Vietnam’s 2035 growth targets are ambitious, but underlying issues with current infrastructure cause a hindrance that may result in economic inefficiencies and slow down. With anticipated infrastructure investment needs totaling tens of billions of dollars annually, Vietnam stands to benefit from being a signatory nation to the AIIB.
Reviving the Silk Route via One Belt, One Road
Under the One Belt, One Road policy China currently has about 900 projects valued at $890 billion outstanding. This large investment in foreign infrastructure is part of a greater goal to develop an extensive international trading apparatus that can provide greater economic integration for isolated regions and open new markets for delivery of Chinese products. China’s large investment in foreign infrastructure is bolstered by the newly launched AIIB.
What China's Scaling Up of Global Finance Really Means
As of late China has been more involved in acquiring favorable positions in global financial institutions and spearheading launches of their own multilateral institutions for investment (the AIIB and BRICS Bank). While some may view this as a challenge to the status quo maintained the IMF and World Bank, it can also be argued that China’s recent behavior poses no threat and does not crowd out other institutions due to the large size of the infrastructure gap in developing countries.
China and India were lauded to be the future drivers of the new international order of that would be known as the “Asian Century”. While China (and to some extent India) has experienced significant economic growth in the past three decades, gained recognition for the yuan by the IMF started multi-lateral organizations like the AIIB, there has yet been a moment in which China had truly made a game-changing move to influence the international order of things.
AIIB Collaborating with Danish Government and Private Sector
AIIB President, Jin Liqun, visited Kristian Jensen, the foreign minister of Denmark today. Jensen stated that the AIIB will increase trade between Asian and the rest of the world and create sustainable economic growth in Asia. The AIIB President will also be meeting with private sector companies in Denmark to discuss opportunities for collaboration. Denmark is one of AIIB's 30 founding members. Officials at the AIIB expect to reach 57 founding members in total.
China to serve as world unifier and innovator through development projects
Former French Prime Minister, Jean-Pierre Raffarin, expects China to emerge as a world leader due to its heavy investment in multi-national projects. According to Raffarin, there is a global push towards multilateral international cooperation, as evidenced by the engagement of over seventy countries in the Asian Infrastructure Investment Bank (AIIB). As the growth of multi-national investment continues, China is apt to remain “one of the main engines of the world economy.”
China to rise through multi-national investment, not soft-power strategy
Though the exportability of Chinese culture is not very high, China’s favorability is steadily rising in African, Latin American and Middle Asian countries due to increased Chinese investment across the globe. Though Chinese soft-power pales in comparison to that of the US and Europe, China is making significant progress towards global leadership by taking on multi-national economic projects. The BRICS bank and the Asian Infrastructure Investment Bank are set to compete with the US led World Bank by offering country specific economic investment approaches. This new Chinese investment style may eclipse the more traditional IMF and World Bank style of investment.
Will the AIIB Go Against the Grain for Better or For Worse?
Though the Asian Infrastructure Investment bank (AIIB) is touted as the anti-World Bank and anti-IMF organization, the AIIB actually conforms to the traditional global financial system. Because the AIIB funds are fully reserved for infrastructure development, the AIIB simply fills the infrastructure investment gap that is not covered by the World Bank and IMF. In addition, the Asian Development Bank already provides economic development in the region, so many observers question China’s political and economic motivations for the creation of the AIIB in the first place.
The Case for US Membership in the AIIB
US involvement in the AIIB would create external pressure that would help prevent Chinese over-influence on the AIIB. Further, the US membership in the AIIB would secure US influence in the Asian region. Founding member countries have already used their position to revise the AIIB's Articles of Agreement and have brought international standards to the inner workings of the AIIB.
Seoul's Warming Relationship with Beijing Could Go Cold
South Korea's talks with the US regarding a missile shield test in South Korea has disrupted the increasingly positive relations between Seoul and Beijing. Last year, South Korea became a founding member of the AIIB and signed an additional trade agreement with China. Part of the motivation for increasingly the strength of Seoul's relationship with Beijing was to gain influence over Chinese policy toward North Korea. China is the primary supplier of goods to Pyongyang, North Korea's capital.
"Overseas views on NPC & CPPCC: How Malaysia scholar sees the Belt & Road initiative?"
Doctoral researcher in security foresight at the University Technology Malaysia (UTM), Mathew Maavak, argues that China’s New Silk Road Initiative will succeed, as it facilitates trade and development for third world countries in ways that the western world cannot. Maavak asserts that there is an “unequivocal demand” for AIIB-funded projects. He stresses that AIIB loans lack the political strings that are attached to western loans, and that AIIB loans will be granted and repaid in manners, which benefit the individual countries accepting them. Maavak argues that the AIIB can construct these individualist financial arrangements. For example, Maavak explains that AIIB may choose to utilize combinations of public-private loan agreements in certain instances. Maavak lastly cautions that countries participating in the Silk Road may risk “political fallout” with western institutions and an inability to make loan payments, as the Asian economy slows.
