China "pokes a stick" into US-allied relations?

(Baonghean) - China has just officially announced the establishment date of the Asian Infrastructure Investment Bank (AIIB) at the end of 2015. Despite Beijing's assertion that the AIIB will be a supplement and not a competitor to other financial institutions such as the Asian Development Bank (ADB) or the World Bank (WB), people have seen clear reservations in the US's attitude when calling on its allies to be cautious if they want to join this financial system. So how should the US respond to this situation and what is China's real intention?

In fact, the idea of ​​establishing the Asian Infrastructure Investment Bank - AIIB was first proposed by Chinese President Xi Jinping during his visit to Indonesia in October 2013. One year later, on October 26, 2014, China and 20 other countries such as Singapore, Philippines, Malaysia, Kuwait, Qatar... signed a Memorandum of Understanding on the establishment of AIIB. Initially, AIIB had a legalized capital of 100 billion USD, with the main task of providing capital for infrastructure, transportation and energy projects in Asia. According to the Financial Times, AIIB will basically operate similarly to the World Bank (WB) or the International Monetary Fund (IMF).

Chinese President Xi Jinping (left) and US President Obama.

In terms of purpose, China has a very convincing argument, which is also the assessment of the Asian Development Bank that the Asian region currently needs to invest about 8,000 billion USD in the infrastructure sector. Meanwhile, the current US-dominated international financial institutions such as the WB, IMF... can hardly fully meet this demand. Therefore, China with its abundant foreign exchange reserves has become a bright candidate, the most suitable leading country for an infrastructure investment bank project for the leading dynamic development region of Asia. And of course, Beijing has quickly seized this opportunity.

According to many experts, China has not only seized but also enthusiastically created an opportunity that is too good to aim at a series of other strategic goals. Public opinion must have seen China's discomfort over the years, when this country and other large emerging economies continuously demanded a greater voice in global financial institutions such as the International Monetary Fund (IMF) and the World Bank (WB) to reflect the country's increasing economic power, but these demands were not met by the US. Seizing the opportunity, when the reform process at the WB and IMF was slow, China decided to establish an international financial institution headed by itself.

In this situation, the US's concern is completely understandable. Especially when a series of European allies such as France, Germany, Italy and Switzerland also announced their decision to join the AIIB, despite the US's call. Not only that, Australia, Japan and South Korea, America's allies in Asia, have also announced in the past few days that they will likely join the AIIB, although they are still cautious. The fact that Japan - an ally of the US and China's top competitor - also expressed its intention to join the AIIB has really surprised the US. Because a year ago, Australia, Japan, South Korea and Indonesia did not sign the initial memorandum of understanding to establish the AIIB, but now the situation has completely changed. To date, 27 countries have joined the AIIB and some other countries are expected to announce their participation this month, which will exceed 30 countries.

In the eyes of the US today, the AIIB is a very high-level economic move by China, because if successful, it will be a powerful tool for China to enhance its “soft power” in Asia. The US is worried that China will use the infrastructure system funded by the AIIB to create leverage in the region, a cornerstone in the pivot to Asia-Pacific campaign that the US is nurturing. And not only in the region, Washington is also worried that it will become a competitor to the financial institutions that the US is currently leading. Once the AIIB is established, it will become a financial institution specializing in providing loans for infrastructure projects in Renminbi, of course, the Chinese currency will flood the market, causing the position of the USD to decline seriously. This is something that the US does not want at all. Some experts also believe that promoting the AIIB, along with publicly supporting other mechanisms over the years such as the Shanghai Cooperation Organization (SCO) and the Conference on Interaction and Confidence Building in Asia (CICA), are Beijing's strategic steps to rebalance international institutions and reduce dependence on the US and Europe.

These are the reasons why the US is concerned, cautious and calls on its allies to be cautious when joining the AIIB. However, European countries now have many reasons to ignore the US and "say yes" to China's AIIB. The statements of European leaders have frankly stated that if they do not become members of this new institution, European countries risk missing out on one of the regions with the strongest economic growth, infrastructure development and geopolitical influence in the world. This also stems from the stagnant economic situation of Europe, which after many years has not yet escaped the consequences of the public debt crisis; while the IMF, WB or ADB cannot meet Europe's recovery and growth needs. Not only that, the slowness to reform appropriately as well as the rift in US-European relations related to the Ukraine crisis have also forced many European countries to follow China's call. As for Asian countries like Australia, Japan or South Korea, although they are allies of the US, staying outside a financial institution of the Asian region is clearly more of a loss than a gain. Therefore, after weighing the pros and cons, perhaps these countries have all made their decisions.

As for the US, perhaps the world's economic leader is facing an extremely awkward situation and a very uncomfortable feeling, when the world's number 1 position is being challenged while the allied relationship is broken and the US is helpless when watching its allies follow its opponents. The way the US is responding at this time is weak calls and advice to its allies to consider whether the AIIB meets the standards of governance and environmental and social protection measures. It is also because the US understands that joining a financial institution is a sovereign country's own decision and the US has no right to interfere or prohibit. However, according to experts, the US still has another option, which is instead of standing outside and worrying, it can join the AIIB. In fact, this would be a good idea if the US knows how to take advantage of it to maintain a stable position, participate in coordination, management or planning activities. At that time, the US would have complete control over the institution that had become its rival.

Meanwhile, according to observers, the US does not need to worry too much, because even if this bank is successfully established, China, although the initiator, will only be one of many leading economic countries participating in management and operation. That means, with a multilateral management mechanism, the authority is equivalent and Beijing cannot have the right to decide all issues of the AIIB. And one thing that the US can do immediately is to speed up the process of reforming the IMF or WB according to the wishes of its European allies. Once these mechanisms operate well and effectively, maintaining their leading role, even if China's AIIB appears, it will only be an addition to the diversity of the global financial system. Therefore, according to analysts, the success of the AIIB will be more symbolic; but anyway, Beijing's banking project has startled Washington.

Phuong Hoa