One of the most amusing things about China’s Asian Infrastructure Investment Bank membership drive (which concluded at the end of March) was that it was so successful Beijing had to essentially apologize in order to ensure that all of the US allies that signed up stayed comfortable.
To recap, in early March Britain decided - much to Washington’s chagrin - to throw its support behind China’s effort to establish a new development bank. The venture, designed to help fill gaps left by The World Bank and the ADB, was viewed by the US as an attempt to challenge the supremacy of the multilateral institutions that have dominated the global economic order in the post-war world and also as an effort to create a powerful instrument of foreign policy that could be deployed on the way to establishing what amounts to a kind of Sino-Monroe Doctrine.
Of course the Obama administration couldn’t come out and say that, so the excuse for Washington’s largely behind-the-scenes effort to subvert the AIIB was that the new lender would have inadequate controls and flimsy underwriting standards. There was also some nonsense about a lack of regard for environmental concerns. As silly and transparent as that was, Washington’s allies were willing to buy it right up until Britain broke ranks and at that point, the floodgates opened as virtually everyone except the US and Japan jumped on board.
That was great for China, until talk of a new world order characterized by yuan hegemony started to make Beijing uncomfortable. As we put it earlier this month, “despite the Politburo’s best efforts to toe the line between acknowledging the bank’s early success and unnerving Western members who, although happy to participate, are still acutely aware that a dying hegemon is still a hegemon and therefore would prefer it if Beijing didn’t rub the whole thing in Washington’s face, it was abundantly clear to everyone involved that the AIIB represented no less than a changing of the guard and a revolution against the US-dominated multilateral institutions that many emerging countries believe have failed to respond to seismic shifts in the global economy.”
And so, China did its best to ensure everyone involved that it did not plan to use the bank as a foreign policy tool and had no plans to use the new lender as a kind of backdoor way to promote yuan hegemony. As we put it earlier this year, China simply couldn’t believe how successful the bank was before it was even launched.
Now, as the AIIB gets set to officially commence operations, Reuters is out with an interesting look [10] back at the story behind the institution that’s set to bring about a dramatic change in how the world thinks about development lending. Here’s more:
Plans for China's new development bank, one of Beijing's biggest global policy successes, were almost shelved two years ago due to doubts among senior Chinese policymakers.
From worries it wouldn't raise enough funds to concerns other nations wouldn't back it, Beijing was plagued by self-doubt when it first considered setting up the Asian Infrastructure Investment Bank (AIIB) in early 2013, two sources with knowledge of internal discussions said.
But promises by some Middle East governments to stump up cash and the support of key European nations - to Beijing's surprise and despite U.S. opposition - became a turning point in China's plans to alter the global financial architecture.
The overseas affirmation, combined with the endorsement of stalwart supporters, including a former Chinese vice premier and incoming AIIB President Jin Liqun, a former head of sovereign wealth fund China Investment Corp, enabled China to bring the bank from an idea to its imminent inception.
The bank's successful establishment is likely to bolster Beijing's confidence that it can play a leading role in supranational financial institutions, despite the economic headwinds it is facing at home.
"At the start, China wasn't very confident," one of the sources said in reference to Beijing's AIIB plans. "The worry was that there was no money for this."
A Finance Ministry delegation that called on Southeast Asian nations to gauge interest in the AIIB was not encouraging, the source said. Governments backed the idea, but were too poor to contribute heavily to the bank's funding.
But subsequent visits to the Middle East helped to win the day as regional governments informed China they needed new infrastructure and, crucially, were able to pay for it, a source said.
"They are all oil-producing countries, they have foreign currencies, they were very enthusiastic, and they could shell out the cash," he said.
"That was when we thought 'Ah, this can be done.'"
While some officials, including Jin, AIIB's incoming president, have over the years pitched for Beijing to start a new international development bank, the idea did not gain traction under previous Chinese governments, sources said.
But that changed when President Xi Jinping took office in spring 2013 and threw his weight behind China's bold "One Belt, One Road" infrastructure and export strategy.
"No one imagined (the AIIB) would be so successful, that so many people would respond to it," one of the sources said.
