China need not always win to be great

While it deserves to have a greater say in the world order, it should not be the only big winner. In its rush to assert itself on the global stage, it has simply reaped acquiescence

Chinese soldiers marking the Communist Party's 95th anniversary in Heilongjiang province last month. In President Xi's address, he said China will never compromise on its sovereignty. Standing up forcefully on the world stage has become a cornerstone of the country's diplomacy. PHOTO: AGENCE-FRANCE PRESSE

BEIJING • In his address at the 95th anniversary of the Chinese Communist Party (CCP) this month, President Xi Jinping (pic) devoted an unusually lengthy part of his speech to foreign policy.

Speaking just days before a ruling by the Arbitral Tribunal at The Hague on China's claims in the South China Sea, most international media focused on him saying that China will never compromise on its sovereignty. The Chinese media, however, picked out certain phrases to highlight his vision for the country on the global stage.

One of them is "ren lei ming yun gong tong ti", or a "community of common destiny for mankind", a term Mr Xi has used at least 60 times since 2013.

Building this community is the "Chinese solution" for an international world order that emphasises mutual benefits, and will allow China to fulfil its responsibilities as a major country, said party mouthpiece People's Daily in a commentary on Monday.

Another Chinese media analysis said China has come up with the "Chinese solution", or "zhong guo fang an", because it no longer wants to follow Western rules now that it has "a major country's capabilities and self-confidence".

Taken together, these points summarise China's reimagining of its role as a "major country/great power" or "da guo" in recent years. Although it became the world's No. 2 economy in 2010, the Chinese have always debated whether their country is truly a great power. There is, however, little doubt in the mind of Mr Xi, who has more actively sought to answer the question: "So what should a great power do?"

Plenty, it seems. In recent years, standing up more forcefully on the world stage has become a corner- stone of the country's diplomacy.

Last September, the People's Liberation Army (PLA) carried out a rare and massive display of its latest hardware through Tiananmen Square in a show of military prowess that unnerved neighbours in the region and countries further afield. That came amid a PLA restructuring and personnel reshuffle meant to improve its combat capabilities, as well as weapons deployment and land reclamation in the South China Sea.

Then last month, at a special meeting in Kunming between Asean and China's foreign ministers, a planned joint press conference failed to take place after the Chinese applied pressure on a few Asean member states and caused the 10-member bloc to splinter over a proposed joint statement on the South China Sea.

Experts such as Nankai University analyst Liu Feng have pointed out that "China has been more inclined in recent years to use its coercive power to persuade neighbouring countries or to ensure that they indeed treat it with respect". That is consistent with the observation that China has modified its foreign policy strategy to become more pro-active, shifting from the decades-old mantra of "tao guang yang hui" (keeping a low profile) to "fen fa you wei" (striving for achievement), a term Mr Xi used at a high-level diplomatic work conference in 2013.

Yet, what a great power can do and what it should do are different things - and both China's leaders and its people seem increasingly interested only in the former while "striving for achievement". That attitude extends to the Chinese public, as can be seen in the response of a fisherman from Hainan province who said in an interview in May: "Just attack them..., what are we afraid of?"

He was referring to the Philippines, which the tribunal ruled in favour of this week in the former's disputes with China in the South China Sea. Many of these fishermen had clashed with the coast guard and fishermen from the Philippines during their expeditions to the Spratlys, which the Chinese government encourages as a way of safeguarding sovereignty.

It is not uncommon to see netizens comment on territorial disputes online with a single word "da" (attack), born from the angst of seeing "great power" China supposedly being pushed around by smaller countries. They feel that China's might is not limited to the military either, often questioning what would happen if China decides to cut off trade ties or investment with another belligerent country. In short, now that we are strong, why do we need to play nice?

Yet, when it suits its cause, China (or its public) is quick to highlight that it is also a "rising power" - a developing country - hence relieving it of the international responsibilities that most expect a great power to shoulder.

Indeed, when Mr Xi committed US$2 billion (S$2.7 billion) last September to a development fund for poor countries and said China would aim to increase investment in least-developed countries to US$12 billion by 2030, that effort to change China's image as an international "free rider" swiftly came under fire. Why is China not helping its own poor, many Chinese asked. China is just a big country, not a rich country, others said.

None of that helps China's standing on the global stage. In its rush to demand respect befitting of a great power, China has merely reaped acquiescence.

Just looking at Asean, for instance, closer economic cooperation with Beijing has failed to translate into mutual trust. If anything, it has been the opposite, with concerns growing about China's readiness to wield its economic clout for geopolitical benefits. As one Western scholar observed, "China is a great power, but it doesn't realise that being a great power doesn't mean you need to ensure you win all the time".

This is where China can perhaps heed a lesson it learnt from the remarkable feat it pulled off early this year, in opening the Asian Infrastructure Investment Bank (AIIB), which People's Daily also sees as part of the "Chinese solution". Few would have given it a chance when Mr Xi first mooted it in 2013, especially given the intense pressure that the United States had put on other countries not to join the bank. But the benefits of this new institution were apparent to the 57 that eventually signed up, in what became a major public relations coup for China.

No coercive action was needed when the countries could assess for themselves the AIIB's merits, while being keenly aware of the limitations and associated biases in current international financial institutions.Two weeks on from Mr Xi's address, the tribunal has ruled against China's claims in the South China Sea and all eyes are on how forcefully it reacts. It should keep in mind that in recent years, assertive action has only served to push China's neighbors further away from it. It is still questionable, on balance, how much "striving for achievement" and not following "Western rules" has gained for China, and if that is still a path worth going down.

