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Initial Criticisms of the AIIB Revisited

1/1/2018

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Image from Field of Dream (1989). Wikipedia Commons.
“If you build it, they will come.” – Field of Dreams (1989)
​Since Xi Jinping’s proposed the creation of a Chinese-led Asian Infrastructure Investment Bank (AIIB) on October 2, 2013, the response of foreign observers to the creation of the AIIB was skeptical at best. Critics came out in full force against the AIIB in spring of 2015, right as China was inviting other countries to join the institution. Thus, the AIIB was under criticism before it even had a chance to prove itself, meaning that many of the criticisms were based on speculation.

​Despite the initial backlash against the AIIB by Western, namely U.S., observers, the new multilateral development bank eventually attracted member states such as Germany, France, Britain and Italy by the summer of 2015. The success of the AIIB in courting European members left the U.S. and Japan in the position of having to explain why they chose not to join the AIIB. In response, the U.S. and Japan decided to doubled down on the skepticism until the AIIB proves its intentions. So nearly two years after the formation of the AIIB, let’s examine whether or not the initial criticisms against the AIIB have stood the test of time. 

Criticisms

One of the first criticisms that the AIIB faced was based not on the actions of the new institution itself but rather on general criticisms of China’s reputation regarding infrastructure projects infrastructure. Critics noted that Chinese infrastructure projects have a record of displacing local populations, damaging the environment, and corruption. Therefore, they feared that a Chinese led infrastructure bank would simply utilize foreign capital to fund reckless ventures that endanger locals to the benefit of their own interests.  

In discussing the AIIB during a joint press conference in 2015, Japanese Prime Minister Shinzo Abe and U.S. President Barack Obama echoed these worries, and also referenced  the sustainability and transparency of the project despite repeated statements that they were not against the idea of a Chinese-led development bank. This criticism came from  skepticism about the rigor of the not yet finalized guidelines that would regulate the organization’s operations in the future. 

Another criticism came after other Western countries broke with the U.S. and joined the AIIB. U.S. critics accused European governments, especially the U.K., of ‘accommodating’ China. This fear was based on the ease with which the U.K. joined the AIIB. Unlike U.S. allies South Korea and Australia, the U.K. joined the AIIB without negotiating pre-conditions. In the eyes of U.S. critics, this suggested to the rest of the world that the U.K. was willing to recognize Chinese unilateral rule in the bank, and follow it too. 

Perhaps the most well-founded criticism of the AIIB during this initial period was about the system of vote allocation within the organization. Critics found that under the vote structure’s initial setup, China would receive over 25 percent of the vote, granting them a de facto veto power over major decisions within the organization. Chinese sources immediately rebuked this idea stating that they will ‘forgo’ this veto power. However, this position became complicated when the Chinese Ministry of Finance declared that “the statement that China either seeks or gives up veto power is false.” This left observers to wonder whether or not China can keep something they did not seek by stating that they would not give it up. 

Revisited 

Perhaps the simplest method of testing the validity of the initial criticisms is to compare the record of AIIB projects so far to the predictions of its critics. To put it briefly, it seems the AIIB has conducted business responsibly as of year one, operating in safe, transparent, and unbiased manner.  One reason for this, is that the AIIB was able to collaborate  with other multilateral institutions, simultaneously gaining experience and a reputation. 

Furthermore, the AIIB was also able to rebuke its critics by adopting regulations that are on par with its older counterparts. In fact, the AIIB makes it clear that their regulations mirror those of the World Bank. By adopting similar standards as established institutions, the AIIB was able to more easily collaborate with these institutions. The AIIB’s successful collaborations in 2016 led to more partnerships in 2017, with the institution announcing three new co-financed projects with the World Bank and the Asian Development Bank in March.

To address the criticism that the U.K. and other European powers were accommodating China, it’s important to note that China made several compromises with these new members in the AIIB. Specifically, by becoming founding members of the AIIB, the U.K. and other European powers were able “enmesh China in a network of international norms and standards.” Instead of appeasing China, European members have been able to share power with China in the AIIB to their mutual benefit. This was made possible by joining the AIIB in its early stages.  

One question that remains unanswered is that of China’s supposed veto power. In his report for the Congressional Research Service in February 3, 2017, Martin A. Weiss suggests that China retains veto power based on the composition of votes in the executive board of the AIIB.  The Financial Times reported on May 3, 2017 that China is “set to surrender its de facto veto power over the bank’s significant decisions” but the article did not specify a timeframe for this to take place. In an interview with CNBC on June 15 2017, Thierry De Longuemar, the CFO of the AIIB said that “legally speaking” China does not have a veto in the AIIB and that there will be a rebalancing of vote shares between regional (Asian) and non-regional members. 

While it is clear that China does not possess a de jure veto, as of now, it still remains unclear whether China will continue to possess a de facto veto. More importantly, this veto may not be as significant of an issue as it was made out to be by the initial critics, for it seems that there would be little to no reason for China to employ such a veto. And even if their vote shares were to dip slightly below 25 percent, they can collaborate with other members to prevent the passage of major decisions. Moreover, if it was important for the AIIB reflect the existing institutions in drafting its rules and regulations, it is only fair to note that the U.S.retains veto power within the World Bank. 
​
Two years after the initial criticisms against the AIIB, it is clear that the skepticism about the institution was largely unfounded. While the U.S. and Japan have yet to join the AIIB, the willingness of both the U.S.led World Bank and Japan-led ADB to co-finance projects with the AIIB maybe the best testament to the AIIB’s growing reputation for sustainability, responsibility and transparency. It seems true that if you build it, they will come.   

Thomas Sipp

Thomas is a second-year undergraduate student studying Government at the University of Texas at Austin. 

View my profile on LinkedIn
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