The balance sheet of China’s new Asian bank

By Ameen Izzadeen
Two years after the 1944 Bretton Woods Conference where 44 Allied nations gathered to form the World Bank, governors of these nations met at Savannah, Georgia in the United States. The Bank had not agreed on a president and there had been many disagreements between the European governments and the United States, the key financier of the post-World War II reconstruction programme in Europe.
Though it was a meeting of allies, there was mutual suspicion about each other’s intentions.
John F. Neylan, a rightwing American critic warned that Bretton Woods was an attempt by European powers to pursue economic imperialism instead of political imperialism. The Bretton Woods deal seeks to create an economic straitjacket for the benefit of a continent which for centuries has drained the treasures of the rest of the earth to finance its wars and to support it in intervals of peace, he said.
As it is now, the American people were even then not keen followers of world affairs or for that matter Bretton Wood Agreement and how it was going to shape the post-war world affairs. However, a majority of those who followed the developments were worried about the US becoming a sucker nation playing Santa Claus to the rest of the world. Despite such criticism, the Franklin D. Roosevelt administration wanted to go ahead with the Bank, through which surplus US private funds were to be converted into long-term investments with minimum risk. It had the support of Hans J. Morgenthau, who is regarded as the father of modern political realism. An ardent supporter of the Bank, he advised the government to hire the services of public relations firms to win American public support for the new Bank. Morgenthou’s interest in the Bank indicates that its creation was an attempt to increase US power, for he promoted a US foreign policy based on power and moves to enhance US power.
Britain’s delegation to the Savannah conference in 1946 was led by John Maynard Keynes, the world famous economist, whose theories still influence the welfare state concept.
Keynes and other European governors were perturbed by the US insistence that the US should have the right to appoint the president of the bank, that the executives of the new bank should be paid high salaries (double the salary of a US cabinet member), and that it should be headquartered in Washington instead of New York, which was the choice of the Europeans.
Keynes returned to London a disappointed man. The British felt that the Fund and the Bank were little more than schemes of the United States to gain control of world trade.
Catherine Caufield records in her book ‘Masters of Illusion: The World Bank and the Poverty of Nations’ that Keynes had argued so bitterly at Savannah with US Treasury Secretary Fred Vinson and was so distressed by the course on which the Bank seemed to be set that his friends blamed the meeting for the heart attack he suffered on the train back to Washington, and for a second, a month later, which killed him at the age of 63.
If such was the suspicion and mistrust that prevailed among the allies, dismissing similar sentiments surrounding the setting up of a China-led Asian bank may border on political naivety.
Although 21 countries, including Sri Lanka, signed the deal last month for the setting up of the Asian Infrastructure Investment Bank (AIIIB), which many analysts see as rival to the World Bank and the ADB, institutions dominated by the US and Japan, there were apprehensions about the Chinese move even among Beijing’s close Asian allies and large trading partners. Is the new Bank a means by which China intends to expand its world dominance, starting from the Asian region, then spreading it to other vulnerable areas such as poverty-stricken Africa and debt-laden Latin America?
It is in this light that questions are being raised as to possible links between projects to be funded by the new Bank and China’s geopolitical and economic interests. Questions are being raised whether AIIB funds will largely be directed towards projects linked to China’s Maritime Silk Road concept, to which Sri Lanka and several Asian nations have become partners. China is reported to be planning to invest $16.3bn in infrastructural projects linking Asia, Europe and the Middle East. Apart from the Maritime Silk Road, China also has plans to build a highway to Europe via Central Asia and pipelines to receive Central Asian oil and gas.
Another question is: Will the contracts go largely to Chinese firms? It is also said that China-based infrastructure development companies and China’s Exim Bank may step in to finance any shortcoming in the funds for projects, not only tightening China’s economic grip on developing nations but also facilitating China’s moves to establish a permanent strategic presence in countries deemed to be militarily important. Another crucial issue is corruption. Will there be high standards of auditing of the funds being disbursed?
Addressing such concerns, China Daily online, an official organ, says AIIB is an intergovernmental multilateral development organisation and is based on the modus operandi of a multilateral development bank, promoting open regionalism. It says Asian countries will invest nearly US$ 300 billion in 1,077 interconnected programmes in the next 10 years.
