“Who's Afraid of the AIIB: Why the United States Should Support
China's Asian Infrastructure Investment Bank”
Phillip Y. Lipscy (Stanford University)
Foreign Affairs, May 7 2015
China first proposed creating the Asian Infrastructure Investment Bank (AIIB)
in 2013, it generated considerable anxiety in Washington and many other
capitals. Many pundits and policymakers view the AIIB as a bid to undermine or
replace the international architecture designed by the United States and its
allies since the end of World War II. Although several U.S. allies, including
Australia, Germany, and the United Kingdom, have declared their intention to
join the AIIB, others, including Japan, have expressed ambivalence. For its
part, the United States has made it clear that it will seek to influence the
institution from the outside. But it would be a mistake to shun or undermine
the AIIB. Rather, it should be welcomed. Both the United States and Japan have
far more to gain by joining the AIIB and shaping its future than remaining on
details remain vague, but the AIIB is meant to be a multilateral development
institution that will focus on infrastructure needs in Asia. There is no
question that this is a deserving cause. Asia’s large population, rapid growth,
and integration with the global economy all generate demand for better infrastructure.
A report by the Asian Development Bank (ADB) estimates the region needs about $750 billion annually in infrastructure-related financing.
underinvestment, McKinsey & Company, a global management consulting firm
based in New York City, proclaims a “$1
trillion infrastructure opportunity”
in Asia. Although precise
estimates vary from one report to another, the broad point is uncontroversial:
Asia needs more infrastructure, and international financing can help.
then, is the AIIB itself controversial? There are essentially two reasons.
First, Western governments fear that the AIIB will, in one way or another,
undermine existing international aid institutions. U.S. policymakers have
publicly expressed concern that the AIIB will undercut social and environmental
standards adopted by existing institutions such as the World Bank and
International Monetary Fund (IMF). An underlying fear is that the AIIB could
eventually overshadow and undermine these institutions, which are based in
Washington and seen as closely reflecting U.S. interests. Japanese policymakers
have expressed similar reservations.
there is concern about China’s intentions within the broader context of its
economic and geopolitical rise. The AIIB signals that China intends to play a
larger international role. Will China act like a responsible stakeholder by
further integrating itself into the existing world order, or will it focus more
on challenging U.S. hegemony by seeking to undermine and replace the post–World
War II international architecture? The AIIB seems to indicate that China is
interested in the second scenario. After all, why else would China choose to
design its own development institution from scratch rather than working through
both sets of concerns are largely misplaced. The AIIB is highly unlikely to
undermine existing aid organizations, and the creation of the AIIB conveys very
little information about China’s broader international intentions. On balance,
the United States and Japan have more to gain from joining the AIIB and shaping
its future than seeking to exert influence as bystanders.
has a unique relationship with post–World War II international organizations.
After the Chinese civil war, Chiang Kai-shek’s Taiwan remained the de jure
representative of all of China in major international organizations. This was a
serious fault line of the early Cold War, triggering the Soviet boycott of the
UN Security Council in 1950. However, the United States used the boycott to its
advantage, securing UN Security Council authorization for operations against
North Korea during the Korean War. The Soviet Union grudgingly returned to the
council to aggressively exercise its veto, but the question of Chinese
representation remained unresolved.
exacerbated its international isolation by withdrawing from several
international organizations, such as the Universal Postal Union and the World
Meteorological Organization, in protest of Taiwan’s membership. As a result, by
the 1960s, China had essentially no representation in the postwar institutional
architecture. There were a few occasions on which China endorsed proposals that
would pose competition with existing institutions. For example, the premier of
China, Zhou Enlai, encouraged Indonesia under
President Sukarno to challenge the architecture: “In these circumstances,” he
said, “another UN, a revolutionary one,
may well be set up so that rival dramas may be staged in competition with that
body which calls itself the UN but which is under the manipulation of United
States imperialism and therefore can only make mischief and do nothing good.”
sent the largest delegation and won the most medals at Sukarno’s “Games of the
New Emerging Forces,” an athletic competition created to pose direct
competition against the Olympics, from which China was excluded. Indonesia also
became the only country in the UN’s history to formally withdraw from the
organization in 1965, and Sukarno proposed the creation of an alternative
institution, the New Emerging Forces Organization (NEFO). The proposal raised
concerns among U.S. policymakers, who worried that the initiative might entice
developing countries away from the UN. NEFO ultimately went nowhere, though, as
Sukarno’s grip over his own country slipped. Indonesia returned to the UN only
a year later.