China deserves to have a greater say in the world order and, as it has pointed out, there should be no objection to its attempts to build a new world order that emphasizes "mutual benefits and a non-zero sum game model". In such a world, however, the great power should not be the only big winner.

By Teo Cheng Wee, China Correspondent The Straits Times/Asia News Network

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AIIB attracts nations from East, West, its fate connects to Chinese economy

AIIB’s fate connects to Chinese economy

The Asian Infrastructure Investment Bank (AIIB) officially opened for business on Saturday. In the past two years or so, the bank has been a subject of heated discussion as a symbol of change in the world order. However, its significance hinges on a number of factors in future, rather than the founding itself.

There are many advantages in terms of the bank's operation and management. Infrastructure construction in Asia, which the AIIB is centered on, is virgin territory that has huge potential to be tapped. There is ample scope for the bank to find its role.

With 57 countries as founding members, the starting point of the bank is high. Besides, China as the initiator has abundant capabilities of infrastructure construction, and its experience is applicable to developing countries.

Nonetheless, disadvantages also exist, among which the biggest is the adverse attitude of the US over the bank. It will be more costly for the AIIB to overcome problems than for the World Bank and the Asian Development Bank at critical moments. Therefore, the AIIB must be operated with superb management, leaving no room for any opponents.

The further development of the Chinese economy will provide indispensible strategic support for the AIIB to increase its heft.

The reason why the AIIB could be founded, despite obstructions from the US and Japan, is that the growth of the Chinese economy has shored up the confidence of the participants.

Since its founding, the AIIB has been connecting its destiny to the Chinese economy. The confidence the world has in the Chinese economy will be projected onto the AIIB.

The AIIB touches a nerve of major global powers of the US and Japan. Its inclusive nature enables its smooth start. China has its own interests, but it cannot put its interests above those of the other countries. We should avoid a zero-sum situation, but integrate Chinese interests with others', and make achieving a win-win result a goal rather than a slogan.

With the changing times, China can't expand its power through coercion. It must integrate into the world system and develop in a way that is acceptable to the majority of the world's states.

The AIIB represents China's taking of global responsibilities as a big power. The US, as the world No.1, can capriciously vandalize the rules it makes at some critical moments. But China cannot do so. It has to be well-disciplined in serving the world so as to be recognized and accepted as a rising power in the world. - Global Times

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Connected by mountains and waters

Relations between Asean and China are already strong, but expect them to draw even closer as they mark the 25th anniversary of dialogue relations.

THERE is a narrative in China that illustrates the interdependence of trade between Asean countries and China.

The little story, told in a programme produced by the state television broadcaster, goes like this: 36g of palm oil from Indonesia are needed to deep-fry three packets of instant noodles that would be consumed by Chinese customers.

The bio waste generated from producing the palm oil, meanwhile, can power 200 five-watt energy-saving light bulbs in Singapore for an hour.

To China, Asean is its “close neighbour connected by mountains and waters”. Collectively, the 10 nations in Asean are China’s third largest trading partner, while China is Asean’s largest trading partner.

In 2014, the two-way trade reached US$480bil (RM2 trillion) and investment was valued at US$130bil (RM558bil), with both sides aspiring to elevate the figures to US$1 trillion (RM4.3 trillion) and US$150bil (RM644bil) respectively by 2020.

To help realise this goal, China and Asean sealed a deal during the Asean summit in Kuala Lumpur to upgrade their Free Trade Area in November.

The geographical proximity makes Asean countries the first participants of China’s 21st century Maritime Silk Road (MSR), an initiative to foster connectivity and collaboration with countries along the route.

One of the flagship aspects of Belt and Road is railway connectivity. Last year, China embarked on rail projects with three Asean countries as part of Beijing’s ambition to connect China and Asean in order to facilitate the movements of goods and people.

In October, China won the bidding for the first high-speed rail (HSR) project in South-East Asia – the Jakarta-Bandung HSR in Indonesia.

A ground-breaking ceremony for the joint Lao-Chinese railway was held in December, followed by another ceremony to launch the Thai-Chinese railway project for two medium-speed lines.

Cooperation between ports is another key area of the MSR.

Malaysia, which is China’s largest trading partner in Asean, forged a port alliance with China during Chinese Premier Li Keqiang’s official visit to Malaysia in November.

China-Asean Business Council executive president Xu Ningning said Port Klang, which is the world’s 13th busiest port, can become an important locale for Chinese to “go out”, referring to China’s policy that encourages its enterprises to invest overseas.

“Malaysian investment in China is still higher than Chinese investment in Malaysia at the moment. I’d suggest Malaysia step up its promotional activities on investment opportunities to attract Chinese enterprises to Malaysia,” he commented on the sidelines of a China-Asean forum on the MSR in Beijing recently.

Former minister counsellor (economic affairs) in the Malaysian Embassy in China Datuk Ong Chong Yi pointed out that the two-way trade between Malaysia and China, which has reached US$ 102bil in 2014, accounted for one-fifth of the China-Asean trade.

Ong, who had just assumed the role as the CEO of China-Malaysia Qinzhou Industrial Park (Guangxi) Development Co Ltd, said once the Trans-Pacific Partnership deal and other multilateral or bilateral trade agreements are put in place, Malaysia would be an ideal destination to help China to enter other markets.

To provide capital support and drive infrastructure projects, China has set up the US$40bil (RM171.6bil) Silk Road Fund and a US$10bil (RM42.9bil) China-Asean Investment Cooperation Fund (CAF).

CAF CEO Li Wen said the fund, which focuses on investment opportunities in infrastructure, energy and natural resources in Asean, has invested in 10 projects in eight countries since its establishment five years ago.

