AIIB Helps Silk Road Plan, But May Fail to Protect China Against Trump
Multilateral banks based in China have defied critics over the past year with strong performances that include financing projects across a dozen countries.
The new banks, the Asian Infrastructure Investment Bank (AIIB) and New Development Bank (NDB), have given added political legitimacy to China, and helped to push forward Beijing’s geopolitical interests by extending $3 billion for projects under its One Belt, One Road (OBOR) program, analysts said.
But questions are being asked about whether these banks can help China in its battle against adverse actions threatened by U.S. President Donald Trump.
AIIB’s head Jin Liqun recently reminded Washington that that door remains open for it to join the bank. The Obama administration had decided against joining the AIIB even after 56 countries, including U.S. allies like Canada, Britain and Australia, became members.
“AIIB is an institution that will help China get support from other countries in any direct confrontation with Trump,” Jacob Kirkegaard, senior fellow at the Peterson Institute of International Economics told VOA. “Setting up AIIB and showing that Beijing intends to play by the established rules has helped China, when Trump increasingly seems to be going rogue on not just America’s traditional role, but also many of the international rules it help set up.”
But the advantage will mostly be in diplomatic and political terms, he said, adding the AIIB will not provide China any particular economic advantage in a bilateral confrontation with Trump.
“China has gained in terms of soft power because it could bring several European powers on the table through AIIB. At present, alot of European countries are concerned about what they see in the U.S. This might increase potential cooperation between China and the European countries,” said Julian Evans-Pritchard, China economist for Capital Economics.
AIIB’s latest decision to lend $600 million for the Trans-Anatolian gas pipeline (TANAP), which will connect Azerbaijan to Europe fits snuggly into China’s plans to connect with Europe through Central Asia. Most of the other projects funded by the Beijing based bank support OBOR projects. They include the Dushanbe-Uzbekistan Border Road in Tajikistan, $100 million for National Motorway M-4 in Pakistan, $300 million for a hydropower project in Pakistan, and $301 million for Duqm Port in Oman.
In a recent interview, AIIB chief Jin predicted that the U.S. under Trump would reject the decision of the Obama administration and choose to join the bank.
“I was told that many in his (Trump’s) team have an opinion that Obama was not right not to join the AIIB, especially after Canada joined, which was a very loud endorsement of the bank. So we can’t rule out the new government in the U.S. endorsing the AIIB or indicating interest to join as member,” he told the Chinese media.
He also complained that AIIB faced initiatial resistance from the U.S. “At the formation of the AIIB, the U.S., the base of the Bretton Wood Institutes that manage the world economy including the World Bank and the IMF, saw the new body as a threat to its dominance and importance in the world economic order,” he said.
The Trump administration has not yet commented on the AIIB and analysts are skeptical that Trump will let the U.S. join and give the Beijing-based institution some added credibility.
“Under no circumstances will Trump agree to join AIIB. Jin obviously knows that and cleverly created a headline again highlighting how it is now the U.S. that is isolating itself from the rest of the world,” Kirkegaard said.
Lourdes S. Casanova, academic director of the Emerging Markets Institute at Cornell University, also thinks the U.S. will stay out of it.
“I don’t believe the new administration one will join because, so far, they want to retreat back home and focus on investments in infrastructure at home.You also need the political will and on that front, President Trump has been more confrontational with Mexico and also with China, as well as critical of multilateral organizations, which makes us believe that he has no intention to join AIIB,” she said.
AIIB may seem to have turned up a stellar performance lending $1.7 billion to nine different projects in just more than one year. But it has been taking advantage of projects that had been carefully studied and vetted by entrenched players like the World Bank and Asian Development Bank. The real challenge comes now, when many of the bankable projects have been covered, and the AIIB will have to start doing its own due diligence, analysts said.
“The AIIB will find it very difficult to scale up its operations. There are significant political risks in many of the infrastructure projects,” Evans-Pritchard said. “A lot of projects don’t make commercial sense. There is the risk of running protests in several countries where projects have been planned. There is a protest against an industrial zone in Sri Lanka, which is part of OBOR program,” he said.
Several members in AIIB, particularly those from Europe, do not share China’s geopolitical ambitions, which may come in the way of approving projects along the OBOR route, he said. Besides, there is the risk of the next round of elections installing protectionist governments in Europe, which may be less enthusiastic about funding projects in Asia and elsewhere, Evans-Pritchard said.