(The Political Economy of East Asia) Ming Wan (auth.) - The Asian Infrastructure Investment Bank_ The Construction of Power and the Struggle for the East Asian International Order-Palgrave Macmillan U
(The Political Economy of East Asia) Ming Wan (auth.) - The Asian Infrastructure Investment Bank_ The Construction of Power and the Struggle for the East Asian International Order-Palgrave Macmillan U
(The Political Economy of East Asia) Ming Wan (auth.) - The Asian Infrastructure Investment Bank_ The Construction of Power and the Struggle for the East Asian International Order-Palgrave Macmillan U
DOI: 10.1057/9781137593870.0001
The Political Economy of East Asia
Series Editors:
Ming Wan, George Mason University
Natasha Hamilton-Hart, the University of Auckland
Published by Palgrave Macmillan
CHINA ON THE GROUND IN LATIN AMERICA: Challenges for the Chinese and Impacts on
the Region
R. Evan Ellis
THE ASIAN INFRASTRUCTURE INVESTMENT BANK: The Construction of Power and the
Struggle for the East Asian International Order
Ming Wan
DOI: 10.1057/9781137593870.0001
The Asian
Infrastructure
Investment Bank:
The Construction of
Power and the Struggle
for the East Asian
International Order
Ming Wan
Professor, George Mason University, USA
DOI: 10.1057/9781137593870.0001
THE ASIAN INFRASTRUCTURE INVESTMENT BANK
Copyright © Ming Wang, 2016
Softcover reprint of the hardcover 1st edition 2016 978-1-137-59386-3
DOI: 10.1057/9781137593870.0001
Contents
List of Illustrations vii
Preface viii
List of Abbreviations xv
Appendix 106
Select Bibliography 120
Index 129
vi DOI: 10.1057/9781137593870.0001
List of Illustrations
Figures
Maps
Tables
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x Preface
news story in the Politics and the Nation section, President Obama
called Sen. Elizabeth Warren was ‘absolutely wrong’ about the Trans-
Pacific Partnership (TPP) Agreement under negotiation. Warren was
opposed to the TPP and viewed it as ‘an overlooked threat to the safety
of our financial markets’.4 The US government has framed the TPP as all
about making sure the United States rather than China write rules for
Asia. The TPP that excludes China was a reason for Beijing to create its
own institutions such as the AIIB, which in turn puts pressure on the US
government and the Japanese government to conclude the TPP.
I have summarized only a few stories relevant to the AIIB in a single
major newspaper’s one-day coverage. How should we handle the massive
information we are bombarded with every second then? One solution is
to utilize the computing power we now possess. In fact, there was a long
story in the same edition of the Washington Post about the big data we
now have about consumer lifestyles thanks to the proliferation of wear-
able devices.5 We political scientists are not in that stage yet. Even more
important, we need to tell computers the algorithms to make calcula-
tions unless we utilize artificial intelligence. Knowing is not the same as
problem solving, as recognized by the lead character cited in the news
story.
We may also rely on our own brains and experiences to process infor-
mation and reach conclusions. We are hardwired to see patterns, but are
influenced by implicit or explicit theories about the world we observe.
Are these theories useful or accurate? As a reminder of the limitation
of political science theory, the Washington Post noted that opinion polls
before the British election had all predicted a different outcome for the
British election, revealing that the preelection assumptions had been
wrong.6 Studies of electoral politics in the United States and other
advanced democracies are arguably the most sophisticated political
science research in the discipline.
I have adopted an evolutionary approach in this book in order to
analyze the development around the AIIB. Power should be understood
as a duality on at least two dimensions. First, power should be understood
as both the ends and the means. How much one wants power and how
one uses power is observable. However, the variation in choices relates
to the inherent competitive nature of the environment one is in. And
one’s own behavior contributes to how competitive that environment
becomes. Second, power practiced and power observed can be different.