Silk Road Fund Co Ltd managing director Luo Yang said the fund is interested in collaborating with Asean countries under the framework of connectivity.

A discussion of China-Asean relations will surely involve the South China Sea territorial row, which sees China and four Asean neighbours – Malaysia, Brunei, Vietnam and the Philippines – laying overlapping claims on the busy passageway.

While China has carried out extensive construction on the Spratly Islands (which it calls Nansha), it said it preferred direct consultation with other claimants to tackle the problem, and rejected the Philippines’ move to file claims with the International Tribunal for the Law of the Sea over the dispute.

“The dispute is only temporary. As long as China and countries along the MSR have enough goodwill, political wisdom and sincerity, it will be solved through friendly negotiation,” Bai Tian, the deputy director of Chinese Foreign Ministry’s Asian Affairs Department, said.

He added: “South China Sea will be a sea of peaceful cooperation and prosperity.”

It is important to note that despite the territorial disagreement, all parties are still engaging each other actively in economic cooperation. For example, Malaysia, Vietnam, Brunei and the Philippines have all joined the China-led Asian Infrastructure Investment Bank (AIIB) as founding members.

 

The Beijing-based multilateral lender aims to help Asia build roads, power grids and other essential infrastructure. It will hold the first meetings of its board and executive council on Jan. 16-18, 2016. The AIIB counts 57 founding members.

This year, China and Asean will mark the 25th anniversary of the establishment of dialogue relations.

A series of commemorative activities, including a summit, is expected to be held to mark the milestone and draw the region and China closer to each other.

By Tho Xin Yi Check-in China

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Asian voice carries greater weight now

Select head: Jin Liqun is the president-designate of the AIIB. – EPA pic >>

CHINA’S setting up of the AIIB (Asian Infrastructure Investment Bank) is a most significant event in contemporary history.

It represents another shift eastwards in the global balance of power, particularly from the US to China. However, other Asian – particularly Asean – countries have also to reflect on what it means to them.

The US AIIB dilemma is a useful point over which to ponder. It has very little to do with transparency, governance and environment. It has to do with the power equation with China. Predominance and control.

Clearly the US is struggling to come to terms with China’s rise. This is not to say America opposes it, but it is a hard thing for the US to swallow, to play second fiddle. And the AIIB is the first big test of that adjustment.

With the launch of the AIIB, China has also shown how it can make good things happen with support not just from Asia, but also beyond. It is becoming a global power with considerable reach and influence.

Controlling about 30% of the capital of the AIIB China, as the promoter, has shown itself as a leader that can control the future of other countries. How Beijing exercises that leadership remains to be seen, but insofar as member state expectations are concerned, they see Asian countries for the first time in living memory controlling an international institution of considerable weight - and with it their economic prospects.

To sustain Asian economic growth trajectory, US$8 trillion of national infrastructure development is needed up to 2020, not counting US$290bil in regional connectivity infrastructure. Indonesia alone needs US$230bil, Myanmar US$80bil. With the potential of the US$100bil AIIB, plus the US$40bil Silk Road Fund for “One Belt One Road”, there is for the first time some good hope of meeting this need.

The US, in its difficult adjustment, points to potential future problems rather than the promise of the AIIB. How “lean, clean and green” will the AIIB be? As if the US dominated Bretton Woods institutions have been pristine, but that does not mean it is a question that should not be asked about AIIB.

So, as the Asian countries get in line, eyes glued on the lolly, they should not hold back from asking questions and seeking answers on how the AIIB is going to operate.

Another issue raised primarily by the Americans is over procurement and personnel appointments. Again, as if the IMF, World Bank and ADB did not come with strings attached by largely senior Caucasian officials from the institutions. But, having suffered from such suppression in the past, Asian countries should want to know what the future holds with the AIIB on procurement and personnel.

With the AIIB headquartered in Beijing and China putting up most of the money, it is only to be expected there will be a Chinese bias on both scores. The president-designate Jin Liqun, however, is suave and affable, better than some of the boorish heads past and present of the Bretton Woods institutions. Nevertheless, it is not undignified to ask about other appointments and their distribution. This horse-trading occurs at international level.

On procurement, Chinese companies are already assuming they will have first-mover advantage contractual right – but this does not necessarily reflect what the Chinese government thinks or mean that the AIIB will be biased for them.

Indeed, Chinese Prime Minister Li Keqiang during his visit to France this week admitted China lacked advanced technologies and looked forward to “form joint ventures or cooperatives” with the developed world. This was stated on the occasion of a historic deal with France to carry out joint projects in Asian and African countries.

And it follows a considerable period during which China was intent on muscling out developed countries in its economic expansion to African and some Asian countries.

Thus, China’s tendency of blowing hot and cold has been a problem in gauging Beijing objectives and mode of operation.

A former US ambassador to the ADB recently related how the poorest Pacific countries failed to receive Chinese support at board level for projects as they had recognised Taiwan. Again, not that the US was ever reticent about such political power play.

Still, it would not be remiss to ask how far China would penalise countries on the wrong political wave-length, even if it would be too much to expect Beijing to support a state opposed to and in conflict with it.

How would the Philippines and Vietnam score in the AIIB on the Chinese political barometer given their adversarial position in the South China Sea dispute? Indeed, the other claimant states, such as Malaysia and Brunei. Of course, if they are willing to become vassals of the Chinese state in return for largesse, it is entirely up to them. But it is not to be expected the proud sovereign states of South-East Asia would stoop to this, but who knows.

In the AIIB, Asean states will each have a very small stake, even if Indonesia might be among the top ten shareholders. Together they might represent something a little more significant. Would they then not want to develop a common position in areas of infrastructure and connectivity development that would be of shared benefit?

