China Demonstrates its Power With AIIB

China is winning, of that there can now be no doubt at a time when most world powers are falling in with its plans, either in kowtow mode like the UK or with a somewhat more upright stance like India. The weakest-looking country in this scenario is the US, whose superpower status is being challenged rather faster than it expected and it loses its influence over allies including the usually-eager UK.

The trigger for this assessment is not renewed Chinese aggression in east Asia or the borders of India, nor is it China’s power plays in established international organisations or financial markets. Instead it is China’s plans for a new Asia Infrastructure Investment Bank (AIIB) and its growing interest in becoming involved, maybe rather more precariously, in Afghanistan’s peace talks.

Both initiatives demonstrate the diversity of its growing international self-confidence and ambitions under President Xi Jinping, who took office a year ago. The initiatives also meet a need because they fill gaps that China has spotted in existing arrangements – Asia’s need for massive infrastructure investment, and the diplomatic vacuum left in Afghanistan at a time when talks with the Taliban seem likely and the US gradually withdraws.

Tomorrow, March 31, is the deadline that China has set for countries to apply for founding membership of the new AIIB, and nearly 30 have already done so. The UK hit the headlines when it said it would join, prompting a US official to issue a rare criticism of a longtime friend. “We are wary about a trend toward constant accommodation of China, which is not the best way to engage a rising power,” the un-named official told the Financial Times.

David Cameron, Britain’s (possibly outgoing after the May 7 UK general election) prime minister deserved the kowtowing reprimand because he has constantly followed a pro-China line since Beijing side-lined him as a punishment for meeting the Dalai Lama in London in May 2012. In practical terms, the government hopes that doing what China wants will increase investment in the UK, though there is little evidence yet of that happening.

The UK however was only the first of many on the AIIB. Others that followed and said they want to become members have included Russia, Denmark, South Korea, the Netherlands, Brazil and Turkey, and America’s European allies France, Germany and Italy. Australia held out till yesterday, when it caved in.

The US is now having to reassess its position. The only significant ally it has left is Japan, which has expressed understandable concern about Chinese domination of the bank’s decisions and a lack of attention to environmental protection and controls over fundraising and quality of projects. Australia said yesterday that no one country should control the bank.

India became involved last year when the bank was first mooted, demonstrating Prime Minister Narendra Modi’s pragmatic approach to dealing with China. When President Xi visited India last September, Modi secured pledges of US$20 billion in investment in (unspecified) infrastructure projects over five years.

The AIIB is a potential challenger to the World Bank and Asian Development Bank, over which the US and Japan exert significant influence. The US and others have resisted reforms in the control of those two banks, and of the International Monetary Fund, so it is scarcely surprising that China is creating an alternative Asian power center for infrastructural investment.

Meanwhile China’s initiatives in Afghanistan are more tentative. There have been various moves since President Ashraf Ghani took office in Kabul last year and these have included Chinese meetings with Taliban leaders in Beijing as well as Pakistan and Quetta (where the Taliban has an office).

This is somewhat unknown territory for China, which has no track record in international diplomatic mediation, but it fits in with Beijing’s wish to become more established on the world stage. Chinese leaders are also worried about civil unrest in Muslim-dominated areas of its eastern province of Xinjiang.

Both the US, which wants to be rid of its Afghanistan role, and India which would like a larger say in the country, seem content with China’s initiatives. The semi-official line from Delhi is that Afghanistan needs all the help that it can get and that, if that can usefully come from Beijing, so be it.

This does not mean that India will trust initiatives that China takes, any more than it trusts it to make much progress in talks on its border dispute (there was little movement when the two sides met in Delhi last week).

India has in the past often bowed to Beijing’s wishes, but under Modi it is being more robust, strengthening its defense installations and infrastructure on the mountainous border and speaking out when necessary, while welcoming Xi Jinping last year and trying to boost economic co-operation.

The lesson that India has learned, but does not always apply, is that China respects toughness that is soundly based. Where it detects weakness based on, for example, economic self-interest (as with the UK), it responds toughly and expects more favorable treatment.

“India is probably one of the last countries to accommodate China on anything – and at the end of the day, they work very well together,” a Mexican diplomat told The Guardian.

Many of those who have flocked to the AIIB also do not trust China to influence it along ethical lines – any more than the US has in the World Bank.

Martin Wolf, the Financial Times leading economic commentator and a one-time World Bank employee, put this rather neatly in a recent column when he wrote:

“Jack Lew, US Treasury secretary, has voiced American concerns that the Asian bank would not live up to the ‘highest global standards’ for governance or lending. As a former staff member of the World Bank, I must smile. Mr Lew might like to study the Bank’s role in funding Mobutu Sese Seko of Zaire, one horrifying example among many.

“It would be good if China’s lender were as pure as the driven snow. But this is a fallen world,” said Wolf. He approved of all the countries joining the AIIB because it “would be better with a broad membership than without it.”

Wolf’s “fallen world” presumably referred to corruption and other declining ethical standards that are widespread internationally, and not to a world increasingly influenced by China.

The lesson however of China’s AIIB and Afghanistan moves is that the world – and especially the US – needs to be ready for President Xi’s next initiatives. He clearly intends to use his time in office to spread his country’s power and influence, weakening those who stand in his way, as the US has been weakened over the AIIB.

John Elliott is Asia Sentinel’s New Delhi correspondent. He also blogs at Riding the Elephant, which can be found at the bottom right corner of Asia Sentinel’s homepage.