For anyone who has spent time in ramshackle Indonesian ports or driven along pot-holed roads between two Indian cities, the urgent need for new infrastructure in Asia is clear. Why, then, is there so much fuss about China's Asian Infrastructure Investment Bank (AIIB), an institution that would funnel money toward projects that could benefit billions of people?
The answer, in short, is that it is widely viewed as an extension of China's influence.
Britain, France, Germany and Italy are all lined up to join the multilateral institution. Canada has "not yet made a decision," a foreign affairs spokesperson told The Globe and Mail. But the United States is ardently opposed – and is trying to persuade others it is best to influence the new institution from the outside. On Tuesday, U.S. Treasury Secretary Jacob Lew criticized the European rush, asking of China's new bank, "Will it protect the rights of workers, the environment, deal with the corruption issue appropriately?"
One U.S. source, grumbling about Britain last week, said the United States is "wary about a trend toward constant accommodation of China." A British official huffed that the United States could not have received Congressional approval if it had tried to join AIIB.
But as the two imperial powers – one present, one former – sparred, the rest of the world was trying to get on with things.
The United States is worried that – unlike institutions such as the World Bank and International Monetary Fund that are dominated by developed countries – the AIIB will not abide by international standards of governance and transparency, and could be used by China to advance its foreign policy interests in neighbouring countries. These are reasonable concerns.
But the bigger worry is political: This new institution is one more step away from a world order dominated by the West and Japan. That concern accurately captures what is happening, but it is also less reasonable. China increasingly is an integral part of the modern world order – and global institutions should reflect this, even if that irks the United States.
And the need for Asian infrastructure is unquestionable. The Asian Development Bank (ADB) has estimated developing nations in Asia require $776-billion a year between 2010 and 2020 for new infrastructure. Last year, the ADB lent out about $13-billion. With booming economies and a surging new Asian middle class, countries need much more investment – and are unlikely to get funds from existing institutions such as the ADB, which always has a president who is Japanese.
China, which has put pressure on nations such as South Korea to join the bank, has a mixed record on infrastructure: Vast stimulus at home has created endless highways, but a lack of oversight has resulted in empty ghost cities and a real estate bubble. It has also used development assistance – particularly in Africa – to exert leverage, and could do so again. China's track record in institutions such as the United Nations – where it vetoes humanitarian missions based on its ideology of non-interference – is far from encouraging. The institutions China has set up, such as the Shanghai Cooperation Organization (SCO) – which includes Russia and four post-Soviet republics (with observer states such as Iran) – likewise seem unsettling: The SCO's anti-terrorism unit is in Tashkent, where Canadian-Uyghur Huseyin Celil was detained and extradited back to prison in China. Are these the institutions and approaches the world needs?
But China has also lifted hundreds of millions out of poverty, even as many World Bank and International Monetary Fund (IMF) projects failed by demanding harsh liberalization measures. Last year, China's Justin Yifu Lin, the World Bank's first chief economist from a developing country, told me the World Bank "did not accomplish its goals." He saw his appointment as a vindication of China's approach.
And with the IMF, a deadlocked U.S. political process has prevented reforms that would help the fund reflect the new world order – and China's status. That has helped make the push for AIIB more pressing and more attractive, and contributed to the belief that this is amounting to a U.S. foreign policy failure.
It is time for new institutions that reflect Asia's rise. The AIIB would not only help improve quality of life for hundreds of millions of people, but it would also help regional and economic integration among the Association of Southeast Asian Nations countries.