Asean leaders do not seem to discuss strategic issues such as, now, the meaning and significance of the AIIB to future regional order. Generalised, but not inaccurate, assertions are made about its good in terms of infrastructure and economic development. But there is more to it than that.

When they meet, Asean leaders follow a well-scripted agenda that does not include a free flow of discussion. Foreign ministries often are hell-bent on avoiding this, because they think strategy and state secrets must at all cost be protected. They should give the leaders greater credit than assumed stupidity. These discussions must take place beyond other broad issues, such as the Middle East etc, or immediate issues, such as refugees and migrants.

Strategic issues are so critical to Asean’s future place in the regional order. Deficient discussion, or avoidance of it altogether, erodes Asean role in the evolving system. More time must be set aside at Asean summits for discussion on these issues.

The economic ministries too must not just look at issues and targets one by one and in a rush without presenting the bigger picture. There is great strategic content in the minutiae which is hardly highlighted or discoursed.

If Asean meetings and summits go on like this, community or no community, the region will miss the wood for the trees.

Comment by Munir Majid The Star/Asian News Network

Tan Sri Munir Majid, chairman of Bank Muamalat and visiting senior fellow at LSE Ideas (Centre for International Affairs, Diplomacy and Strategy), is also chairman of CIMB Asean Research Institute.


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The center of world economic gravity moving east as AIIB shows

Chinese President Xi Jinping (C, front) poses for a group photo with the delegates attending the signing ceremony for the Articles of Agre...

The center of world economic gravity moving east as AIIB shows

Chinese President Xi Jinping (C, front) poses for a group photo with the delegates attending the signing ceremony for the Articles of Agreement of the Asian Infrastructure Investment Bank (AIIB) at the Great Hall of the People in Beijing June 29, 2015. [Photo/Agencies]

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Financial leaders of 57 states gathered in Beijing on June 29 to sign the agreement for establishing the Asian Infrastructure Investment Bank (AIIB), expected to become the region’s largest investment bank in the 21st century.

Seventy years ago, the World Bank was established, led by the US and its close western economic and political allies, as the first global financial institution. Along with the World Trade Organization and the International Monetary Fund, the western powers have commanded world financial and trade order for more than half a century. Even the Asian Development Bank (ADB), established 20 years later after the World Bank, has been largely controlled by Japan, backed by the US and other western economic powers.

China benefited from the global and regional development and financial institutions in the initial stage of economic reform and openness. As China expanded its economic strength it has aggressively contributed to financing them. However, despite its financial contribution to these institutions rising significantly China still has limited influence over management and operation.

China’s desire to influence world financial order and its inability to do so have been due to the governance structure of these institutions where China is not only a minority shareholder but its voting rights are marginalized.

Since the world financial crisis, triggered by the US subprime mortgage crisis and the EU’s debt problem, China’s relative importance in the world economy has risen rapidly. By 2010, it surpassed Japan to become the world’s second largest economy, and by 2012 it overtook the US to become the world largest trading nation as well as the largest producer and consumer of motor vehicles.

Apart from China’s second-to-none manufacturing capability, it holds the world’s largest foreign exchange reserves which have to be used effectively so they can generate a financial return and make appropriate contributions to infrastructural development in Asia, the largest and fastest growing region among all continents.

In addition, China, India, Russia and other initial AIIB member states have the financial strength and managerial confidence to create a new financial institution similar to the World Bank and ADB. For the initial $100 billion fund to be pledged, China has agreed to contribute 29.7 percent, India 8.3 percent, Russia 6.5 percent, Germany 4.4 percent and South Korea 3.75 percent. Other major contributors include the UK, Australia and Indonesia.

Both the US and Japan have not expressed their intention to join AIIB although many US political and economic allies have come to Beijing to sign the agreement, particularly the UK, Germany, France, Italy and Australia. The diversion of these countries' attention away from the US to China and Asia not only reflects ever rising business opportunities in Asia, but also the relative decline of the US-led western influence on the global economy and financial order.

The apparent shift of economic gravity from the West to the East reminds me of my personal experience in the past. Thirty year ago, I was awarded a World Bank scholarship from a university in Hainan to study in the UK in 1985. At that time, the salary of a Chinese university lecturer was less than 1 percent of his UK counterpart. Today, all the top Chinese universities are able to pay significantly more than the equivalent UK or US salaries to attract overseas talents to work in China. In addition, numerous university teachers in China can easily apply for more research funding than their western counterparts.

Although China is still a developing economy by definition, it has exceeded many western powers in a number of areas such as equipment manufacturing, high-speed railways, nuclear power, construction, infrastructure engineering and space technology. In 2014, Chinese scientists produced the second largest number of high-impact academic journal papers in the world.

China started the first high speed railway 30 years later than Europe, but by 2014, has built 16,000 km of high-speed tracks, twice as long as the total length of all the EU countries put together. BYD, one of China’s private auto makers, has marched to California to build electric buses for the local market.

India is racing to follow in China’s footsteps. Its economy was growing as fast as China in 2014 and is set to overtake China’s growth in 2015. However, India’s transportation systems are so poor that they are evident constraints on the country’s development. It is expected that India will require $1 trillion to improve its transportation systems, and the establishment of AIIB will be helpful to its development needs. Other Asian countries face similar problems of investment for roads, railways, airports, seaports, telecommunications and internet.

AIIB will become a potent propeller to accelerate economic and social development in Asia. Along with the Silk Road Fund and the Brics Bank, China will use AIIB to implement its “one- belt and one-road” regional and global development strategies.