China’s isolation from the international architecture had continued in
subsequent decades, such challenges may have become more serious. However, in a
pivotal UN General Assembly vote in 1971, China displaced Taiwan as the sole
representative of its country in the UN. Although membership in other
organizations came with varying lags, within about a decade, China had
completely turned the tables on Taiwan.
history of contestation over representation sets the scene for contemporary
debates about the international architecture. For decades after the end of
World War II, a major Chinese foreign policy objective was to secure
recognition and status in postwar international organizations. Once that status
was secured, China’s unique method of entry gave it significant advantages that
were denied to many other rising powers. The postwar architecture
systematically advantaged the major Allied powers of World War II over
countries on the wrong side of the war (Japan and Germany) or countries that
were weak or colonized (Brazil and India). In many respects, China avoided
these disadvantages: it automatically assumed the formal privileges that had
been granted to the Republic of China, most notably permanent membership and
veto power in the UN Security Council.
factors mean that when it comes to major international institutions, China is
more of a status quo power than one might expect. Much of the contemporary
Chinese foreign policy narrative emphasizes China’s contributions to the Allied victory in World War II against fascism and militarism.
Undermining the architecture is not
in China’s interest: it provides material benefits, enhances Chinese
legitimacy, and is not obviously biased against China. For sure, Chinese
underrepresentation is an important problem in several areas, such as in the
voting rights of the IMF and the representation of Chinese nationals among the
personnel of major organizations. However, for the most part, China has more to
gain from incremental adjustments of the architecture than from a wholesale
The AIIB does not alter this basic picture. It is useful to consider some
features of contemporary development aid. Development aid is a highly
competitive and fragmented policy area. There are at least 28 multilateral international organizations that already specialize in international
development akin to the AIIB.
In addition, most major
economies also engage in bilateral aid through their own aid agencies. These
include 29 members of the Development Cooperation Directorate of the
Organization for Economic Cooperation and Development and a host of developing
countries, including China. To top it off, numerous private foundations and
firms participate in development directly or indirectly. On a yearly basis, the
ADB and Inter-American Development Bank each disburse the equivalent of about
40 percent of the World Bank’s disbursements. Yearly U.S. bilateral aid is
typically on a par with World Bank disbursements.
organizations often work collaboratively, pooling expertise and resources to
implement projects. However, competition is also an important feature of
contemporary development aid. Donors have numerous channels through which they
can give out aid; likewise, potential recipients can receive aid from a wide
range of sources. This is particularly true for the rapidly developing
countries of Asia, which the AIIB will target.
competition imposes accountability and places important limits on international
aid organizations. A good example is the United Nations Development Program.
The UNDP is considered one of the premier international development
organizations. It was established in 1966 as a major agency of the United
Nations, and it has near-universal membership. However, the agency was created
with a decision-making structure that limits the influence of important donor
states: following the broader UN principle that each member state should have
equal representation, the organization follows a one-country-one-vote rule.
Hence, the United States, one of the largest donors to the organization, has
the same voting power as Nepal, a major aid recipient.
means that large donor states feel their interests are not sufficiently
reflected in UNDP decision-making. As a consequence, they have effectively
shifted their attention elsewhere, depriving the UNDP of resources and forcing
the organization to pursue “noncore” arrangements over which it has limited
control. The UNDP has faced a chronic shortage of funding: adjusted for
inflation, core disbursements by the UNDP peaked in 1981 and have steadily
declined to about half those levels.