Put together, one needs to be comfortable with the notion that an actor
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Preface xi
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xii Preface
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Preface xiii
I have written, taught or talked about the issues relevant for under-
standing the AIIB phenomenon. These issues include international
relations theory on power and order, the history of East Asian inter-
national orders, the American hegemony and postwar global economic
institutions, the Asian Development Bank (ADB) and Japan’s use of its
rising economic and financial power, China’s development model that
has gone global and Chinese president Xi Jinping’s ambitious policy
agenda. The AIIB is a fascinating case for research. Thus, a detailed study
should provide a necessary corrective to our conventional understand-
ing of international order, East Asian international relations and Chinese
foreign policy.
The book has five chapters. The first chapter examines the theor-
ies of power and international order. The next chapter illustrates what
seems common and peculiar about the East Asian international orders.
Chapter 3 studies how the Chinese have been constructing the AIIB and
sets the AIIB in the Chinese domestic context. Chapter 4 compares the
AIIB with the World Bank and the ADB. The last chapter analyzes the
AIIB factor in the struggle for hegemony in East Asia.
I want to thank Sara Doskow, Natasha Hamilton-Hart and an
anonymous reviewer for their support and useful comments on the
proposal. Jihye Lim provided able assistance for research that went into
the sections on ‘the branching of the political institutions in the world’
and ‘halting expansion of democracy’ in Chapter 2. She brilliantly made
the four maps used in the book. I also want to thank Erica Seng-White
for her excellent editorial assistance.
Figure 2.1 came from my previous publication: Wan, M. (2013) ‘Back
to Nature: An Achievement-Based Structural Assessment of the Modern
International System’, The Chinese Journal of International Politics, 6 (4),
401–428.
I spent the summer of 2015 working on the book manuscript, which
took me away from some family activities. My family’s support continues
to be central to my research and academic career.
Notes
1 G. Miller and S. Higham (2015) ‘US Struggles to Degrade Terrorists via
Twitter’, The Washington Post, 10 May, A1.
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xiv Preface
2 G. Witte and D. Balz (2015) ‘Britain Faces Crucial Choices’, The Washington
Post, 10 May, A1.
3 M. Birnbaum (2015) ‘Putin Mixes Pomp with Politics in Victory Parade
Snubbed by West’, The Washington Post, 10 May, A6.
4 Cited in G. Jaffe (2015) ‘Warren Is “Absolutely Wrong” on Trade Deal, Obama
Says’, The Washington Post, 10 May, A3.
5 A.E. Cha (2015) ‘The Human Upgrade: The Revolution Will Be Digitized’, The
Washington Post, 10 May, A1.
6 D. Balz (2015) ‘British Voters Shattered Pre-Election Assumptions’, The
Washington Post, 10 May, A2.
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List of Abbreviations
ADB Asian Development Bank
AfDB African Development Bank
AIIB Asian Infrastructure Investment Bank
CCIEE China Center for International Economic
Exchanges
CPEC China-Pakistan Economic Corridor
ECAFE Economic Commission for Asia and the Far
East of the United Nations
FTAAP Free Trade Area of Asia Pacific
G-7 Group of Seven
IBRD International Bank for Reconstruction and
Development
IDA International Development Association
IDB Inter-American Development Bank
IMF International Monetary Fund
ISIL Islamic State of Iraq and the Levant
ODA official development assistance
OPEC Organization of Petroleum Exporting Countries
PPP purchasing power parity
RTAA Reciprocal Trade Agreements Act
TPP Trans-Pacific Partnership Agreement
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1
Power, Order and Biogeography
Abstract: Wan examines the theories of power and
international order, the relationship between global
finance and sovereign states and a broader scientific field
of biogeography. The AIIB is a power move by a rising
great power vis-à-vis the status quo superpower. Wan
provides an alternative but unified framework to analyze
power. Logically and empirically, power can be both goal
and means. He follows a biogeographical approach that
emphasizes evolving processes rather than simply action
and reaction in a mechanical fashion. Evolution exerts
pressure on the content and intensity of power. He also
argues that power is both intrinsic and observer-relative.
Power is partially a social construction. We should
focus on what seems to come ‘natural’ for the players in
international relations.
