese move in those directions, as they are doing with the AIIB, it is short-sighted and hypocritical for the United States to seek to block them. This is especially true when the Obama administration has not persuaded Congress in four years to adopt legislation to provide enhanced roles for China and other emerging economies in the International Monetary Fund, as agreed by all other countries, and has opposed increasing the capital of the Asian Development Bank.

This US hostility reinforces the Chinese view that US strategy is to contain and suppress it, so increasing rather than decreasing the prospect of uncooperative Chinese behavior. The United Kingdom and other US allies, by contrast, are wise to accept China's invitation to join.

The United States should reverse course. It should join the bank and persuade Congress to provide the small amounts needed to fund a minority share. It should bless the desire of its friends in Asia and Europe to join to help counter any untoward Chinese actions.

And it should encourage the World Bank and the other current multilateral lenders to cooperate closely with the new institution. The AIIB initiative can then play a positive role in the world economy and capitalize on China's growing willingness to exercise constructive global leadership.