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AIIB Exposes ASEAN’s Two-Track China Strategy

The politics of the Asian Infrastructure Investment Bank (AIIB) illuminate an intriguing theme in Asian regionalism in contrast to US-led international relations.

We know that as a multilateral development bank, the AIIB serves a similar function to the World Bank and the Asian Development Bank (ADB). However, it ensures that executive power remains in Asia, capping non-Asian shares at 25% and providing China with a voting share of 26.06%. This effectively gives China veto power, since high-level decisions require a 75% majority. Customarily, the president will always be Chinese, reflecting Beijing’s warranted leadership in an international financial institution as the world’s second largest economy. This corresponds with the US presidency of the World Bank and Japanese presidency of the Asian Development Bank (ADB) as the first and third largest economies respectively.

The eleventh-hour rush of Western countries to join the AIIB by the 30 March deadline is widely regarded as a policy failure for the US. Robert Wihtol argued in the Lowy Interpreter that supporting reforms to increase voting shares for emerging economies in the IMF and ADB would have preferable for the US than China establishing an entirely new bank.

In spite of its status as one of the 57 founding members, Australia dithered for some time before deciding to join China’s preeminent institutional initiative. With an undisputedly low participation risk, the AIIB offers Australia enormous practical benefit since infrastructure investment is, after all, an economic priority for the Abbott Government. Strategically, Australia’s choice was coloured by the ‘America or China’ variable – weighing open US opposition against China’s extended hand to be a partner in shaping the course of regional development. At the same time, the Australia-China relationship was steadily cooperative, highlighted by the finalisation of the bilateral FTA, and a trilateral military exercise with the US and China. In any case, Australia’s hesitation testifies the 2015 Lowy Institute Poll’s finding that we continue to place great importance on values when deciding our foreign policy.

ASEAN’s attitude towards the AIIB reveals a unique theme in Asian regionalism. Five out of ASEAN’s ten members are embroiled in one of the most inflamed territorial disputes of the last two decades with China. However, all ten members expressed immediate desire to join the AIIB at its launch. This is a testament to the routinely overlooked institutional style of ASEAN multilateralism to which Asia owes decades of economic growth and relative peace: the unique ability of member states to prioritise economic cooperation notwithstanding strategic hostilities.

Of course, ASEAN states may be the greatest beneficiaries from AIIB projects. Its $100 billion of authorised capital is a welcome enterprise, narrowing the estimated $750 billion per annum funding gap required to sustain Asia’s growth trajectory until 2020. Furthermore, it provides a compelling opportunity for knowledge transfers within Asia’s public investment sector. In short, joining the AIIB as regional shareholders was a no-brainer for ASEAN members. By joining the AIIB early, ASEAN states sought a negotiating advantage to keep Beijing’s political leverage in-check, responding to its increasingly ambitious strategic posture. We must recall that the 29 October signing of AIIB’s Memorandum of Understanding came after consecutive months of tension following China’s oilrig faux pas, joint US-Philippine naval exercises, and the Philippines’ arbitration case against China.

In North-Atlantic international relations, trade sanctions are the knee-jerk penalty for expansionist or belligerent behaviour. Supporting the economic initiatives of states displaying such behaviour is considered an archetypical policy error and, as such, the US responded to the AIIB following these principles by opposing its establishment.

However, Professor Evelyn Goh deduced that, unlike their Western counterparts, Southeast Asian countries are indifferent to the artificial boundaries between military, economic, and political power; and between engagement and containment. According to Goh, ASEAN engages states that have regional hegemonic potential by employing balancing strategies that reject traditional deterrence mindsets. What ASEAN lacks in military power they make up for in diplomatic prowess. For decades, ASEAN has integrated China into the regional order through the practice of ‘cooperative security’, including confidence-building measures, informal consultations, norms of interaction, and codes of conduct to deescalate regional tensions. Moreover, economic cooperation routinely advances to build mutual trust. On 4 November 2002, the ASEAN-China FTA and Declaration on Conduct in the South China Sea were signed on the very same day, following a decade of heated maritime confrontations. While not binding, it at least led to six years of relative quiet in the South China Sea.

The advantage of ASEAN’s two-track strategy is that trade may continue to flourish despite defensive militarism. The disadvantage is that a steady trade flow may not deter offensive military posturing. So while the region will continue to thrive economically, China has less incentive to reconsider future belligerence.

As for the AIIB, China’s management of its newfound economic leadership and larger-than-expected founding membership will be closely observed over the coming six months as the bank assumes full operations by the end of 2015.

Sophie Qin is the Indo-Pacific Fellow at Young Australians in International Affairs.

This article can be republished with attribution under a Creative Commons Licence. Please email for more information.

Image Credit: davidgsteadman (image cropped) (Flickr: Creative Commons)

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