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2 The Asian Infrastructure Investment Bank
Why should anyone care whether China or any country wants to take
a leading role in helping other countries construct highways, ports or
power plants? Before I answer that question, I simply want to point out
that people do care, which is why I am writing this book. Whether they
should, we know that political actors care about power and influence
associated with development finance. Thus, we need to understand the
concept of power and preferred international order based on both power
and larger purposes.
This chapter provides what I think is an appropriate analytical frame-
work for the AIIB. The AIIB is necessarily unique but we need to under-
stand what the underlying forces driving it are, which should also be
applicable for looking at other international relations issues. I have writ-
ten this book because I want to make a larger point based on my critique
of the prevailing approaches to international relations. But because this
is a fast book, I will not engage in theoretical discussion in great detail.
Rather, I will adopt a need-based approach.
The chapter examines the concept of power, the theory of international
order, the relationship between the global financial market and the
sovereign state, and briefly a broader scientific field of biogeography. The
US-China rivalry is fundamentally about the rules of the game for Asia.
The theory of international order thus provides an appropriate analytical
framework.
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Power, Order and Biogeography 3
In what some scholars call the prescience stage, power was understood
intuitively as it had been since before history. In the second stage, coin-
ciding with the behavioral revolution in Political Science some scholars
began to emphasize a precise definition and measure of power as an
analytical concept starting around 1950. A backlash emerged later due to
an assessment of limited progress made. Some would point out that we
should not treat power as atomistic.2 What is a valid indicator of power
in one period time may not be so in other periods. In the third stage,
rational choice has gained increasing influence in the discipline but
power is less emphasized in that framework.
Scholars have come to understand various aspects of power. We know,
for example, that power has different dimensions. Power assets may not
translate into actual influence. What is power in one area may not be
fungible in another. And we need to understand intention as well as
capacity.3 Fully aware of all these conceptual and measurement chal-
lenges, most IR scholars now adopt a pragmatic approach to power.4
In the following paragraphs, I will seek to provide an alternative but
unified framework to analyze power. To do so, I will go back to the early
studies of power when IR was emerging as a discipline in the United
States. Students who have studied IR theory should know the apparent
logical deficiency in Hans Morgenthau’s conceptualization of power.
Morgenthau, who aimed at making IR a scientific field, defined national
interest in terms of power.5 Power is a relationship or more precisely
‘man’s control over the minds and actions of other men’.6 I learned early
on in graduate school that Morgenthau had supposedly erred by confus-
ing power as end with power as means. Put simply, power cannot be
both goal and instrument.
Yet my research and observation for the past two decades has led me
to the conclusion that Morgenthau’s duality is intuitively more useful
than the later conceptualizations of power. Logically and empirically,
power can be both goal and means. Since power is highly desirable and
necessary, it makes sense that countries would want power. An analogy
is people pursuing wealth that can be used for achieving other objectives.
I am not concerned about the supposedly tautological problem. Power
pursued and power exercised are often not the same and they occur
at different points in time. More importantly, I follow an evolutionary
approach, which means that I use constitutive causality rather than linear
causality. Linear causality matches variation in the independent variable
and the dependent variable. However, from a biological perspective,
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4 The Asian Infrastructure Investment Bank
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Power, Order and Biogeography 5
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6 The Asian Infrastructure Investment Bank
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Power, Order and Biogeography 7
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Power, Order and Biogeography 9
The AIIB has rightly been framed as about international order. Hedley
Bull’s conceptualization of international order has had a profound
influence on IR scholars. Bull defines international order as ‘a pattern
of activity that sustains the elementary of primary goals of the soci-
ety of states, or international society’.29 Bull is viewed as a founding
member of the so-called English School of International Relations.30 The
English School of International Relations has also developed its distinct
branch of International Political Economy compared to their American
counterpart.31
The English School or British School of IR/IPE typically adheres to
reductionist, interpretative and qualitative methods. This school of
thought pays particular attention to institutions and history. In contrast
to the American School, the English School values social contexts more
and scientific methods less.32 Similar to the English School, I will provide
a discussion of the East Asian international orders in the pages that
follow as the historical and social context of current East Asian inter-
national relations and the AIIB.