The Silk Road Economic Belt and the 21st Century Sea Silk Road will cover more than 60 countries surrounding China, and many will benefit from China’s outward-looking investment and development strategies. Under Xi Jinping’s leadership, China has gained increased support from neighbouring countries in Asia and many others in Latin America, Europe and Africa, thanks to its persistent foreign policy of peaceful cooperation, mutual benefit and common prosperity.

The future operation of the AIIB may face many challenges and uncertainty, but the AIIB has signified the rapid emergence of China, India and other developing and transitional economies. The determination and confidence for success through the AIIB and other newly created financial institutions suggest that the world financial and political order will be different from now, as the overwhelming dominance of the World Bank and ADB in Asia and the world financial systems will inevitably decline in the future.

By Shujie Yao (chinadaily

The author is a professor of economics, Chongqing University and the University of Nottingham.

Through AIIB, China can learn to lead

Representatives of 57 prospective founding members of the Asian Infrastructure Investment Bank (AIIB) gathered in Beijing on Monday for the signing ceremony, with 50 of them endorsing the AIIB agreement. As the largest shareholder, China takes a 30.34 percent stake and correspondingly has a voting share of 26.06 percent, which actually enables China to wield a veto on major issues, such as electing the bank's president. This is a moment that our nation could never have imagined just 10 years ago.

The move forward in the AIIB, however, seemed to have no bearing on people's feeble confidence in China's stock market, as shares plunged amid a flurry of automatic sell orders on this remarkable day.

However, the country's fundamental confidence has been elevated to a new stage. This is the first time ever that China is leading an international multilateral bank. Its influence is prominent and far-reaching, and it carries more profound significance than successfully hosting an Olympic Games.

It took China less than six months to complete the signing of the AIIB agreement and this efficiency shocked the world. Although China barely has any experience in this regard, it is proof of its excellent capacity to learn and of its eager pursuit of fairness and equity. The first batch of 50 signatories is far more than the number of founding members of the Asian Development Bank (ADB).

China's attempt to lead the international financial institution may have been forced by unfair treatment in other institutions or China may want to test experiences with the AIIB as we are still a developing country. But from now on, we must shoulder our responsibilities.

Of these responsibilities, the foremost is to bear criticism as numerous Western observers are waiting to find faults with and go bearish about China. But regardless of what they say, China must stick to its current trajectory.

In recent years there have been fewer protests by China, but frequent ones against Beijing overseas. China needs to stick to its major principles, but it does not need to be entangled in minor issues.

US allies that have joined the AIIB do not mean to flatter China, but they see the benefits will outweigh their relations with Washington. With GDP at the $10-trillion level, can China build more platforms of common interest and convince the outside world that working with China always means a win? This serves as the key to China's further rise without encountering strong resistance from the outside.

Compared with the IMF, World Bank and the ADB, the AIIB indicates that the environment where China is rising may not be as terrible as we conceive. We must grasp the opportunities.

Source: Global Times Editorial

50 nations sign AIIB deals - China wields veto powers, enjoys 26% voting rights

China's role as the largest shareholder with significant voting rights in the Asian Infrastructure Investment Bank (AIIB) will make the country shoulder more responsibility in turning the bank into a high-quality financial institution to complement existing multilateral development banks, experts said Monday.

A total of 50 prospective founding members of the AIIB on Monday signed the bank's articles of agreement (AOA) in Beijing, which outlines the bank's objectives, operating principles, governance structure and decision-making mechanisms.

Seven members, including Denmark, Thailand and the Philippines, failed to sign the AOA on Monday. China's Ministry of Finance said they can sign the agreement anytime this year.

"The signing of the AOA is a milestone in the establishment of the bank," Vice Minister of Finance Zhu Guangyao told the Global Times Monday on the sidelines of a forum in Beijing.

The bank was proposed by President Xi Jinping in 2013 during his visit to Indonesia.

Xi said on Monday that China's development would not have been possible without Asia and the world.

"As China grows stronger, we are willing to make our due contribution to world development," he said.

Zhu said the AIIB's establishment process has outpaced other multilateral development banks, and its objectives have won support from members within and outside Asia.

"We hope AIIB members' legislatures will approve their AOA membership as soon as possible and get the bank's operations going by the end of the year," he added.

Voting shares

The AIIB will have an authorized capital of $100 billion, and Asian members are required to contribute up to 75 percent of the total capital, leaving the rest to non-Asian members, according to the AOA.

China is the bank's largest shareholder with a 30.34 percent stake. This gives China 26.06 percent of the voting shares, also the largest, within the multilateral financial institution.

"It is within expectations given China's huge economy, and it also means China needs to shoulder more responsibility in building the AIIB into a high-quality bank," Ruan Zongze, vice president of the China Institute of International Studies, told the Global Times Monday.

According to the AOA decision-making mechanism, China has effective veto powers over major decisions because it has voting shares of over 25 percent.

China does not seek veto powers in the AIIB, Vice Finance Minister Shi Yaobin told the Xinhua News Agency Monday. He said the country's stake and voting shares in the initial stage are natural results of current rules, and may be diluted as more members join.

"Being a major Asian economy, Japan's entry will dilute China's stake and voting shares more than any other country, but so far we have not seen such a sign," Ruan said.

He said he believes the AIIB is not likely to approve a large number of new members in its initial stage. Instead, it will focus on rolling out investment projects.

Owning veto powers does not mean that China will use these powers in AIIB's future operation, Jia Qingguo, dean of the School of International Studies at Peking University, told the Global Times Monday.

Jia said China might use the powers only if the projects would seriously hurt China's interests or are not in keeping with the bank's objectives, adding that the possibility for such conditions is low.

