The American World Order and China’s New Bank
The United States has sensibly declared its intention to rebalance towards the Asia-Pacific, which is increasingly the nerve center of the world economy. Republican and Democratic administrations have consistently, moreover, affirmed that they embrace the rise (or resurgence, depending on one’s perspective) of China. Assistant Secretary of State for East Asian and Pacific Affairs Daniel Russel articulated that consensus in congressional testimony last summer:
We view China’s economic growth as complementary to the region’s prosperity, and China’s expanded role in the region can be complementary to the sustained U.S. strategic engagement in the Asia-Pacific.
The administration’s handling of the Asian Infrastructure Investment Bank (AIIB), however, illustrates the difficulty the United States is having as it tries to align its mindset with its rhetoric.
China announced that 46 countries have either joined or applied to be members of the AIIB — among them several close U.S. allies in Europe and Asia. The outcome evidently surprised the United States, which had lobbied them heavily to stay away from the enterprise. Now the White House has tempered its position and is proposing that the AIIB work in partnership with established development institutions such as the World Bank and the Asian Development Bank.
Even if China’s motives in launching the AIIB are purely self-interested, the bank responds to a pressing need. According to an August 2014 policy note by the G-20, “the OECD estimates that $70 trillion in additional infrastructure capacity will be needed globally” by 2030. A January 2013 report by the World Economic Forum forecasts that $5 trillion of such investment will be required through then (translating to $75 trillion over the next 15 years). While the need for infrastructure may be greatest in Asia, it is universal; as such, the decision by some close U.S. allies to apply for membership in the AIIB is less about begrudging acquiescence to China’s strategic preferences than about a sensible assessment of the gains to be had by participating in the economic initiatives of a country that continues to grow by over 7 percent annually and is poised to have the world’s largest economy.
Observing the swift progress the bank has made, Jane Perlez notes that “the institutions backed by the United States have not met the growing demands for roads, railroads, and pipelines in Asia.” A former high-ranking Treasury official told me that the United States is hamstrung in this aspect of its competition with China, partly because of Congressional dysfunction and partly because of the private-sector orientation of the country’s economy. In China, however, government has long played an outsized role in the economy, and Xi Jinping has proven an astute practitioner of geo-economic statecraft.
The defensiveness with which the United States initially reacted is disproportionate to the challenge the AIIB poses — for now, at least. Erik Voeten cautions against concluding that “modest shifts in the distribution of where aid comes from will have seismic geopolitical consequences.” He also notes that China’s “patchwork of [bilateral and regional trade] agreements does not form a substitute for the global market access that the WTO provides.” More importantly, though, America’s hesitation to embrace the AIIB sends a concerning signal to the Asia-Pacific: Its allies in the region do not want to have to “choose” between the United States and China. Instead, they seek to strengthen their military and diplomatic ties with the former while sharing in the economic fruits of the latter’s rise. The more the United States appears to be trying to force a choice, the more its allies in the region will, if reluctantly, side with China. China is a permanent resident of the Asia-Pacific, after all, while the United States is a distant power.
By declaring it would not apply for membership in the AIIB, the United States reinforced the impression that it is resistant to China’s further integration into the institutions of global economic governance — an impression that is especially regrettable considering that the United States has done more than any other country to facilitate that very incorporation.
Strengthening that view is Congress’s ongoing failure to ratify a set of December 2010 reforms by the International Monetary Fund (IMF) that would roughly double the fund’s “private equity,” shift over 6 percent of quota shares to emerging-market and developing countries (EMDCs), and make four EMDCs (Brazil, Russia, India, and China) among the fund’s ten largest shareholders, with China becoming the third-largest member country. Last March a group of nearly 100 academics and policymakers argued that Congressional approval of those reforms would contribute to “involving emerging powers more deeply in the institution and avoiding their disengagement.” Continuing to stall, they warned, “would diminish the role of the United States in international economic policymaking.” U.S. Treasury Secretary Jacob Lew affirmed that assessment in testimony last month before the House Committee on Financial Services:
Our international credibility and influence are being threatened….The IMF reforms will help convince emerging economies to remain anchored in the multilateral system that the United States helped design and continues to lead.
A rising China will inevitably deploy initiatives that reflect its vision of a more inclusive, Asia-centric economic system where aid is disbursed and infrastructure provided with few strings attached. Delaying reforms of the IMF, the World Bank, and comparably influential economic institutions will only incentivize it to do so more aggressively and with less regard for U.S. preferences. A rising China will also, inevitably, demand a greater role for the yuan; already, Germany and Australia have declared their support for that push, and IMF Managing Director Christine Lagarde believes the yuan’s inclusion in the basket of global reserve currencies — presently including the dollar, the euro, and the yen — is inevitable.
The United States can continue to play a central role — even the central role — in the evolution of world order, but not if it attempts to stall or reverse deeply rooted system-level trends: The rise of China is one, as is, more broadly, the movement of the world’s center of economic gravity to the Asia-Pacific. While one may dispute Larry Summer’s proposition that “the United States lost its role as the underwriter of the global economic system” last month, it is difficult to disagree that the Bank’s success “should lead to a comprehensive review of the U.S. approach to global economics.” Such a review would likely conclude that including China in its economic initiatives and participating in China’s gives the United States more leverage to shape the Asia-Pacific’s economic order—and economic order writ large—than, respectively, excluding China and shunning its efforts.
Ali Wyne is a regular contributor to War on the Rocks, a contributing analyst at Wikistrat, and a global fellow with the Project for the Study of the 21st Century.