Power is important in English School scholarship. Bull discussed the
relationship between balance of power and international order. A particu-
larly influential English School IPE scholar Susan Strange highlighted the
connection between power and a reserve currency in her groundbreak-
ing book Sterling and British Policy.33 As will be discussed later, China’s
AIIB initiative is connected with its yuan internationalization agenda.
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10 The Asian Infrastructure Investment Bank
One can imagine a title like Yuan and Chinese Policy, following a similar
approach to great effect.
I differ from the English School mainly in believing that IR should
be a scientific discipline.34 After all, I follow an evolutionary approach. I
assume that international order and what is composed of it continues to
evolve, following scientific principles if not scientific laws.
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Power, Order and Biogeography 11
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12 The Asian Infrastructure Investment Bank
political economy, different from the United States and Western Europe.
Thus, the way China is rather than the establishment of the AIIB itself
affects the international order. More broadly, China’s long traditions can
be expected to affect its goals and use of power. All these points will be
fleshed out empirically in the following chapters.
Biogeography
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Power, Order and Biogeography 13
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Power, Order and Biogeography 15
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Notes
1 P.C. Schmitter (2010) ‘Micro-Foundations for the Sciences of Politics’,
Scandinavian Political Studies, 33 (3), 316–330.
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Power, Order and Biogeography 17
2 D.A. Baldwin (1979) ‘Power Analysis and World Politics: New Trends versus
Old Tendencies’, World Politics, 31 (2), 161–194.
3 D.A. Baldwin (2002) ‘Power and International Relations’, in W. Carlsnaes, T.
Risse and B.A. Simmons (eds.) Handbook of International Relations (Thousand
Oaks, CA: Sage Publications), 177–191.
4 See, for example, J.S. Nye, Jr. (2011) The Future of Power (New York:
PublicAffairs).
5 H.J. Morgenthau (1973) Politics among Nations: The Struggle for Power and
Peace, 5th ed. (New York: Alfred A. Knopf), p. 5.
6 Ibid., 28.
7 Among political scientists, James Fearon and Alexander Wendt have
provided a good definition, contrasting causal theorizing and constitutive
theorizing. ‘Causal theorizing seeks to establish the necessary and sufficient
conditions relating a pre-existing cause to a subsequent effect in a more
or less mechanistic way. An assumption of such theorizing, therefore, is
that cause and effect are independently existing phenomena. Constitutive
theorizing, in contrast, seeks to establish conditions of possibility for objects
or events by showing what they are made of and how they are organized’. J.
Fearon and A. Wendt (2002) ‘Rationalism v. Constructivism: A Skeptical
View’, in W. Carlsnaes, T. Risse, and B.A. Simmons (eds.) Handbook of
International Relations (Thousand Oaks, CA: Sage Publications), p. 58. For a
discussion of various political science definitions of constitutive causality, see
R.N. Lebow (2009) ‘Constitutive Causality: Imagined Spaces and Political
Practices’, Millennium-Journal of International Studies, 38 (2), 211–239.
8 R.J. Huggett (2004) Fundamentals of Biogeography, 2nd ed. (London:
Routledge), pp. 187–216.
9 M. Mann (2012) The Sources of Social Power, Vol. 1, A History of Power from the
Beginning to AD 1760 (Cambridge: Cambridge University Press), p. 4.
10 Ibid., p. 30.
11 Ibid., pp. x–xi.
12 J.R. Searle (1995) The Construction of Social Reality (New York: Free Press), p.
16.
13 Mann, Sources of Social Power, pp. 34–70.
14 Ibid., p. 539.
15 The logic applied to the relationship between the Chinese empire and
nomadic empires. See O. Lattimore (1960) Inner Asian Frontiers of China
(Boston: Beacon Press), pp. 340–349; T. Barfield (1989) The Perilous Frontier:
Nomadic Empires and China (Cambridge: Blackwell); N. Di Cosmo (1999)
‘The Northern Frontier in Pre-Imperial China’, in M. Loewe and E.L.
Shaughnessy (eds.) The Cambridge History of Ancient China: From the Origins of
Civilization to 221 BC (New York: Cambridge University Press), pp. 960–966.