After the signing of the AOA, the bank's senior management will be appointed before it starts operations.

The bank's headquarters will be located in Beijing, and its president will be selected through an open, transparent and merit-based process, according to the AOA.

The AIIB's future investments will focus on Asian infrastructure projects in the energy, power, transport and agricultural sectors that also meet environmentally friendly and energy-saving standards, Jin Liqun, secretary-general of the AIIB's interim multilateral secretariat, said at a forum held in Beijing over the weekend.

The Asian Development Bank said it believes Asia would need infrastructure investments worth over $8 trillion between 2010 and 2020.

"The AIIB will complement existing multilateral development banks to promote sustained and stable growth in Asia," Zhu said.

World Bank President Jim Yong Kim welcomed the signing of the AOA.

"More funding for infrastructure will help the poor, and we are pleased to be working with China and others to help the AIIB hit the ground running," he said in a statement on Monday.

- Song Shengxia contributed to this story

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The global centre of gravity shifting to Asia

“Danny Quah of the London School of Economics has calculated the world’s economic centre of gravity and reckons that, thanks to Asia’s rise, over the 70 years from 1980 to 2050 it will move eastwards from the mid-Atlantic all the way to somewhere between India and China. By 2015, the halfway point on this great journey, it will have reached the city of Bandar-e Mahshahr, in Iran, on the north-eastern tip of the Persian Gulf .”

 Danny Quah’s calculation of the world’s economic centre of gravity has been included in The Economist’s eye-catching statistical landmarks of 2015

Many see the rush to join the Asian Infrastructure Investment Bank as the beginning of a new international financial order and the decline of US dollar hegemony.

BRITAIN’S recent decision to join the Asian Infrastructure Investment Bank (AIIB) as a founder member has led to a kind of stampede by other allies of the United States in Europe such as Germany, France and Italy to follow suit.

So did two other important Asia-Pacific allies, Australia and South Korea. The only other major US ally in Asia which did not was Japan.

What is striking is that these allies went against the express wishes of the US which apparently saw the AIIB as a potential challenge to the domination of the international financial architecture by the US-controlled World Bank and the International Monetary Fund.

Particularly stunning is the British decision. According to senior fellow at the Department of Politics and International Studies at Britain’s Cambridge University Martin Jacques, in this year’s Boao Forum, this is the first time since Breton Woods in the 1940s, except for one occasion when Britain refused a US request to send troops to Vietnam, that Britain had ever said no to the US so publicly!

Jacques exaggerates somewhat as he should have begun with 1956 as the year when Britain abandoned an independent foreign policy, as a result of its misbegotten adventure in Suez, and became a faithful junior partner to the US.

Still, it is no less remarkable, even beginning with 1956, for it took about six decades before a clear British nay to the US came about.

Many saw the rush to join the AIIB as signifying the beginning of a new international financial order and the decline of US dollar hegemony, with China deemed to be the new or most influential nation.

Some, however, saw Chinese weakness rather than strength in this spectacle.

London’s Financial Times argued that resorting to a multi-lateral institution to exercise influence suggests weakness as China will be less able to get its own way, not to mention possible badgering from non-governmental organisations in future deliberations of the AIIB, than if it could do so by bilateral means.

It remains to be seen if a new financial order will eventuate. I will however make a few points about this development.

One is that it has shown in a dramatic way the global reach of Chinese economic strength, especially in the financial arena.

While it is true that China is already an economic force in other parts of the globe such as in the continents of Africa and South America, not to mention Asia and Australia, this is probably the first time that a major European nation has made an economic decision with obvious political implications favourable to the Chinese.

Someone defined a superpower as a nation or state that can project dominating power and influence in the globe, sometimes in one region or more, and that has the potential to attain global hegemony.

In this respect we can consider China an economic superpower.

Of relevance to our understanding of Chinese strength is the reason behind the British decision.

Britain in the past year or two has evinced a more positive attitude towards China.

According to an analysis in the Internet magazine, Counterpunch, the recent British economic recovery has been mainly based on financial flows to property and infrastructural projects in London and the south of England, and the prosperity of the City of London.

And the city of London is what keeps Britain from becoming a third-tier economy.

This is so important that David Cameron and the Conservatives could conceive of Britain leaving the European Union if the EU were to mess with the running of the City by imposing regulations.

A lot of the money recently has come from China and Britain is very keen to be involved in the offshore trading of the Chinese renminbi. Thus, there is every prospect of Britain getting more action from a China, with foreign reserves of around US$4tril (RM14.68tril), looking for more ways to use the renminbi.

Joining the AIIB in such a fashion, not only brings with it the prospect of possibly getting a leg up in future AIIB projects, but also gains Chinese goodwill. But it is important not to exaggerate Chinese strength. It is a superpower only in the economic arena, and not in other spheres such as the military and political.

Militarily, the US far exceeds China in the amount of money spent and in technological sophistication. Politically, what China can at present offer cannot match the global impact of values associated with the US such as democracy and human rights.

Even in the economic sphere, the Chinese Gross Domestic Product is only equal in size to the US in purchasing power terms, and not in dollar terms where the US GDP is more than one and the half times that of China.

In per capita terms, US GDP is at least four times more. And the US is still far more advanced in the sophistication of its financial market and industrial structures.

The significance of this AIIB development is not a demonstration of raw Chinese economic power.

It is unlikely to do away with the WB or the IMF.

It is really another symptom, this time in Europe and in the financial arena, of the global centre of gravity shifting to Asia.