"EU may struggle for balance in ties with China"
Article author, Manabu Morimoto. cautions that the European Union may struggle to balance its political relations with China. While many EU nations recently joined the China-led AIIB, the region must also deal with China’s trends of excess production in the steel and industrial sectors. Morimoto stresses that Chinese overproduction, paired with an Asian economic downturn, has consequently “dragged European industry into a crisis.” As the EU is the world’s second largest regional steel producer, Chinese overproduction has hampered European job prospects and could potentially collapse the EU’s steel sector. Member countries have pressured the EU to work with Beijing on reducing excess steel production, but many assert that this has been ineffective, and conclude that the EU is fearful of weakening new relationships with China.
"How a Trump Presidency Would Undermine America's Foreign Policy"
In this opinion piece, author Marc Barnett asserts that foreign policy under Donald Trump would hamper U.S. relations with Europe, Iran, and China. Emphasizing that the U.S. and Europe must remain close in dealing with transatlantic security issues, such as ISIS, Barnett cautions that already-strained relationships between the U.S. and the E.U. could become weaker under Trump’s “isolationist” policy proposals. Barnett also postulates that Trump threatens to derail progress made in the Joint Comprehensive Plan of Action on Iranian nuclear weaponry. Barnett hypothesizes that a Trump presidency would disturb recent trends toward political moderateness in Iran. Lastly, Barnett stresses that “Mr. Trump and his bombastic rhetoric” could push emerging markets, such as China, into developing “rival organizations that threaten the US’ strategic position in Asia.” While Barnett writes that the U.S. should support China's integration into international markets, he cautions that a Trump presidency would lack “effective diplomacy.”
"Overseas construction orders boosted"
The Korean government will spend $2 billion to support companies in their bids for overseas construction. Author Yoon Ja-youn asserts that due to low oil prices, countries have cut construction orders, and consequently, Korea hopes to work with institutions like the AIIB to win bids for jobs. Yoon Ja-youn also explains that Korea will seek construction opportunities in Iran, where sanctions have recently been lifted, and where railways and water resources lack development. The article concludes by noting that Korea represents a 3.81% stake in AIIB, and that the ratio of Korean employees in the Chinese bank should resemble a similar percentage. Yoon Ja-youn explains that this would help to bridge opportunities between Korean construction companies and AIIB projects.
"China set to win trust, confidence of other member countries: AIIB President"
In a recent lecture at the Copenhagen Business School, AIIB president Jin Liqun stressed that the bank “is not a tool of the Chinese government.” He maintains that the bank is a truly international financial institution and that he hopes the AIIB will “initiate an international best practice.” Jin continued to assert that while the bank is identifiable as an MDB, or multilateral development bank, it should be classified as a new kind of bank. He cites several main principles of the bank; namely, that it “foster sustainable economic development” and “create wealth and improve infrastructure connectivity in Asia.” Jin also noted that the bank will increase connectivity across Eurasian lands, and thereby lower the costs associated with business between Asian and European countries.
Azerbaijan finalizes AIIB membership
Azerbaijan's members of parliament ratified the agreement on the articles of the Charter of the Asian Infrastructure Investment Bank (AIIB). Azerbaijan's installments membership fee is 245.1 million and will be paid in five equal installments.
Other interesting summaries this week....
"Making Good on the Rebalance to Asia"
The United States’ attention to the Asia-Pacific during the Obama presidency has dramatically increased, especially with regard to China. The Obama presidency however, has not seen a new forward looking strategy for the Asia - Pacific. Instead the United States has sought to maintain elements of the status quo. Over the past seven years, Washington and Beijing cultivated a thick web of bureaucratic contacts centered around US - China Economic dialogue.
The U.S.'s so called rebalance to Asia, however, has lacked a clearly communicated purpose. The United States wants to defend the status quo under which the United States enjoyed military preeminence and favorable economic arrangements. This defense of the status quo, however fails to meet the challenges of China's increased capabilities and influence. For one thing, the Obama administration failed to undermine the establishment of the Chinese led Asian Infrastructure Investment Bank by highlighting concerns that the AIIB would not meet environmental and labor standards. Yet many of the countries the US tried to convince to stay away from the AIIB became founding members, such as the United Kingdom.
Ultimately, with respect to the U.S.-Chinese relationship, this defense of the status quo does not comport with the fact that the power dynamics between the two countries have already changed. It is time for the Obama administration to take a more proactive approach in the changing Asian - Pacific geopolitical landscape.
"The Global Economy’s Stealth Resilience"
Last week, Christine Lagarde, the International Monetary Fund’s managing director, warned that if countries do not act together, the global economy could be derailed. Yet at the recent G-20 meeting in Shanghai the finance ministers to whom these entries were directed, failed to make an agreement. However, their failure may have reinforced a shift to a new phase of distributed global governance. The key factor in this context has been widespread recognition of the risks inherent in economic globalization, and concerted efforts to build up the needed resilience on a national, bilateral, or regional basis.
Countries benefit from greater access to more diversified sources of finance. Some emerging and developing countries now access global bond markets individually. And the role of regional development banks – including the African, Asian, and Inter-American Development Banks, as well as the newly created Asian Infrastructure Investment Bank and the New Development Bank – has grown.
These regional institutions however, will not eliminate the need for traditional multilateral institutions. Bodies like the IMF, the World Bank, and the World Trade Organization should be responsible for analyzing and transmitting vital information to the array of institutions that are filling their traditional role.
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