Premier of the People’s Republic of China, Li Keqiang, visits the UK for talks on trade between the two countries
The United Kingdom recently applied for membership to the Asia Infrastructure Investment Bank (AIIB), a development bank that came into existence on the 24th of October 2014 and is heavily dominated by China. The UK’s decision to apply for membership prompted criticism from the United States, which views the AIIB both as a means for China to exert influence over other countries through its financial might and a counterweight to American-led global financial institutions.
Ever since the Bretton Woods monetary system came into existence in the penultimate year of World War II, the United States has used the International Monetary Fund (IMF) and the World Bank to disseminate its ideology around the world and to influence the decisions of other countries. These institutions have relied on a quota system that allocates voting rights and responsibility for monetary contributions to nations based on national economic output. At the time of their inception — when Europe was reliant on US aid and the Soviet Union lay in ruins following the German Blitzkrieg — the US was the world’s dominant economic power and hence was able to make the Bretton Woods system its own.
Throughout the Cold War, the US exerted this influence on the IMF and the World Bank to deny aid to countries it thought “too leftist” and supply aid to countries that, despite having egregious human rights records, were capitalist and amenable to American interests. This US domination over global financial institutions has continued even after the end of the Cold War, at the expense of countries such as China that criticize what they believe to be an inequitable distribution of power at the IMF. Hence, the creation of the AIIB can be understood in the context of this US-led global financial order, in opposition to which China is now seeking to exert its own financial clout around the world.
The significance of financial institutions as a tool for exercising global hegemony is even more pertinent now than in preceding decades because of globalization and the breakdown of Cold War barriers, which have opened up the majority of the world’s economies to financial manipulation. It comes as no surprise, then, that the US views the AIIB as a way in which China intends to assert control over other countries and act as a countervailing force to the United States.
The US has already voiced skepticism over the AIIB, claiming that it does not meet the stringent requirements of global institutions such as, ironically, the IMF. It has also pushed its East Asian allies such as Australia and South Korea to show only lukewarm support for the Chinese initiative. Under such assiduous US opposition to the AIIB, the UK’s bid for membership to the bank has unsurprisingly led to alarm bells in Washington.
The United Kingdom becomes the first Western country to apply for membership to the AIIB, demonstrating the wide appeal of the bank. Despite only having a fifth of the capital of the IMF, the AIIB provides opportunities to fringe nations that have long been denied assistance by the IMF and the World Bank, and which feel that these institutions have continually been dominated by the West. The fact that the UK, a staunch US ally, is willing to join this Chinese-led bank is highly alarming for the US at a time when it is trying to circumscribe the rise of China. US support for India and countries such as Japan and South Korea — all of which are embroiled in territorial disputes with China — depict how the US is countering China’s growing power. The rules of the AIIB, similar to those of the IMF, would give China as much as 67% of the shares in the new bank, and hence a clout in the decision-making of the bank similar to what the United States has enjoyed in the IMF in the decades since 1944.
The United Kingdom’s bid for membership sharply contrasts with US foreign policy interests and brings the forthcoming struggle for hegemony between the US and China further to the fore. With Obama’s visit to India on India’s Presidential Day and the US upping the ante in eastern Asia to counter China’s increasingly expansionist foreign policy, the AIIB and the UK’s membership are sure to prove a stumbling block to US aspirations of countering Chinese expansion. However, with the US embroiled in a stalemate with Russia in Ukraine and Obama’s credibility coming into question after Syria’s “red line” and the Republican letter to Iran, the onus is on the White House to reassert its authority over foreign affairs. The UK’s application to the AIIB, moreover, demonstrates that Chinese-led institutions are now seen as viable alternatives to ones traditionally led by the US.
To be sure, China is still decades away from overtaking the United States as the global financial hegemon. However, as the Chinese economy catches up to that of the US, and America’s foreign policy continues to come under scrutiny, China has a very real chance of asserting more clout, especially in its immediate geographic vicinity.