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America Tests Out a New Whining Offensive In Asia

After the UK announced its plans to join a China-led rival to the World Bank, the White House publicly lashed out at its closest ally and its 'constant accommodation of China.'

by Alaa al-Ameri
Mar 17 2015, 6:00pm

Photo by Pablo Martinez Monsivais/AP

Anti-globalization protestors will soon have a new world capital to which they can travel and get their heads kicked in by riot police: Beijing.

That's because China is well on its way to establishing an Asian rival to the World Bank. Though groups of protestors have yet to descend, there is at least one voice already being raised against the new $50 billion dollar Asian Infrastructure Investment Bank (AIIB). The voice of the Obama administration.

Washington's protest came last week after a British announcement that the UK would join the AIIB as a founding member. (France and Germany confirmed today they would also join.) American concerns about such things would ordinarily have been discussed privately with London, so America's unusually public outburst is as surprising to many as the UK's involvement in the AIIB was to the US. An unnamed White House official was quoted in the Financial Times last Thursday accusing the UK of "constant accommodation of China," and of making the decision to join the AIIB with "virtually no consultation with the US." The UK Treasury responded by pointing out that the British had had at least a month of consultations with G7 partners in general, and in particular with US Treasury Secretary Jack Lew.

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The White House attributed its outburst toward the UK, its closest international ally, to its concerns that the AIIB would not meet international standards of "governance and environmental and social safeguards," and might not play nicely alongside other international financial institutions (IFIs) like the World Bank and the Asian Development Bank.

This being diplomacy, America isn't necessarily saying what this is actually all about. The US isn't exactly a stickler for basing economic partnerships on shared social standards (see: Saudi Arabia). And China now has the second largest economy in the world, the largest military, and the fourth-largest nuclear stockpile. So American concerns about the AIIB are as much geopolitical as environmental or social.

IFIs provide financing to developing countries that might otherwise struggle to secure loans on the open market. But IFIs can also be used by their largest shareholders as a way to exert international influence. China, which is set to hold 50 percent of AIIB shares, will therefore have one hell of a soft power tool to wield when attempting to get its way in Asia. By comparison, the US, which is often accused of dominating the World Bank, holds only 15 percent of World Bank shares. It holds about the same percentage in the Asian Development Bank.

But China doesn't need the AIIB to assert soft power over Asian developing nations. Whereas the World Bank's operating standards result in proposed infrastructure loans taking years to negotiate and even longer to fully disburse, China has earned a reputation over the past couple of decades for being a full-service Daniel Plainview of international development, especially in Africa. A minister of a developing country might be speaking to a Chinese delegation on Monday; secure a 25 percent increase in her infrastructure budget by Wednesday; and have machines, workers, and materials — all shipped in from China — in place and ready to work not long after that. With access to China's vast foreign exchange reserves, and without the checks and balances observed by the World Bank, Chinese state-owned companies have been able to provide developing countries with everything from paperclips to power grids before the competition has finished the paperwork.

So it's more likely that the AIIB represents a shift in China's approach to development, as well as a desire to be seen playing by the rules. In the world of international development, China's reputation has been one of an economic giant hungry for raw materials to fuel its extraordinary growth that uses vast amounts of unaccountable cash to get them. But this reputation is increasingly outdated.

What China needs now more than raw materials are new markets for its economy to grow into so it can provide jobs to its 1.4 billion inhabitants. Chinese goods and services need somewhere to go, and industrialized countries with their plodding growth rates can't accommodate them fast enough. The emerging markets of Asia, Africa, and Latin America might be able to help fill the gap in demand. One of the most fundamental and most expensive barriers to developing nations' growth, however, is poor infrastructure — airports, roads, bridges, ports, water and sanitation systems, energy systems, telecommunications, and all the nuts and bolts that are necessary for an economy to function.

Modernizing infrastructure, especially in developing countries where it's been neglected for decades — or is simply non-existent — is not cheap. There is trillions of dollars worth of this development to be done in Asia, so even a $50 billion AIIB is not going to squeeze everyone else out of the market. That's why, despite the White House's concerns, the World Bank itself doesn't seem very worried. World Bank president Dr. Jim Yong Kim explained last week that "from the perspective simply of the need for more infrastructure spending, there's no doubt that from our perspective, we welcome the entry of the Asian Infrastructure Investment Bank."

Still, the White House has a point. Beijing's air quality — along with the air quality of other major Chinese cities — is famously awful. A Chinese factory at which iPhones are built had to install nets to catch suicidal workers leaping off the roof. But again, if China's aim were business as usual, they probably wouldn't be looking for the participation of countries like the UK. The British government is bound by all sorts of domestic laws and international agreements on environmental standards, labor rights, procurement, and financial transparency. There would be little point in wooing the UK to become a founding member of the AIIB if China's intention were to flout Western safety standards.

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Environmentally, the AIIB announcement comes at an interesting time. Earlier this month, the International Energy Agency released a report showing that international carbon dioxide emissions did not rise in 2014 despite increasing global economic growth — something that has not happened for 40 years. China seems to have contributed significantly to this remarkable leveling-off of CO2 emissions by decreasing its reliance on coal and expanding its use of renewable energy. In fact, China is now by far the world's leading investor in renewable energy, leaving the US in the dust.

It so happens that often the cheapest way of improving dilapidated infrastructure in developing countries is by using cutting-edge technologies, which China now seems well placed to provide to AIIB clients. Environmentally friendly growth, after all, tends to come about through economic, social, and political necessity — not by being preached at by Washington.

The AIIB is coming whether Washington likes it or not, and it would seem to be in America's best interests to encourage allies to join and influence the bank from within. Complaining publicly from the sidelines about something that's going to happen anyway only serves to make the White House look impotent in the face of change.

Follow Alaa al-Ameri on Twitter: @AlaaAmeris