Essay written by Maria Anna Sampson as part of the China & Globalisation MSc Program at the King's Lau China Institute.
The Asian Infrastructure Investment Bank (AIIB), a multilateral development bank (MDB) headquartered in Beijing, has been at the heart of the accusations that China seeks to challenge the Western normative world order. This calls for an evaluation of the AIIB in China’s approach to international financial governance and developmental investment, which are intrinsically united in the helm as the latter is at the heart of China’s efforts to lead in global financial oversight. This essay will argue that the AIIB has been an important symbol for China’s approach to global financial governance as it has been a platform for the promotion of Global South cooperation that mitigates the absolute dominance of the West in the area. Yet, its significance for China’s approach to developmental investment has been overstated, which is evident through the AIIB’s multilateral nature and its overshadowing by domestic actors.
The AIIB is an important symbol for China’s approach to international financial governance. More specifically, China’s approach is characterized by its attempt to diversify existing multilateral financial institutions, which have historically been dominated by Western powers such as the United States (Mobley, 2019). They sought to do so by establishing an alternative MDB that does not “impose policy conditions” on borrowers, and offer loans to a wider selection of actors than the Bretton Woods institutions do (Wang & Sampson, 2021). In this sense, the AIIB’s most considerable success has been its symbolic role in painting China as the leader of a new and improved financial world order that does not require its actors to align themselves with Western thought and instead promotes South-to-South allyship. The AIIB presents China with the perfect opportunity to take on this role, as it is one of the most legitimized multilateral financial institutions, with over 100 members, including prominent U.S. allies including Australia and members of the European Union (Chin, 2016).
So far, the AIIB has fulfilled its potential in presenting China as an alternative leader in international finance, primarily because China has been able to adhere to their commitments for an alternative approach to financial multilateralism. A prime example of this is China’s approach to its veto power within the institution. Given China’s voting shares within the AIIB, it does have an informal power to veto decisions such as appointments that it objects to (Ong, 2017). This informal veto power was not dissented to by the rest of the AIIB’s members, considering China’s ample “contribution to the bank’s $100 billion capital base” (Chin, 2016, 13). Yet, China has been, and continues to be reluctant to use this prerogative in an effort to uphold their commitment to member equality and the prevention of the concentration of power (Mobley, 2019). This has traditionally been characteristic of China’s approach to global integration since the 1950s, when “the PRC increasingly represented itself as a force for world peace that challenged warmongering nations such as Japan and the United States'' (Brazinsky, 2017, 76). China’s approach to global financial governance has and continues to be governed by the principles of sovereignty, mutual benefit, and political non-conditionality, as set out by Zhou Enlai in 1964; an approach which is reflected in the AIIB (Johnston, 2019). The AIIB has therefore been a successful tool for China’s approach to global financial governance by acting as a consensus-based institution for the manifestation of China’s role as a non-interfering ally. The AIIB is therefore an undeniably important symbol for China’s image in and approach to global financial governance.
Yet, this significant role does not seamlessly translate to the practical realm of developmental investments. China’s approach to developmental investments is characterized by its commitments to massive infrastructure projects abroad (Strange, 2023). This outlook towards development is grounded in the aim of connectivity, China’s own successful infrastructure projects, and its desire to enhance its global influence (Strange, 2023). The BRI is a prime example of this approach as it encompasses Chinese investments in over 70 countries that yield to about $4 trillion (Arase, 2022). Due to its magnitude and importance for China’s role in worldwide infrastructural investments, the AIIB’s contribution to the BRI can be used as a measurement for the evaluation of its role in China’s approach to developmental investment.
Whilst the AIIB is often “closely associated with the” BRI (Miller, 2017, 34), it has been a “minor player” in funding BRI infrastructure projects (Mobley, 2019, 58). This is primarily because the AIIB is a MDB, which prides itself on consensus-based decision making and allocation of resources is therefore not solely determined by Chinese national interests, but the general benefits for all members. Its role in China’s developmental investments is therefore limited by China’s lack of absolute control within the institution. This is demonstrated in the AIIB’s internal limitations to lending, which was capped at $2 billion annually between 2016 and 2021 (Miller, 2017). This highlights that the AIIB cannot govern China’s approach to developmental infrastructure due to its complicated internal dynamics that prevent it from being a purely Chinese bank.
The AIIB’s minimal contribution to China’s funding of development infrastructure is also heightened by the fact that most such investment agreements are bilateral in nature. This means that China’s approach to developmental investment is instead led by state-owned policy and commercial banks, including the China Development Bank and the People’s Bank of China through the Silk Road Fund (Mobley, 2019). For example, the financing of the BRI, China’s primary developmental investment, has been dominated by Special Funds, which provided over $1.5 trillion in loans, “accounting for over 70 per cent of lending” (Furlong, 2022). Another type of Chinese government agent that undermines the AIIB’s role in China’s approach to development investment are state-owned enterprises themselves (Furlong, 2022). In 2017, SOEs invested $14.82 billion (Furlong, 2022), whereas the AIIB invested only $4.22 billion (AIIB, 2017). This does not mean that the AIIB has no significance in China’s approach to developmental investments, but instead highlights that its importance is more symbolic in painting China in a positive light in the international scene of global finance and developmental investments.
In conclusion, the AIIB has been symbolically important for China’s approach to global financial governance and developmental investment by presenting China as a progressive world leader in the international arena. Yet, this significance must not be overstated, as the AIIB is not at the center of China's approach, especially when compared to the role of national institutions like commercial and policy banks.
Bibliography
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