“In view of this enormous expenditure, the establishment of the AIIB is essential, especially when global economic downturn is still a powerful threat. US$ 1 billion could create 180 million jobs in Asia. Some take the view that infrastructure fever will continue in Asia to generate new economic growth and to drive sustainable economic development,” China Daily Online says.
It adds that the new Bank is complementary to other such banks and not a competitor and the establishment of AIIB is a win-win move.
Yet, China was guarded and choosy throughout the process. The exclusion of Japan is deliberate and it was obvious from the beginning. In May this year, when the Asian Development Bank’s annual meeting was being held in Astana, Kazakhstan, China invited representatives from 16 countries carefully selected from the ADB’s 67 member states – 48 from Asia and 19 outside — to a dinner at the Great Wall restaurant in the Kazakh capital. There they listened to China’s Finance Minister Lou Jiwei speak on the setting up of the new bank.
The exclusion of India, Japan and the United States from the dinner invitation was conspicuous. When the Bank was finally set up, there was India as a founder member. But Japan was not even invited while the United States viewed the whole exercise as a threat to its geo-strategic interests in Asia. The Barack Obama administration, whose soft approach towards burning world issues is cited as one of the reasons for the Democratic Party’s mid-term election defeat this week, has floated a ‘Pivot to Asia’ policy aimed at containing China. As part of this Pivot-to-Asia strategy, Washington has promoted Trans-Pacific Partnership (TPP) arrangements with a number of South-east Asian nations to minimise China’s economic intrusion into these countries regarded as military allies of the US. Interestingly, China was not included in the US-led negotiations for the Trans-Pacific Partnership (TPP).
As a countermeasure, China is promoting a Free Trade Area of the Asia Pacific (FTAAP). China, together with Russia, is a key player in the Shanghai Countries Organisation. The two countries have rejected the US request to admit it at least as a dialogue partner or an observer state. It is against this backdrop that China and the US will be meeting or locking horns at the Asia Pacific Economic Summit that begins in Beijing on Monday. Also attending will be Japan’s Prime Minister Shinzo Abe, a staunch opponent of what he sees as China’s expansionism.
The US displeasure at the setting up of AIIB was also evident in its moves to persuade its allies not to join it. In this regard, US Secretary of State John Kerry spoke to Australian Prime Minister Tony Abbott in Jakarta when they attended the swearing in of Indonesia’s new President Joko Widodo last month. Australia, together with US allies South Korea and Indonesia, did not become part of the AIIB.
Abbott cited the absence of transparency and other good of governance issues as reasons for not joining AIIB.
“We would like to join, but it’s got to be a multilateral institution with the kind of transparency and the kind of governance arrangements that, for argument’s sake, the World Bank has,” Abbott said. “Should we get that sort of transparency and those sorts of governance arrangements, not only will Australia be happy to join, but I imagine that Korea and Japan and the United States would also be happy to join and that would mean that we would have a maximally funded and maximally competitive infrastructure bank here in Asia.”
Australia, which has allowed the US to set up a military base in Darwin – a kind of watchtower directed at China — has also cited national security reasons for staying out of AIIB.
However, the new Indian government of Prime Minister Narendra Modi wasted no time to communicate to China its intention of developing India’s infrastructure with Chinese funds. The new Indian government’s development policy and its willingness to work with China are, from the point of view of global power politics, an acknowledgment of China’s newly gained financial hegemony in Asia.
This week, India turned to the new AIIB to obtain funds for a coal-power project after it found the World Bank and the ADB were placing tough conditions largely related to environmental concerns. This highlights a serious issue with the new bank. Although, following criticism, the WB and the ADB have over the years adopted rigid mechanisms to address environmental and habitat issues in the disbursement of loans, the AIIB is unlikely to adopt similar measures.
No questions asked: Funds are available to member states on a commercial basis for infrastructure projects. But there is no altruism in business, just as there is no free lunch in politics.
By floating the AIIB and the FTAAP – who knows there could be many more arrangements up China’s sleeve – Beijing seeks to play a pivotal role in world affairs on its own terms and in a way that offers a counterbalance to the US and Japan.
China, the world’s second largest economic power and the biggest corporate state, is a rising military power which has unresolved territorial disputes with its neighbours. Most of the countries with which Beijing has territorial disputes have signed defence pacts with the United States, which has military bases encircling China. Is the new bank a part of China’s strategy in keeping with its slogan of ‘Peaceful Rise’? Is it resorting to economic and financial coercion, instead of military measures, to solve regional disputes?
(This article first appeared in the Daily Mirror, Sri Lanka)

About ameenizzadeen

journalist and global justice activist
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