Congyi Liu: America Should Join the Asian Infrastructure Investment Bank

I am pleased to host this guest post by Congyi Liu, a student in my“Monetary and Financial Theory” class. This is the 12th student guest post this semester. You can see the rest here.

I was impressed with how well Congyi persuaded me of something I didn’t want to be persuaded of, since my instinct, like that of the US government, is to wish the AIIB away as a tool of China’s power. Here is Congyi:

“’China is playing the long game effectively,’ said Cornell University economist Eswar Prasad, a former senior China official at the IMF. ‘They are in absolutely no rush. They know other countries will come to them.’”

This long game’s name is called AIIB (Asian Infrastructure Investment Bank), which was proposed by Beijing in 2013 initially. From the name, we can infer that this is an investing bank mainly for developing infrastructures in Asian countries. However, the members are not limited only for Asian countries, while British, Germany, France have announced to join in. Chinese government injected 49 percent of initial capital to the new bank. Till now, the collected funds have been almost prepared. “Meanwhile, the bank is on track to reach its target of $100 billion in registered capital, up from the $50 billion initially announced and that China is providing, according to Chinese and Western officials.” The start-up capital was only $10 billion of the World Bank, though we should consider about the time cost and inflation rate. But, without doubt, AIIB will definitely not only be an Asian but a worldly economic and financial center.

For such a big game, will America be a role paler? I think so whereas American government officials do not. Admittedly, at the first glance, we may consider that America should set tremendous barriers for China to form AIIB to firm its dominant status of the world’s economy. However, what is the really wise choice for America? Join in!

America’s join will provide a positive influence to form a valid and qualified regulation within AIIB. “Over the past year, however, the U.S. has urged its allies not to sign up for the bank, saying it would be an instrument of Beijing’s foreign policy and that without proper governing rules it could contribute to debt and corruption in borrowing nations.” America expressed that they did not frown to form AIIB, but could not nod to China’s regulatory policies. They worry that China is not qualified to govern and lead such a huge organization successfully. They doubt China is not capable to provide rules and regulations scientifically and efficiently. If America join AIIB, they can bring many matured rules and regulations by their various former experiences from leading the World Bank and IMF. After all, global economic chaos will also present negative effects on America. As AIIB has such a magnificent scale, if this organization expose essential problems, it is hard to image America will not suffer any harm.

Joining in AIIB also help America lessen China’s dominant power. “Another pending issue is how to structure the board of directors at the new bank. In the World Bank and the IMF, countries are represented by resident directors who are actively involved in the institutions and vote on new projects, programs and policies. Those representatives act as a check on management. The U.S. has been pushing the Chinese to adopt the same structure, according to those involved in the discussions, but Beijing is resisting. Instead, it wants the bank’s management, which will likely mean Chinese officials, to have a more powerful position.” Without America’s joining, China will absolutely be the sole dominator of AIIB. Then, China will readily and legitimately introduce some foreign policies that benefit itself. That is definitely what America did not want to see. “Still, Mr. Jin, interim chief of the new bank, said over the weekend that more than 35 countries will join as the bank’s founding members by the end of this month. South Korea and Australia, key U.S. allies in the Asia-Pacific region, are also expected to come on board by then, according to Chinese officials involved in the effort.” Moreover, as some America’s allies joined AIIB for their own profits, America could draw them on the same side to against China and balance the authority in the AIIB.

Till now, 46 countries have applied to join in AIIB and this number will continue goes up seemingly. China successively introduced “One Belt and One Road” and AIIB, the goal is so clear—forming and consolidating the Eurasian Economic Community. After setting down the deep fraternity between African countries, China is ready to lobby Europe with its strong power. If America cannot propose some effective strategy back, the day of China’s dominance will come soon. Actually, Joining AIIB is an indispensable move for America.