By Dr. Lee Poh Ping

> Dr Lee Poh Ping is a Senior Research Fellow at the Institute of China Studies in the University of Malaya. The views expressed here are entirely the writer’s own.


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The AIIB groundswell; Asian development to the fore

Washington's Lobbying Efforts Against China's 'World Bank' Fail As Italy, France Welcomed Aboard. The cheese really does stand alone. Every single U.S. ally with the exception of Japan have all hopped on board the Asian Infrastructure Investment Bank, or AIIB. Italy and France were approved on Thursday to become founding members, bringing the total membership base to 33 from the original 21.

The AIIB groundswell

Just in time for the deadline, an impressive coalition of countries have signed on for the newest development bank on the block

THE deadline of March 31 has passed, and 52 countries are now on the list of would-be founders of the Asian Infrastructure Investment Bank (AIIB).

The China-led bank was launched in October last year at the Great Hall of the People in Beijing, a year after Chinese President Xi Jinping proposed a bank to offer funds for development projects during his official visit to Indonesia.

The initiative would promote regional inter-connectivity and economic integration, he said when delivering a speech at the Indonesian Parliament.

In the past few days leading up to the deadline, news of more countries hurrying to join the AIIB made headlines, especially when a few of them announced the decision at the recently concluded Boao Forum in Hainan province, which Xi officiated.

The world was watching closely to see if the United States and Japan would sign up as founding members just before the deadline, but both have decided to opt out of the bank that is seen as a rival to the Western-dominated World Bank and International Monetary Fund.

Back in October last year, the bank had confirmation from 21 countries to participate as founding members – Malaysia was one of them – all of which are in the Asian continent.

The tipping point came when the United Kingdom announced its decision to join the AIIB in the middle of March, to the surprise of many.

More countries followed suit right after that, including France, Italy, Germany and Switzerland.

Martin Jacques, a senior fellow at the Department of Politics and International Studies at Britain’s Cambridge University, said the rise and growing awareness of the Chinese possibility in the context of a multilateral initiative pressed Britain to act the way it did, making AIIB not just an Asian institution but a global one.

“I think this is an extraordinary historical moment,” he said in a panel discussion during the Boao Forum.

“The new institutions (AIIB and the New Development Bank operated by Brazil, Russia, India, China and South Africa) do not necessarily conflict with the Bretton Woods institutions. They are very different.

“The developing countries now account for nearly 60% of global Gross Domestic Product and they represent 85% of the world population.

“The new institutions, unlike the Bretton Woods institutions, are being defined as relevant to the needs of this 85% of world population, most of whom are concentrated in this continent.”

Countries which have missed the March 31 deadline can still join as ordinary members, while those that have already submitted their application will find out if they are on the final list of founding members by April 15.

With an initial capital of US$50bil (RM184bil), AIIB is scheduled to be officially established at the end of the year, after the rules are finalised and signed in mid-2015.

New Zealand’s former Prime Minister Jenny Shipley said there is a need to define “infrastructure” to determine the types of projects that are qualified to obtain funding from the AIIB.

“If I could be provocative – if you were to put a diverse group of qualified women and men together and ask them the question, you’ll get a broader definition than if you just ask the question of classical male concept of buildings,” she said.

“We need to stand in the shoes of the people whose lives will be unleashed if we get this right. Just bringing in the classical morals of the same thing would not give us the breakthrough.”

Josette Sheeran, the president and Chief Executive Officer of the Asia Society, chipped in on this, citing Indian Prime Minister Narendra Modi’s agenda of building more toilets as an example.

“The reason young girls don’t go to school in India is that there is no toilet. That’s the kind of infrastructure that would really capture the mind of humanity and transform hope in the world,” she said.

Former Pakistan Prime Minister Shaukat Aziz was more concerned about the governance of the new banks, placing emphasis on professionalism, transparency and quality leadership.

“The people hired for AIIB must be professionals who know what infrastructure financing is all about,” he said.

“The quality of people will determine the ability of these banks to analyse risks to give money and to make credible loans which are payable back.”

Transparency, in the opinion of Deloitte global chairman Steve Almond, is also key to attract the private sector to come onboard.

“The regional or sub-regional projects are arguably the ones that bring the greatest impact to economic development. But because they go across the borders, they are also harder to manage and least likely to attract private sector capital,” he said.

“We need the mechanism to provide confidence to the private sector, and transparency governance is one of the compelling reasons to encourage them to come and join the projects.”

And what is the magic that would make good governance work?

Li Ruogum, former chairman and president of Export-Import Bank of China, believes in understanding.

“This newly established institution cannot just clone the older one, as we are working in a very different environment.

“We have to accumulate our experiences and need to have a mind of innovation. All should come together and understand each other, and try to achieve good governance.”

Check-in-China by Tho Xin Yi

 
Asian development to the fore

Chinese President Xi Jinping. - AFP  
Hungry for development: In 2013, President Xi Jinping proposed a new development bank, the Asian Infrastructure Investment Bank. One year later, 22 Asian countries had signed up, including 10 Asean countries - Blooberg

Asia’s need for better infrastructure and more development is too important to be held to ransom by outdated big power politics and petty posturing.

FOR many observers, the US “pivot” (later renamed “rebalancing”) to the Asia-Pacific was classic Obama: the rhetorical flourish was more dramatic than the policy substance.

In the second half of its first term, the Obama administration sought to assign two-thirds of its military assets to the Asia-Pacific theatre, up from the standard half from the even split between the Pacific and the Atlantic.

By the middle of its second term, officials were struggling to maintain a semblance of a policy largely left to coast under its steadily diminishing momentum. US foreign policy, and by extension US defence policy, appeared distracted by other concerns.

