Yet now, ten years on, with China apparently ready and eager to be a responsible stakeholder by gathering support for its latest global governance initiatives – the Asia Infrastructure Investment Bank (AIIB) – America shows little support. In fact, the US government has actively lobbied against this China-led institution.
Add to this the ongoing stalemate around IMF and World Bank voting right reforms and the deliberate exclusion of China from the Trans-Pacific Partnership (TPP) by the United States, and you have to question the sincerity of America’s desire to reform global governance and welcome a greater role for the emerging economies.
Europe recognises value of new Chinese-led development bank
However, other countries have responded more positively to the establishment of the AIIB. Britain’s decision to become the first G7 country to join – at the expense of publicly exposing its differences with Washington – has prompted others to join the institution as funding members, including France and Germany.
These votes of confidence imply tacit recognition of the Bank’s significance and China’s role within the region. Most importantly, these governments understand that being present at the Bank’s inception gives them a better chance of ensuring that it adheres to the best international standards for regulatory safeguards, since financing alone isn’t enough to meet development infrastructure challenge.
Geopolitics aside, the accusations that the AIIB somehow displaces the Asian Development Bank (ADB) seem tenuous at best. Currently, infrastructure financing in Asia from the ADB and World Bank combined is about $20 billion per year, whereas the ADB estimates the infrastructure financing gap in developing Asia to be around $8 trillion between 2014 and 2020. This makes the AIIB’s initial $100 billion capital base look like a drop in the ocean.
There are also benefits for the world economy: the AIIB recycles China’s saving glut into development finance, and helps to correct global imbalances in the form of financing global public goods.
Credible governance will be the test
But despite sound economics, the AIIB will undoubtedly face numerous challenges along the way. Its first real test hinges on whether China can succeed in creating a credible governance structure for a truly 21st century multilateral institution, instead of creating another ‘China Development Bank with international shareholders’.
Transparency and openness will be key, and the early signs are encouraging. Based on my conversations with representatives from the Asia Pacific Finance and Development Centre, a Chinese government-backed think tank in Beijing involved with setting up the AIIB, China does not seek to dominate the organisation – either with majority shareholder status or with veto power on the board. This is a significant departure from the governance structure of the World Bank, IMF and ADB, where the US (with Japan in the case of the ADB) formally holds veto power.
By forgoing veto power, the AIIB’s decision making process will have to be truly consensus-based. And as China actively seeks to dilute its majority share in the bank in order to allow the inclusion of new members, there will be a new way of calculating voting shares for its member states.
So here is the irony: not reforming the existing Bretton Woods institutions to accommodate the reality of the 21st century has only encouraged China to set up parallel systems from scratch. Mr Zoellick was right ten years ago – but the US seems surprised that China got here so fast.