type of competition has two implications for the AIIB. First, to remain
relevant, aid organizations must be accountable to their stakeholders. If the
AIIB is seen as being overly dominated by China, other members will turn their
attention elsewhere, depriving the organization of resources, attention, and
skilled staff. There is no plausible scenario under which the AIIB could
supplant existing organizations such as the World Bank and ADB unless the
organization suitably reflects the concerns and interests of the broader
maintaining governance and accountability standards in development aid is
already extremely difficult, particularly when dealing with relatively
successful developing countries that can pick and choose from a wide range of
multilateral, bilateral, and private financing sources. For this reason, the
entry of the AIIB as an additional funding source in Asia is unlikely to make a
significant difference in social and environmental standards. If China truly
seeks to undercut the quality and conditions of existing aid agencies, it can
already do so more expediently through bilateral aid and overseas activities of
its state-owned enterprises.
Many pundits and policymakers see the AIIB in zero-sum terms: if China is
successful, the United States and its allies lose. A recent article in the conservative Japanese Sankei newspaper is illustrative, arguing
that the AIIB represents China’s attempt to follow Sun-tzu’s teachings to
subdue the United States and Japan without engaging in direct combat.
But there is a
fundamental problem with this worldview: international institutions are not
like military equipment or strategic territory, which makes a country more
powerful and potentially threatening.
international institutions are fundamentally cooperative arrangements, premised
on mutual benefits. On net, the activities of the AIIB are much more likely to
bring benefits rather than costs to the United States as well as the broader
international community. The most obvious of these is the positive spillover of
economic development. China itself is testament to the importance of
infrastructure investment for growth. Better infrastructure in Asia will mean
more economic activity and business opportunities not only for Chinese firms but
also for American, European, and Japanese firms. For sure, some infrastructure
can be designed to bring disproportionate benefits to specific countries: for
example, roads and pipelines that direct traffic toward China. However, in an
age of interconnected markets and global supply chains, it is practically
impossible to limit positive spillover effects to a single country.
will also make it more difficult for China to overtly manipulate projects
funded by the AIIB. An important reason the United States established multilateral
institutions after the end of World War II was to reassure its allies that
their voices would be heard and that the United States would not seek
unilateral domination. Multilateralism not only enhances but also constrains
the ability of powerful states to get what they want. For all the shortcomings
of U.S. foreign policymaking since the end of World War II, its emphasis on
multilateralism has been a resounding success.
trade. Before the 1930s, U.S. trade policy oscillated between openness and
closure depending on which political party controlled Congress. The contemporary
trade architecture, initially based on the General Agreement on Tariffs and
Trade and more recently the World Trade Organization and a host of regional
arrangements, prevents such dramatic swings. It also surely benefits U.S.
economic interests by maintaining the free flow of international commerce.
same logic applies to the AIIB. The AIIB will likely give China some important
advantages akin to what the United States and Japan enjoy, respectively, in the
World Bank and ADB. However, China will also be constrained by other members of
the institution. The structural advantages that China enjoys in the AIIB will
be beneficial only insofar as other members take the institution seriously and
provide funding, skilled staff, and coordination. If the institution is
perceived as being unfair or nontransparent, it will become nothing more than a
shell organization through which China disburses bilateral foreign aid.
put it differently, China has a basic choice. It can create an AIIB that is
mutually beneficial, reflects the broader concerns of its members, and perhaps
modestly overrepresents Chinese interests. If, instead, China seeks to dominate
the AIIB, the institution will shrivel into irrelevance. In the former case,
U.S. membership in the AIIB will provide an opportunity to influence and shape
the trajectory of an institution that will make a meaningful contribution to
economic development in Asia. In the latter case, there is no meaningful threat
to U.S. interests anyway.
international relations scholars have predicted that China and the United
States face inevitable conflict based on the idea that power transitions create
turbulence as rising powers seek to assert their newfound authority and status
quo powers resist. An optimistic alternative, based on the liberal tradition,
predicts a more benign outcome, in which the pacifying effects of economic
interdependence, international institutions and norms, and, perhaps one day,
democracy will push Beijing and Washington toward cooperation rather than
these two extremes is a third possibility that ought to be taken more
seriously: the renegotiation of the world order. To some degree, contestation
over international institutions replicates the functions performed by military
clashes in prior eras. It shapes geopolitical and economic outcomes, provides
markers for relative status among states, and integrates states into groupings
that share common values and purposes.
