Indicative of U.S failure is the list of Prospective Founding Members, which are not limited to Asian powers or China’s closest allies such as Pakistan and Russia. The bank’s membership has brought together historically bitter rivals, including Iran and Israel, as well as Pakistan and India. Most astounding, however, is the fact that despite staunch pressure and condemnation from the Obama administration, some of the United States’ closest allies have signed on, including South Korea, Germany, France, New Zealand, Australia and even the United Kingdom, with Japan and Canada as the only two major powers yet to agree to the bank’s terms.
It is also important to remember that the AIIB is set to serve an important function in the Asia-Pacific Region. A 2010 report by the Asia Development Bank (ADB), a similar intergovernmental financial institution, forecasted a need of $8 trillion between 2010 and 2020 to meet physical infrastructure demands, with 51 percent being spent for electricity, 29 percent on roads and bridges and 13 percent on improvements to lacking telecommunications networks.
Skeptics, namely Washington, have cited the fact there already exists two well-established development banks in the region––the World Bank and the ADB. While there is certainly validity to the argument of oversaturation, unlike its counterparts the AIIB is geared less toward poverty reduction and more directly toward infrastructure development. Furthermore, the reality is that the World Bank and ADB’s lending capacities sit at approximately only $300 billion and $11 billion, respectively, figures far short of the $8 trillion that is required over the decade. Therefore, it should come as little surprise that World Bank president Jim Yong Kim has been nothing but supportive of the AIIB, stating, “We welcome any new organizations. We think the need for new investment in infrastructure is massive.”
The Obama administration has also voiced concerns over the governance and oversight of the AIIB, citing equal representation and environmental oversight as two potential problems. Yet the ADB and World Bank have been faced with similar problems of their own. In fact, one of the ADB’s largest projects, a coal power plant in Mae Moh, Thailand, is considered by Greenpeace to be one of the worst ecological offenders in all of Southeast Asia. As for the World Bank, a 2010 report by the United States Senate Committee on Foreign Relations noted the institution’s poor record of “achieving concrete development results within a finite period of time” and needed to work on “strengthening anti-corruption efforts.”
While it is naive to assume the AIIB will have a spotless pro-environment, corruption-free record, the fact that the bank is still in its inaugural stages means there is room to effectively work on stamping out these issues that would be more difficult in already established institutions. Indeed, at the bequest of some of its European founding members, the AIIB leadership has already begun drafting a series of environmental standards for its projects, including requiring Environmental Impact Assessment documents (EIA) and environmental management plans (EMP) in order to receive funding.
The final and most pressing concern for the U.S. government is what it sees in China using the AIIB as both a hard and soft power tool, threating the historically U.S. controlled World Bank. There should be little doubt that the AIIB is, in part, an attempt by China to force its way into a heavily U.S.-dominated scene. As Zhao Changhui, economist at the state-owned Export-Import Bank of China, candidly admits, “the founding of AIIB is a challenge to the U.S.’s economical and political dominance. It’s also a challenge to the establishments controlled by the U.S., such as the World Bank.” Yet such statements pose little threat to the United Sates. China, the world’s second largest economy, is an ascendant power that is eager to claim the authority it proportionally deserves due to its size. Rather than fight a losing battle, the United States ought to join the AIIB. As an active member, the United States would be able to work with the other members, many of whom are allies, to shape the direction of the bank in a mutually beneficial manner.
But first, the United States must loosen its fears of a rising China and the implications of the AIIB. Many in Washington perhaps fear the bank’s establishment as the formal decline of American financial supremacy. Yet China is not in the same position that the United States was in when it formed Bretton Woods at the end of the Second World War. The United States and Europe are simply too powerful to be overshadowed in such a way by China, which lacks the unipoliarity of the post-war United States. On the eve of Japanese Prime Minister Shinzo Abe’s White House state dinner on April 28, President Obama took a cue from Chinese culture and attempted to save face, remarking that the AIIB “could be a positive thing.” This about-face only further highlights China’s upper hand.