Why is the US so threatened by the rise of the AIIB?

Transcript

Christian Whiton tells World Finance the recent US diplomatic uproar over the UK’s endorsement of the Bank makes Americans look weak.

World Finance: The China-led Asian Infrastructure Investment Bank has received the ultimate seal of approval from international monetary fund chief Christine Lagarde, saying her organisation would be delighted to co-operate in the AIIB’s activities. 

The UK, Germany and France are on board; but there is one vocal opponent: and that’s the Americans. Christian Whiton, former Bush State Department senior advisor joins me with his thoughts.

So tell me, why are American so threatened by this bank?

Christian Whiton: The US government has been of two minds on China, really for a long time. Since the end of the Cold War, certainly since Tiananmen Square; where there is a component that is very concerned about China, the rise of China. China’s military.

And sort of, the Wall Street side, the business side, would very much like to engage China. And you’re seeing this in the Obama administration, which has good relations with Beijing, but also talks about pivoting military force. And this is the case where they have decided to draw a line. The Obama administration is a big fan of the international order as they see it.

World Finance: That world order, very much western-backed: is that the real issue here? That perhaps we are seeing the cementing of eastern influence in the world.

Christian Whiton: I think we have to wait and see what really materialises with the AIIB, because so far, you have had a great deal of European interest; and interest in spite of US concern. But the question is where… what’s really there so far?

You have been able to sign up as European government have, without actually pledging money! To my knowledge, at least. Without anything really specific, without any funding that’s actually appropriated and ready to go .

So far the Chinese have put up money but it’s just sort of a question of what this will actually lead to. And if it really does compete with the World Bank and IMF. And if anyone really cares if it does. 

World Finance: I take the argument that there is still a lot to be determined. But let’s look at Asian infrastructure investments as a whole question, right? So let’s talk about the prospect of having these investments done by the World Bank. The World Bank has not always been at the forefront of these developments, so who else is going to fund them? The Chinese.

Christian Whiton: That’s right. The question is of course whether this really will enable them to do much. The Chinese have tended not to be magnanimous in economic development. The extent that they involve themselves, and they actually give money or guarantee loans or other sorts of economic assistance is often for a political quid pro quo.  They will happily build the soccer stadium in Africa for a country that is willing to switch diplomatic relations from Taiwan to China.

Infrastructure in Asia? Of course, looking 25 or 50 years down the road, it’s tremendous growth. But there are real red flags in China in particular. And questions! Is this really going to drive, for example, infrastructure in Indonesia and the Philippines? Or is this, at the end of the day, just for China’s benefit?

World Finance: But we can read into China’s ambitions all we want, but we have to accept the reality that we are in and that’s that China – very much – has the money to drive this growth. So why shouldn’t China be at the helm, why shouldn’t Europe take advantage and support some of these infrastructure projects?

Christian Whiton: My view, is that absolutely: if it’s really there, then why not? I mean after all the World Bank, the IMF, those are taxpayer dollars on the line either for development or for bail-outs, and you know, monetary reserves.

So if China wants to compete with that and actually put up the money? It certainly does have resources, but it has a lot of problems – economic and political – on its hands. So, I am fine with that as taxpayer and as someone who’s been skeptical of that sort of post-Bretton leftovers that haven’t performed terribly well.

World Finance: OK, well, of course you have been in advisory roles at the senior level. If you could advise the incumbent government, or the next one coming into power in the US, would you advise them to also jump on the bandwagon?

Christian Whiton: I would say we should just be blasé. Basically see were it goes, see if it’s really about more than just a prestige project for China, see if it is actually helping other governments in the region; or if it’s coercing other governments in the region.

The US has been a very strong power in Asia. And virtually every government in Asia welcomes that except for China and Russia. So, you know, we want that to continue but I don’t see this as an imminent threat. So I say just let it ride: don’t really raise objections because that just makes you look weak.

World Finance: Political nexus-wise, are you concerned about what we’re going to be seeing rise? Or already seeing rise, as a result of the Europeans backing this bank.

Christian Whiton: I think what you see is that if Washington doesn’t have its act together and doesn’t clearly explain why something Beijing wants or does is wrong; then we shouldn’t expect European governments to be any firmer against China or take a position that’s hostile to China. 

If however we can make the argument – for example there was a discussion some years back about lifting the European arms embargo on sales to China, that has been in place since the Tiananmen Square massacre – then, you know… Frankly we have had great success in bringing Europe along on those things.  So I think it comes back to how strong of an argument you can make.

World Finance: You are going to have an audience here that could potentially want to take advantage of some of these infrastructure projects moving forward through this bank. What stops do you think should be put in place to make sure that the interests of all parties involved are protected?

Christian Whiton: I think the key part is a strong role for the private sector and private capital. And I suspect that Europe would want that as well, not just contributing actual government funds to be spent at the direction of another government, but if you are building a new express way in Indonesia, or in China, or a new dam, or a new airport. The involvement of private capital, I think, is the best insurance that these are just monuments that politicians build for themselves.