China’s Leadership in International Development: Seizing the Opportunity

By Alidad Mafinezam, President, West Asia Council

China and Pakistan have recently signed the largest contract in their bilateral history: a joint $46 billion transit corridor and port project in which China will acquire over 800 hectares of land in Pakistan’s Baluchistan province to build the Gwadar port city. This will provide China with functional access to the Arabian Sea, and it will boost Pakistan’s economy, expanding the country’s connectivity to the world. A principal aim of the project is to build a network of roads, rail, and pipelines to link the Gwadar port city to the city of Kashgar in western China’s Xinjiang province.

The Chinese have been building roads and dams and urban transit infrastructure across the world for decades. But given their slowing economy and a 35 percent decline from their peak double digit growth rates to which the world had grown accustomed in past decades, they are channelling their excess construction capacity abroad more than ever before. A primary area of focus is what China sees as its own region, across Eurasia, and along the path of the ancient Silk Road, which stretches from the Mediterranean and Central Europe region to China, encompassing over 3 billion people. This is what Chinese officials have been calling the “One Belt, One Road” policy, which aims to deepen the surface, sea, and air linkages across the Eurasian landmass, further integrate its main centers of economic vitality and provide development assistance to its poorer regions.

China’s recent initiatives include plans for a high speed rail link between Belgrade and Budapest in the heart of Europe, and the advanced attempts to finalize the groundwork for a massive canal that a Chinese company aims to build across Nicaragua, connecting the Pacific and Atlantic oceans. If and when completed, this would be a much larger version of the Panama Canal, and it would provide the Chinese a reliable anchor in Central America, while relieving congestion in the Panama canal and adding tremendous capacity to shipping lanes.

Early this past summer China took an especially important step in solidifying its position in international development. The official signing ceremony of the Asian Infrastructure Investment Bank (AIIB) in Beijing in late June 2015, featuring 57 countries’ representatives, has begun another chapter in the leading role that China envisions for itself in this century.

The AIIB is a multilateral development institution, broadly similar in its aims to the World Bank and the smaller, regionally focused entities such as Asian Development Bank and the Inter-American Development Bank. It focuses on large-scale lending to developing countries, but it’s unique for its focus on infrastructure investment across Asia, and for being led by China.

China is AIIB’s largest donor and its host and has already committed $50 billion to the bank’s capitalization with promises of much more to come – hundreds of billions of dollars in aggregate over the next two-three decades. The 57 countries that have joined the bank as “prospective founding members” include the largest European economies, as well as Russia, Turkey, Saudi Arabia, Iran, India, Pakistan, Indonesia, South Korea, and Brazil.

Yet one obstacle that could stunt the growth of AIIB is the reluctance shown by the U.S. and Japan (the main shareholders of the World Bank and the Asian Development Bank respectively) in joining the organization as members, even though China is a member of all three organizations. This reluctance has cast a shadow over the ability of the main multilateral lending institutions to work collaboratively to address the vast infrastructure needs of Asia and other parts of the world.

How can the reluctance of the U.S. and Japan in joining the AIIB be explained, even though the countries that have already joined account for over half the world’s GDP? The U.S., as the world’s leading military and economic power, may see the launch of AIIB as an attempt by China to establish a hegemony over a critically important part of the world.

For related reasons, Japan may see China at once as its largest trading partner and its main regional rival, a relationship still reeling from the legacy of World War II when the two countries were at war. U.S. dominance over Japan’s geopolitical ambitions, symbolized by the presence of over 20 U.S. military bases on Japanese soil, also provides a security guarantee to the country, binding the U.S. and Japan together in a way that is qualitatively different from the U.S. relationship with China. When it comes to disputes over navigation rights and island construction in the South China Sea, the U.S. and China see each other as competitors, if not as full-fledged rivals.

Despite the geopolitical calculus, and the legitimate concerns about China’s ongoing military modernization and expansion – with major reliance on Russian weapons– the U.S. and Japan and the world more broadly would be far better off to look positively on China’s “infrastructure diplomacy.” In the words of the president-designate of the AIIB, Jin Liqun, the institution aims to be “lean, clean, and green,” which means a commitment to efficiency and red-tape reduction, anti-corruption and transparency efforts, as well as fighting climate change by marshalling the potential of cleaner fuels.

At a time when East-West relations are experiencing significant turbulence, with U.S.-Russian relations at their lowest point since the end of the Cold War, China’s infrastructure diplomacy offers a major opportunity to focus otherwise diverging countries on their common interest in adopting a longer-term paradigm, and in seeing sustainability, environmental stewardship, and financial transparency as the guiding motifs in international development. Seen in this light, the recent official launch of AIIB is an opportunity to entrench these values among all multilateral development banks.

To encourage the U.S. and Japan to join, the AIIB has extended the period for members to be designated as “Founding Members” until the end of 2015. Washington and Tokyo should see this far more as an opportunity than a threat or point of rivalry with China. Their joining AIIB as Founding Members would give a major boost to the cause of international development and understanding.