Japan’s emergence in the late twentieth century is illustrative.
Scholarly work in the early 1990s predicted confrontation between Japan and the
United States as the former emerged as a major economic power. The political
scientist Kenneth Waltz, for example, forecasted that Japan would increase its military
capabilities and perhaps acquire nuclear weapons as it reemerged as a great power and
reasserted its authority.
Others worried that tensions between the United States and Japan could intensify as the latter sought
to reestablish its predominant position in the East Asian region.
the most part, Japan instead maintained close ties with the United States and
focused its diplomatic attention on international institutions as venues for
promoting its newfound status and policy prescriptions for the international
order. A crucial battleground for competing Japanese and American visions has
been international economic institutions. In the World Bank and IMF, Japan
sought to achieve greater voting rights and recognition for its economic
approach, which has emphasized greater state intervention and a focus on basic
infrastructure. Japan also sought to create regional institutions through which
it could exercise influence, such as the ADB and the failed Asian Monetary
course, China differs from Japan in many respects, but its proposal for the
AIIB is best seen in this light. The AIIB would give China somewhat greater
material and ideological influence over multilateral development lending than
it currently enjoys. Perhaps equally important, the AIIB can be interpreted as
a marker of status and prestige. One could argue that a multilateral development
bank is one of the bells and whistles that comes with contemporary great power
status: the United States has the World Bank, Japan has the ADB, and the EU has
the European Bank for Reconstruction and Development. China will have the AIIB.
upshot is that the influence and prestige of contemporary international institutions
give countries a new avenue through which to gently contest the contours of the
world order. There is less of a need to resort to coercion or military
conflict. The heart of the matter is this: Does the United States prefer a
world in which China seeks to establish its influence and international
prestige by building multilateral development banks or one in which it seeks to
do so by building aircraft carriers? Pushing back against the former sends the
troubling message that the United States is concerned about not just the means
but the ends of China’s rise. The AIIB provides an opportunity to acknowledge
and applaud China’s emergence as a builder of multilateral institutions and a
contributor to global public goods. The institution may very well give China
more influence over development in Asia, but it will be a more transparent and
accountable way of exerting influence than through bilateral economic or
military pressure. The AIIB may or may not ultimately succeed, but it poses
very little risk to U.S. and Japanese interests, since it enters a crowded,
competitive field of multilateral development agencies. The United States thus
has every incentive to encourage, not discourage, Chinese foreign policy
initiatives such as the AIIB.
article was originally published by Foreign Affairs, and has been reproduced
here with permission. The article is also accessible on the Foreign Affairs website.
[i] Asian Development Bank and Asian Development Bank Institute, 2009, “Infrastructure for a Seamless Asia,” Manila and Tokyo: Asian Development Bank and Asian Development Bank Institute.
[ii] Naveen Tahilyani, Toshan Tamhane, and Jessica Tan, 2011, “Asia’s $1 trillion infrastructure opportunity,” McKinsey & Company Insights and Publications.
[iii] Kent, Ann. 2007. Beyond Compliance: China, International Organizations, and Global Security. Stanford: Stanford University Press, 45.
[iv] E.g. see http://www.chinaconsulatechicago.org/eng/fyrth/t1072338.htm
[v] See Phillip Y. Lipscy, 2015, “Explaining Institutional Change: Policy Areas, Outside Options, and the Bretton Woods Institutions,” American Journal of Political Science, 59 (2): 341-356, DOI: 10.1111/ajps.12130
[vii] Kenneth Waltz, 1993, “The Emerging Structure of International Politics,” International Security 18(2), 56, 65.
[viii] Miles Kahler and Jeffrey Frankel, 1992, “Introduction,” in Regionalism and Rivalry: Japan and the United States in Pacific Asia, edited by Miles Kahler and Jeffrey Frankel. Chicago: University of Chicago Press, 8.