The State Department and the Pentagon seemed consumed at once by the Syrian debacle, Iraq’s instability, rising terrorism everywhere, civil war in Ukraine, Europe’s problems with Russia, Iran’s nuclear programme and an uppity Israel.

Then there were the ever-present ­budgetary constraints. Deploying another 16% of military assets to the Asia-Pacific, from half to two-thirds, seemed hardly noticeable or achievable.

Meanwhile, officials were anxious to insist that the rebalancing had nothing to do with the rise of China and its growing assertiveness in the region. It was, they said, part of efforts to preserve US strategic interests.

Whatever the choice of words, and however implicit China may be as motivation, rebalancing was fast becoming history. By March last year, a Pentagon official admitted it was going nowhere.

However, the Obama administration’s gift of verbalising policy intent made US intentions clear enough.

President Obama had famously said the US should be writing trade rules in the Asia-Pacific rather than let China do it.

Thus, the Trans-Pacific Partnership, a trade pact with controversial demands that swiftly became synonymous with US trade preferences. But China had not been idle either.

In 2013, President Xi Jinping proposed a new development bank, the Asian Infrastructure Investment Bank (AIIB). One year later, 22 Asian countries had signed up, including all 10 Asean countries.

In Asia, the world’s most promising continent for rapid economic growth, infrastructure needs for development are peaking. The IMF, World Bank and Asian Development Bank (ADB) can serve only a fraction of its needs: between 2010 and 2020 alone, some RM30tril is needed.

China set a deadline of March 31 this year for countries around the world to sign up as Prospective Founding Members (PFMs) before operations begin later in 2015. China would provide the biggest contribution to the authorised capital of US$100bil (RM363.49bil) and initial subscribed capital of US$50bil (RM181.75bil).

The US immediately saw this as a game-changer challenge to its dominance in global lending. For decades, it has controlled the World Bank, and through its European allies, the IMF and through its ally Japan, the ADB.

These institutions have been known to set tough conditions on debtor countries that may not serve domestic aspirations or national interests. A cash-rich China also felt it remained under-represented in these institutions even after becoming a leading global economy.

Washington had hoped, even expected, that its allies and friends would stay away from the AIIB as a rival institution. But like its pivot or rebalancing strategy, that hope steadily faded.

In Europe, Britain as the closest US ally was the first to sign up to the AIIB early last month. Soon, other major European economies like France, Germany and Italy followed, as did all the Scandinavian countries.

Washington then quietly pressured Japan, South Korea and Australia to stay away. But Seoul and Canberra signed up anyway. By then, the US had started to soften its stand, denying that it had ever pressured any country to stay away. It was only unsure if the AIIB would adhere to best practices in international lending.

Then, other US allies like Taiwan and Israel also signed up. The US was becoming increasingly isolated, with only Japan as the other major economy for company.

But not for long, perhaps. Last Monday, Japan’s ambassador to China, Masato Kitera, said in a Financial Times (FT) interview that Japan would join the AIIB as well, probably around June.

That came as a bombshell to the conservative Japanese government. It would seem too much of a betrayal of yet another US ally, the final one being the “unkindest cut of all”.

The next day, on the deadline for countries to sign up as PFMs for the AIIB, Tokyo denied that Ambassador Kitera ever said such a thing. Chief Cabinet Secretary Yoshihide Suga said Japan had no imme­diate plans to join the AIIB.

Besides being a US ally, Japan was also wary of the prospect of the AIIB undercutting the ADB.

Whatever the actual chances of Japan joining the AIIB, Tokyo would want to underplay it as much as possible.

Like the US, Japan said it was reluctant to sign up because of uncertainty over the AIIB’s standards. But countries such as Britain and Singapore that have joined said the best way to ensure high standards was to get on board and be part of the decision-making process.

To be part of that process, it was necessary to sign up early before the big decisions were made. The terms and conditions of lending and borrowing have still to be firmed up as dozens of countries including giants like India and Russia are already in.

The FT report also revealed that Japanese business leaders were pressuring their government to join the AIIB. Mitsubishi bosses, for example, had expressed confidence in Jin Liqun, a former senior ADB official who will head the AIIB.

On the deadline last Tuesday, China announced that 30 countries had been admitted as PFMs. More than a dozen others were in the queue.

Then a flood of criticisms and denuncia­tions of the stubborn US position came, mostly from within the US itself. Analysts and commentators, including in Forbes and The Economist, said the US administration had miscalculated badly in staying out, only damaging US long-term interests in East Asia and the Pacific.

Former US Secretary of State Madeleine Albright also condemned the US position, lamenting the way Washington had scored another own goal by rebuffing the AIIB. The US had placed itself behind the curve in changes in the Asia-Pacific rather than stay at the leading edge.

If and when Japan finally signs up, the US may have to be resigned to becoming a part of the AIIB. But as a latecomer, it may be limited to playing only a bit part such as an observer rather than sit at the main table.

China has long regretted the US fixation with what it calls a Cold War “them against us” bipolar mentality that frustrates progress on many fronts. For the countries of Asia hungry for more development, progress must not be held hostage to big power rivalry.

Ultimately, any rivalry between the US and China today is not over political ideology but economic ideology: the Washington Consensus of free trade rhetoric where the state and private industry are at odds with each other versus the emerging Beijing Consensus of close public-private partnerships that have worked so well for so much of Asia already.

US opposition to a proven formula for Asia is most unlikely to win friends and supporters anywhere, least of all in Asia.

By Bunn Nagara Behind the headlines

> Bunn Nagara is a Senior Fellow at the Institute of Strategic and International Studies (ISIS) Malaysia.

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