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The Asian Infrastructure Investment Bank – Three Questions for Sarah Cleeland Knight

Sarah Cleeland Knight (300x200 version)

A growing number of countries are joining the China-led Asian Infrastructure Investment Bank (AIIB) – despite U.S. objections. Sarah Cleeland Knight, an expert on international political economy, recently argued that the United States should also join the bank. We asked her for her insights:

Q: Why did China create the AIIB and what are the U.S. concerns?

A: China announced its intention to create the AIIB in October 2014 to fund major infrastructure projects (roads, bridges, electrical grids, etc.) in less developed Asian countries. The AIIB will essentially serve as a World Bank for Asia, except that China will presumably have much greater control over AIIB decision-making. China has long complained that the World Bank and other institutions created by the United States and the United Kingdom in the aftermath of WWII, including the International Monetary Fund and the World Trade Organization, do not allow countries outside the United States and Europe to exert much decision-making authority. China initially sought to boost its influence within these extant institutions, but the U.S. Congress balked at giving China more authority, so China is now creating its own institutions.

The United States cannot possibly fault the mission of the AIIB, as there is a serious need for infrastructure investment in Asia. But the United States has voiced concerns about the AIIB’s administrative structure and lending policies. The AIIB doesn’t even exist yet, so we don’t know if these concerns are valid or are really a cloak for broader concerns about China creating a rival institution to the World Bank and further increasing its influence throughout Asia.

Q: Why have a growing number of U.S. allies decided to join the bank?

A: The real question here is why the United Kingdom decided to join the bank. The U.K.’s decision was announced in mid-March and evidently took the White House by surprise. The U.K. was the first major ally to break ranks with the United States on the AIIB, and the announcement from London opened the floodgates for other allies to follow and also join, including Germany, France, Italy, Australia, and Israel. So it makes sense to evaluate the U.K.’s decision with scrutiny.

We don’t have all the answers right now, but The Financial Times is reporting that the decision originated from Prime Minister David Cameron’s office and went forward over objections from the U.K. Foreign Office. So there are some bureaucratic politics at work here. But, in a nutshell, the U.K. (Cameron) decided that the benefits of joining the AIIB and bandwagoning with China against the United States clearly outweighed the costs of angering the United States on this issue.

What should be worrisome to the United States is whether its allies will side with Beijing over Washington on other issues as well. Such a trend would signify declining U.S. influence not only in Asia but also worldwide. But we need more data points before we can see a trend.

Q: Why do you believe the United States should now join the AIIB?

A: The United States, at this stage, is standing virtually alone in protest of the AIIB. So it would be far better for the United States to join its allies as a founding member of the AIIB and hope to exert some influence from the inside. Such an obvious reversal on the AIIB is going to require some diplomatic fine-tuning. I believe that the United States should send a delegation of Treasury Department and other officials to meet with their Chinese counterparts on the details of how the AIIB will be structured and its decision-making processes. The United States should come away from those meetings satisfied that the AIIB is an important institution to promote economic development throughout Asia. And then the United States should do its best, working quietly with China, to ensure that it actually does.

For media requests, please call J. Paul Johnson at 202-885-5943.