Chinese Soft Power and the AIIB

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SEATTLE — Soft power can be defined as the use of economic or cultural incentives to influence international relations, as opposed to the more coercive hard power. Speaking about Chinese soft power, many organizations are making fighting poverty a key part of their development goals. One of the most prominent international organizations in this field is the multilateral Asian Infrastructure Investment Bank (AIIB), which is financed by multiple countries to invest in global, regional and local projects. Jan. 16, 2017 was the one-year anniversary of AIIB.

Seen as a part of a rising Chinese soft power presence, AIIB invests in vital regional infrastructure, and in 2015, the president of the World Bank stated an interest in collaborating with the AIIB. The first AIIB project was an electrification project in rural Bangladesh. The Distribution System Upgrade and Expansion project provided $165 million to connect 2.5 million properties to electricity and upgrade substations and power lines in North Dhaka, impacting 12.5 million people. It is set for completion in 2019.

With an investor country membership of 57, including four of the five permanent members of the United Nations Security Council, the AIIB is seen by the U.S. as part development bank, part Chinese soft power venture used to spread influence. China is the principal member of AIIB, and the U.S. is not involved at all. The AIIB has so far funded more than $1 billion to infrastructure projects in Oman, Myanmar, Pakistan, Bangladesh, Tajikistan and Indonesia, and has a capital base of $160 billion.

The bank has neither the capital base nor the reach of its older regional sibling, the Asian Development Bank (ADB), of which the U.S. and Japan are principal donors. China is also a long-time recipient of ADB projects. Comparably, the AIIB has half the capital base of the ADB, a smaller number of members and no U.S. funding. As of 2015, the U.S. had a 15.5 percent stake in the ADB, just behind Japan’s 15.6 percent, though Japan has contributed about $12 billion more to the ADB than the U.S.

The breakdown of democratic power in the AIIB, as with many development organizations, is largely based on capital input. China funds 33.4 percent of the budget and so has 28.8 percent of total voting power. Comparatively, all non-Asian region countries make up 21.5 percent of total investment and 23.3 percent of voting power. China has by far the most votes in the AIIB, with India and Russia coming in with 8.3 percent and 6.6 percent respectively. Outside of the Asian regional donors, Germany, France, and the United Kingdom each have 4.6 percent, 3.5 percent and 3.2 percent of total voting power. China still has a power of veto, though the institution’s president told the China Daily newspaper that China would not use this power.

The concern over China’s control of the institution is directly related to the types of projects it would be funding, and any reasoning it would have for denying funding to a particular country. For example, if China wanted to force Vietnam’s hand concerning the South China Sea territorial dispute, it could threaten to withhold funding for a project in Vietnam. In addition, the specific types of projects could largely benefit China rather than the host country. These concerns are valid for any development organization. The International Monetary Fund, for example, is often viewed as an extension of U.S. soft power, and there is a critique that IMF funding can actually hurt the recipient countries to the benefit of the donors.

When the United Kingdom joined the AIIB as a founding member in 2015, the U.S. government released a statement urging the U.K. to “use its voice to push for adoption of high standards at the AIIB.” This statement shows a perceived dynamic of a hegemonic power and its allies versus a rising power. It is important that the AIIB be a stakeholder-focused development institution, and the U.S. concerns, at face value, shouldn’t be discounted. The fact that Chinese president Xi Jinping spoke at the stakeholder-focused 2017 World Economic Forum gives hope for the authenticity of China’s intentions with the AIIB. The U.S. statement, by pointing out the need for high standards, seemed to paint the AIIB as an extension of Chinese soft power rather than a heartfelt initiative to fight global poverty.

From a realist perspective of power, the U.S. is right to be skeptical about the rise of China on the international stage. But if the U.S. is unwilling to share power, particularly when it comes to investment in impoverished countries, it appears paranoid and insecure. Disengagement from international affairs does nothing to build understanding between the two powers, much less check the growth of Chinese soft power. Rather than participating in the AIIB in good faith, the U.S. has chosen to let China take the reins and is likely to continue to do so under a Trump administration dismissive of foreign aid. An editorial in the Japan Times notes that as a strategic principle of democratic institutions, the best way to direct how organizations function is to do so from the inside.

Lucas Woodling

Photo: Flickr

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About Author

Lucas Woodling

Lucas lives in Lee’s Summit, MO. He has a BA in Political Science with a minor in International Studies. Lucas' interests include labor organization and empowerment and community-based economic cooperative enterprises. When not writing for The Borgen Project, Lucas writes, plays, and records atmospheric heavy metal, as well as mixing electronic dance music.

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