A Sino-centric economic order

MUCH to the dismay of the United States (US), the Europeans are filling in applications to join the Asian Infrastructure Investment Bank (AIIB). With staunch ally United Kingdom (UK) followed by France, Germany, Italy and now other countries like Luxembourg and Switzerland have joined the ranks of a rising number of nations that view AIIB's existence as a parallel source of finance for major infrastructure development efforts.

Despite an attempt to portray AIIB as a purely Chinese affair by some Western experts, both the UK and Switzerland have been formally accepted as founding members of the institution. The message being sent out by China is that the bank has a global outlook and is open to participation. The joint statement issued by Italy, Germany and France which stated that these countries were "keen to work with the AIIB as founding members to establish an institution that follows the best standards and practices in terms of governance, safeguards, debt and procurement policies" negates US claims that AIIB's activities may lack transparency. 

The basic reality is that there is need for an institution such as the AIIB that focuses primarily on infrastructure development, which is a key prerequisite to meaningful development in both developing and developed nations. The other reality is that China has emerged as a global economic power house and trade and investment cooperation with that country is of significant and strategic importance to advanced countries. In fact, by Asian Development Bank's (ADB) estimates, AIIB's infrastructure funding could reach US$730 billion over the next decade. 

From that point of view it is a natural choice for many EU countries to want to be part of the next big windfall in terms of investment opportunity that will come lending opportunities from beyond the EU. Beyond traditional global lenders such as the World Bank and ADB, AIIB's open outlook towards participation in "leadership role" has helped in attracting such widespread membership. By including UK and EU's powerhouse Germany will certainly benefit the new bank in terms of developing the guidelines and tools to ensure better risk management, performance evaluation and decision-making mechanisms. 

These measures should allay to a great degree US concerns about the UK's decision to join the AIIB. In what is now emerging as to be a public relations embarrassment, the White House had issued a statement last month stating its unease about the China-led initiative. The statement which was published in The Guardian on March 13 said: "Our position on AIIB remains clear and consistent. The United States and many major global economies all agree there is a pressing need to enhance infrastructure around the world. We believe any new multilateral institution should incorporate the high standards of the World Bank and the regional development banks. Based on many discussions, we have concerns about whether the AIIB will meet these high standards, particularly related to governance, and environmental and social safeguards…The international community have a stake in seeing the AIIB complement the existing architecture, and to work effectively alongside the World Bank and Asian Development Bank."

That AIIB will be following a different path to development is quite clear. With less emphasis on governance issues that includes human rights as a major prerequisite to availing loans is of major headache to leading Western democracies. Since the primary lending focus will be to established and upcoming Asian economies which do not necessarily have the best track records on protecting human rights, the new bank has the potential to upset the global financial order that has been in place since the Bretton Woods conference in 1944.  However, now that the UK and other EU countries are on board as founding members, many of those fears that have been justly or unjustly blown out of proportions, can be addressed. 

American pundits agree that China is an emerging great power. However, it will be many decades before China is in a position to challenge the US in terms of supremacy, whether military or economic. As pointed out by Zbigniew Brzezinski (a senior research professor of international relations at the School of Advanced International Studies, Johns Hopkins University, in Washington, D.C. ) in 1997: "No state is likely to match the US in the four key dimensions of power – military, economic, technological, and cultural – that confer global political clout." 

Those basic assumptions have not been refuted today. The neo-right may raise the China-bogey to raise fears that the global financial leadership held by a US-led West is now under threat by the emergence of institutions like the AIIB, a notion that is likely to be proven wrong. Per capita income in China puts that nation squarely in the middle income country bracket and it is not entirely clear whether the country will graduate to become a high income country by 2030.

The AIIB should be treated as it is, an international financial institution that will complement, not replace globally established and recognised institutions, which have played and will continue to play an important role in economic development in the world. The fear of a new Sino-centric economic order replacing the existing one is unfounded in the near term. Whether AIIB will emerge to be a contender to take a leading position vis-à-vis players like the World Bank or ADB in the decades to come is a question that had better be left for tomorrow, not today.

The writer is Assistant Editor, The Daily Star.