U.S. Eclipsed as Allies Line Up to Join China's Asia Bank

Chinese President Xi Jinping, center, poses for photos with guests at the Asian Infrastructure Investment Bank launch ceremony at Bejing’s Great Hall of the People on October 24, 2014. Takaki Yajima/Poo/Reuters

China is winning. Of that there can now be no doubt at a time when most world powers are falling in with its plans, either in kowtow mode like the U.K., or with a somewhat more upright stance like India, or somewhere in between.

The weakest-looking country in this scenario is the U.S., whose superpower status is being challenged rather faster than it expected, causing it to lose influence over its allies, including the usually eager U.K.

The trigger for this assessment is not renewed Chinese aggression in East Asia, the South China Sea or on the borders of India, nor is it China's power plays in established international organizations or financial markets. Instead, it is China's plans for a new Asia Infrastructure Investment Bank (AIIB), plus its growing interest in becoming involved in Afghanistan's expected peace talks (which may be rather more precarious).

Both initiatives demonstrate the diversity of its growing international self-confidence and ambitions under President Xi Jinping, who took office a year ago. The initiatives fill gaps that China has spotted in existing arrangements: Asia's need for massive infrastructure investment, and the diplomatic vacuum left in Afghanistan at a time when talks with the Taliban seem likely and the U.S. is gradually withdrawing.

March 31 is the deadline China has set for countries to apply for founding membership in the AIIB, and nearly 30 have already done so. The U.K. hit the headlines when it said it would join, prompting a U.S. official to issue a rare criticism of a longtime friend. "We are wary about a trend toward constant accommodation of China, which is not the best way to engage a rising power," the unnamed official told the Financial Times.

David Cameron, Britain's prime minister (possibly outgoing after the May 7 general election), deserved the kowtowing reprimand because he has constantly followed a pro-China line since Beijing sidelined him as a punishment for meeting the Dalai Lama in May 2012 in London. He mended his ways in Beijing's eyes and met Xi in the Chinese capital in December 2013 with a posse of other British ministers. In practical terms, Cameron hopes that doing what China wants will increase investment in the U.K., though there is little evidence yet of that happening.

The U.K. was the first of America's European allies to line up and was followed later by France, Germany and Italy. Others saying they want to become members have included Russia, Denmark, South Korea, the Netherlands, Brazil and Turkey. America's staunch ally Australia held out until March 29, then caved in.

The U.S. is now having to reassess its position. The only significant ally it has left after losing Australia is Japan, which fears Chinese domination of the bank's decisions and a lack of attention to environmental protection and controls over fund-raising and the quality of projects. However, Japanese businessmen are lobbying for the country to join, and the FT forecasts it will do so by June. Australia said Monday that no one country should control the bank.

India became involved last year when the bank was first mooted, demonstrating Prime Minister Narendra Modi's pragmatic approach to dealing with China. When Xi visited India last September, Modi secured pledges of $20 billion in investment in (unspecified) infrastructure projects over five years.

The AIIB is a potential challenger to the World Bank and the Asian Development Bank, over which the U.S. and Japan exert significant influence. The U.S. and others have resisted reforms in the control of those two banks, and the International Monetary Fund, so it is scarcely surprising that China is creating an alternative Asian power center for infrastructure investment.

Meanwhile, China's initiatives in Afghanistan are more tentative. There have been various moves since President Ashraf Ghani took office in Kabul last year, including Chinese meetings with Taliban leaders in Beijing as well as Quetta, Pakistan, where the Taliban has an office.

This is somewhat unknown territory for China, which has no track record in international diplomatic mediation, but it fits in with Beijing's wish to become more established on the world stage. Chinese leaders are also concerned that civil unrest in Muslim-dominated areas of its eastern province of Xinjiang will increase if the situation in Afghanistan worsens.

Both the U.S., which wants to be rid of its Afghanistan role, and India, which would like a larger say in the country, seem content with China's initiatives. The semiofficial line from Delhi is that Afghanistan needs all the help that it can get, and if that can usefully come from Beijing, so be it.

This does not mean that India will trust initiatives that China takes, any more than it trusts China to contribute to much progress in talks on their border dispute. (There was little movement when the two sides met in Delhi in the last full week of March.)

In the past, India has often bowed to Beijing's wishes, but under Modi it is being more robust, strengthening its defense installations and infrastructure on the mountainous border and speaking out when necessary, while welcoming Xi last year and trying to boost economic cooperation.

The lesson that India has learned, but does not always apply, is that China respects toughness that is soundly based. Where it detects weakness based, for example, on economic self-interest (as with the U.K.), it responds toughly and expects more favorable treatment.

"India is probably one of the last countries to accommodate China on anything—and at the end of the day, they work very well together," a Mexican diplomat told The Guardian.

Many of those who have flocked to the AIIB also do not trust China to influence the bank along ethical lines, any more than the U.S. has with the World Bank. Martin Wolf, the Financial Times's leading economic commentator and a former World Bank employee, put this rather neatly in a recent column. He wrote:

Jack Lew, US Treasury secretary, has voiced American concerns that the Asian bank would not live up to the "highest global standards" for governance or lending. As a former staff member of the World Bank, I must smile. Mr Lew might like to study the Bank's role in funding Mobutu Sese Seko of Zaire, one horrifying example among many.

"It would be good if China's lender were as pure as the driven snow. But this is a fallen world," Wolf added. He approved of all the countries joining the AIIB because it "would be better with a broad membership than without it."

Wolf's "fallen world" presumably referred to corruption and other declining ethical standards that are widespread internationally, and not to a world increasingly influenced by China.

The lesson, however, of China's AIIB and Afghanistan moves is that the world—and especially the U.S.—needs to be ready for Xi's next initiatives, whatever they may be. He clearly intends to use his time in office to spread his country's power and influence, weakening those who stand in his way, as the U.S. has been weakened over the AIIB.

John Elliott's Implosion: India's Tryst With Reality is published by HarperCollins, India. He can be read at ridingtheelephant.wordpress.com, which is where this article first appeared.

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