Photo: AIIB Signing Conference, Photo Credit: Robert Bestani
By Brittney Farrar, Columnist
Washington is so fixated on the subtle, yet continuous, shifting of global power from the West to the East that many US analysts have repeatedly predicted the imminent collapse of the Western-led world order. Was it the 2003 invasion of Iraq, the 2008 financial crisis, Edward Snowden’s defection, or the federal government shutdown that really initiated the end of the American century? These events indicated cracks in the unipolar paradigm, but China’s launch of the Asian Infrastructure Investment Bank (AIIB) and the United States’ failure to persuade key allies to reject it are the “All Roads Lead to China” moment that US analysts have been predicting for years. The tectonic plates of global influence have indeed shifted and the United States should be doing what it can to dull the aftershocks.
In October 2013, while Barack Obama was ensnared in a government shutdown, Chinese President Xi Jinping announced his AIIB initiative, aimed at enhancing foreign relations with China’s periphery countries by providing finance for development projects. Some called this $100 billion proposal blatant checkbook diplomacy, but the initiative assists in filling a real infrastructure investment gap in Asia – an $8 trillion shortfall according to a 2009 Asian Development Bank study. In October 2014, 22 Asian countries signed a Memorandum of Understanding (MOU) to establish the AIIB. India and China were the only two major countries to sign the MOU; all other major regional countries abstained along with every European country. The New York Times reported that it was quiet US lobbying that persuaded allies Japan, South Korea, and Australia to shun China’s project.
The United States’ tired refrain calling on China to assume greater responsibility in underwriting the international system and accusing China of free riding no longer has sway. China has tried to do precisely that through existing institutions as well as new, Sino-centric institutions with mixed results and a lot of pushback. China proposed the establishment of a Shanghai Cooperation Organization Development Bank in 2010, but has been repeatedly blocked by Russia. The BRICS New Development Bank and Contingency Reserve, established in 2014 with $100 billion in capital, is headquartered in Shanghai and expected to be open for lending in 2016. The BRICS Bank members share equal voting rights and hold no veto power, while China is contributing over two times as much initial capital as the four other founding members to the Contingency Reserve Arrangement.
China, the world’s second largest economy behind the United States, has also tried and failed to increase its voting power and influence in the International Monetary Fund (IMF) and the World Bank. China holds a 4 percent and 5 percent voting share in the IMF and World Bank, respectively, while the United States disproportionately dominates these institutions with an 18 percent and 16 percent voting share, respectively. Congress’s refusal to pass a 2010 IMF voting reform package by the December 2014 deadline and the World Bank’s declaration of “historic changes” after a mere 3 percent increase in the developing country’s voting share have irritated developed and developing countries alike. This approach has allowed the United States to maintain its grip on the IMF and the World Bank but to the detriment of their legitimacy in the eyes of the countries the banks are meant to serve.
The extent of the frustration with the United States’ inability to pass institutional reforms and shortsightedness on the benefits China’s new bank will bring to Southeast Asia were revealed on March 12, when the United Kingdom announced its intention to join the AIIB. An avalanche of US partners and allies followed suit to vie for founding member status in the bank. By the March 31 application deadline, the only major economies that had not applied were the United States, Japan and Canada. The fact that the United States was unable to employ its preponderance of diplomatic and coercive power to stem this tide is telling. In some corners, US efforts to undercut the AIIB were met with derision and openly mocked. When asked about the US perspective on the AIIB at an Australia-China Business Council meeting, Australian Treasurer Joe Hockey laughed alongside the event attendees and smirked, “I’ll let the US Administration speak for itself,” before launching into criticisms of US failure to pass IMF reforms.
Some noteworthy results of this diplomatic disaster are worth contemplating in order to avoid a similar outcome over future China-sponsored economic projects. First, Chinese diplomacy is becoming considerably more sophisticated. Jin Liqun, the man tapped to head the establishment of the AIIB, is “legendary” in Beijing for his ability to charm European Union members. Second, the United States appears indifferent about the actual objective of the AIIB and the benefit it will provide to Southeast Asia. The massive infrastructure investment gap in the region means the AIIB will not be crowding other development banks out of the market. Instead of playing the spoiler, the United States should encourage the development of the AIIB and more banks just like it. The most significant outcome of this ordeal is that the international community is finally rejecting the United States’ obsession with being number one. Multilateralism is in vogue and in looking askance at the AIIB and China’s efforts to assume global responsibility, the United States screwed up. It lost an opportunity for voting rights in the new bank and continued economic influence in the region, but more troublingly, the United States lost its first fair battle for global influence against China.
China knows that the inclusion of Western nations and US allies will only increase the influence of the AIIB, which will in turn increase China’s influence with its neighbors and the world. But, this trajectory does not have to be permanent. The US government needs to take these diplomatic blows in stride and learn to accommodate China, however reluctantly. The United States should also take stock in what much of the world already seems to know – embracing China as a responsible stakeholder in the international community is beneficial for everyone. The United States must welcome China’s moves toward multilateralism and encourage its further integration in existing international institutions by passing reform legislation. This will allow China to exert influence from within the international system, under the supervision of the United States, rather than from outside the system where China is beginning to wield more and more unchecked power.
 Photo credit from article by Robert Bestani. 2015. “Will China’s Asian Infrastructure Investment Bank Succeed?” Development Policy Center. February 9. http://devpolicy.org/will-chinas-aiib-succeed-20150209/.
 The title of a book by Jeffrey Friedland that claims China has won economic supremacy and explains why this is good for investors in the West.
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 Jane Perlez, “U.S. Opposing China’s Answer to World Bank,” The New York Times, October 10, 2014, http://www.nytimes.com/2014/10/10/world/asia/chinas-plan-for-regional-development-bank-runs-into-us-opposition.html?ref=world&_r=1.
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 Raj M. Desai and James Raymond Vreeland, “What the New Bank of BRICS is all about,” The Washington Post, July 17, 2014, http://www.washingtonpost.com/blogs/monkey-cage/wp/2014/07/17/what-the-new-bank-of-brics-is-all-about/.
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 Robin Harding, “Christine Lagarde warns US over IMF reform failings,” The Financial Times, December 12, 2014, http://www.ft.com/intl/cms/s/0/9026530c-821d-11e4-a9bb-00144feabdc0.html#axzz3Wilo4hwJ.
 Latika Bourke, “Julie Bishop says no decision yet on joining Asian infrastructure bank,” The Sydney Morning Herald, March 25, 2015, http://www.smh.com.au/federal-politics/political-news/julie-bishop-says-no-decision-yet-on-joining-asian-infrastructure-bank-20150325-1m71ea.html.
 Jamil Anderlini, “UK move to join China-led bank a surprise even to Beijing,” The Financial Times, March 26, 2015, http://www.ft.com/intl/cms/s/0/9026530c-821d-11e4-a9bb-00144feabdc0.html#axzz3Wilo4hwJ.