In October last year, 21 countries, led by China, signed an agreement to establish the Asia Infrastructure Investment Bank (AIIB). On April 15, 2015, China’s Deputy Finance Minister, Shi Yaobin, announced that 57 countries had been approved as founding members of the bank.
Western media have already nicknamed the initiative as a new ‘China-led World Bank’ and analysts have said ‘it will alter the existing global financial status-quo currently dominated by the US-led World Bank group.
It’s no wonder that the United States screamed bloody murder until its voice got hoarse, trying to stop the initiative from taking-off. However, when China refused to back off, the US turned to its western allies, advising them not to join or support it.
“It was nothing less than a strategic coup-de-grace, as more US allies failed to resist the temptation of gaining economic favours with China, leaving Washington bitter and isolated,” wrote Richard Javad Heydarian, a specialist in Asian geopolitical/economic affairs, in an opinion article for Al-Jazeera.
The US warnings were either ignored or rejected by its top European allies, including Britain, Germany, France and Italy who were on Wednesday unveiled among the founders of what America angrily regards as an ‘unwelcome rival to the Washington controlled World Bank.’
If you look closely at the list of the founding members, African countries are largely absent from this crucial global conversation; only South Africa, a member of the Brics grouping comprising of Brazil, Russia, India and China, managed to sign-up by the April 15 deadline.
The founding members now include four UN Security Council permanent representatives which include China, Russia, the U.K. and France in addition to 14 EU countries led by Germany.
In a statement released by China Deputy Finance Minister on Wednesday, he indicated that AIIB’s 57 founding members include “37 countries within Asia and 20 others outside of Asia covering Oceania, Europe, Latin America and Africa.”
Professor Selcuk Colakoglu, vice president of an Ankara-based think tank, is among those who noted that the attraction of wealthy western developed economies as founders of the new Bank is a major victory for Beijing but a bitter loss to Washington.
Indeed, the mood in Beijing following these developments was best summarized in a sassy commentary published on Wednesday by the Chinese government’s Xinhua news agency with a cheeky headline; Welcome Germany! Welcome France! Welcome Italy!”
In the article, the United States was described as “petulant and cynical” for trying to fight the Chinese initiative.
This is a Beijing victory because with this strong founder membership, the bank can be confident when the time comes to raise the initial capital needed to kick-start the bank.
As the head of a ‘mutiny,’ if we may call it so, China has already pledged to provide $50 billion as initial capital for the Bank and hopes that other founding countries would help increase the capital to at least $100 billion.
The official reason that was fronted in October justifying the establishment of AIIB was to allegedly fill an estimated $8 trillion gap for development financing in Asian countries left behind by the current global financial apparatus of the IMF and World Bank.
But although the vision seems to be noble, the crux of this development is in a complicated power struggle between Washington and Beijing, the capitals of the two largest economies on earth, competing for the control the global financial hegemony.
In Washington, China is seen as an encroacher on the hegemony which has firmly been in the hands of USA, 70 years since the creation of the World Bank as a United Nations international financial institution that would provide loans to developing countries for capital programs.
But for many African countries that are permanently in the queues for those loans, they have always decried the ‘strings attached’ to the financing, with WB and IMF overseers demanding that applicants first undertake certain conditions/reforms before being funded.
Currently Africa has a deficit of US$93 billion annually, required for infrastructural financing. That means African countries urgently need an alternative to the likes of World Bank and the AIIB comes at a perfect time.
Ideally, this should be a good thing, and even the World Bank has said so in recent months; so why the bitter US resistance?
Well, China’s foreign policy towards Africa is defined by non-interference in domestic affairs and mutual respect for nations as equal partners’; Chinese aid to African countries is string-free, something that has always been criticized by western human rights activists.
By controlling the flow of money/aid, the USA had effectively become the World’s ‘democratic governance referee’. Countries seen to be incompliant would be switched off from the development support financing until they met the ‘standards’ imposed by Washington.
“I hope before the final commitments are made anyone who lends their name to this new organisation (AIIB) will make sure that the governance is appropriate,” said US Treasury Secretary Jack Lew, as he appeared before Congress.
New world order
But Xinhua news agency teased, “as more and more Western countries mull over joining the China-led lending body, the US will feel lonelier if it continues to be a holdout; so Washington, what are you waiting for?”
In AIIB, analysts say we’re witnessing a ‘new world financial order’ with realigned voting powers and influence that are currently missing in the World Bank or IMF; for decades, the USA has dominated voting powers and influence in these institutions and has often resisted calls to reform, leaving many share-holders such as China peeved.
For instance, voting powers at the World Bank only got revised in 2010 after years of effort to increase the voice of developing countries, notably China in a campaign dubbed ‘Voice Reform – Phase 2.”
Today, the countries with most voting power in the WB are now the US with 15.85 percent, Japan 6.84 percent, China 4.42 percent, Germany 4.00 percent, the UK 3.75 percent, France 3.75 percent, India with 2.91 percent, Russia 2.77 percent, Saudi Arabia 2.77 per cent and Italy with 2.64 percent.
In the AIIB, we could see a reversal of roles with China’s contribution of US$50 billion giving it an American-like status although the voting power and decision making in the new Bank is expected to be ‘more fairly’ balanced with lessons being drawn from WB and IMF structures.
The absence of both Japan and South Korea from the list of AIIB’s 57 founding members stood out like a sore thumb but it wasn’t surprising to those familiar with US-Asia geopolitics.
In a bid to maintain its control over Asia, the US relies on mainly Japan and South Korea to neutralize China’s rise as the controlling superpower in the region and the two country’s refusal to move along with Asia’s largest tiger remains America’s only consolation.
As for Africa, observers are projecting a power struggle between the World Bank and AIIB as the two compete for membership as well as influence.
It’s likely that in response to AIIB, the US is likely to soften its stance on the reforms that have been suggested for both WB and IMF in order to avoid suffering more set-backs and becoming ‘irrelevant.’
But the AIIB comes at a time when European economies are stagnating but with fast growing Sub-Saharan economies; East Africa alone is out shopping for investors to bankroll its multi-billion dollar regional infrastructure projects.