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Power, Order and Biogeography 19
36 B.J. Cohen (2010) ‘The Triad and the Unholy Trinity: Problems of
International Monetary Cooperation’, in J.A. Frieden, D.A. Lake and J.L. Broz
(eds.) International Political Economy: Perspectives on Global Power and Wealth,
5th ed. (New York: W.W. Norton), pp. 273–285.
37 S.D. Krasner (1976) ‘State Power and the Structure of International Trade’,
World Politics, 28 (3), 317–347; S.D. Krasner (1981) ‘Power Structures and
Regional Development Banks’, International Organization, 35 (2), 303–329.
38 L. Gruber (2000) Ruling the World: Power Politics and the Rise of Supranational
Institutions (Princeton: Princeton University Press).
39 R. Gilpin (2001) Global Political Economy: Understanding the International
Economic Order (Princeton: Princeton University Press), pp. 148–195.
40 R. Gilpin (1996) ‘Economic Evolution of National Systems’, International
Studies Quarterly, 40 (3), 411–431.
41 P.J. Katzenstein (2005) A World of Regions (Ithaca: Cornell University Press).
42 For introduction, see Huggett, Fundamentals of Biogeography; M.V. Lomolino,
B.R. Riddle and J.H. Brown (2006) Biogeography, 3rd ed. (Sunderland, MA:
Sinauer Associates); Cox and P. D. Moore (2010) Biogeography: An Ecological
and Evolutionary Approach, 8th ed. (Hoboken, NJ: John Wiley & Sons); M.V.
Lomolino, D.F. Sax and J.H. Brown (eds.) (2004) Foundations of Biogeography:
Classic Papers with Commentaries (Chicago, IL: University of Chicago
Press); D. McCarthy (2009) Here Be Dragons: How the Study of Animal and
Plant Distributions Revolutionized Our Views of Life and Earth (New York:
Oxford University Press); J.J. Morrone (2009) Evolutionary Biogeography: An
Integrative Approach with Case Studies (New York: Columbia University Press).
43 J.M. Smith (1990) ‘Explanation in Biology’, in Dudley Knowles (ed.)
Explanation and Its Limits (Cambridge: Cambridge University Press), p. 65.
44 Huggett, Fundamentals of Biogeography, p. 3; Morrone, Evolutionary
Biogeography, p. 6.
45 Morrone, Evolutionary Biogeography, p. 9.
46 For example, J. Greaves and W. Grant (2010) ‘Crossing the Interdisciplinary
Divide: Political Science and Biological Science’, Political Studies, 58 (2),
320–339; R.D. Masters (1990) ‘Evolutionary Biology and Political Theory’,
American Political Science Review, 84 (1), 195–210; R.D. Masters (1991) The
Nature of Power (New Haven, CN: Yale University Press); R.D. Masters (1996)
Machiavelli, Leonardo, and the Science of Power (Notre Dame, IN: University of
Notre Dame Press).
47 C. Bjornskov and M. Paldam (2012) ‘The Spirits of Capitalism and Socialism’,
Public Choice, 150 (3–4), 469–498; E. Gundlach and M. Paldam (2009) ‘A
Farewell to Critical Junctures: Sorting Out Long-Run Causality of Income
and Democracy’, European Journal of Political Economy, 25 (3), 340–354; J.G.
Hariri (2012), ‘The Autocratic Legacy of Early Statehood’, American Political
Science Review, 106 (3), 471–494.
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2
The East Asian
International Orders
Abstract: Wan provides a broad historical institutional
account of world political development to contextualize
East Asian international relations and the AIIB. There
have been entrenched civilizational centers in the Eurasian
continent, with China as one of them. With their distinct
evolutionary paths, the traditional centers of civilization
have had difficulty adapting to democratic institutions and
the trend continues. A major institutional development
may be simply a functional equivalent resulting from
convergent evolution or borrowing from competitors.
Political lineage matters in that it dictates distinct mixtures
of unique and universal ideational forces and gives clues
about the interaction effect. All the civilizational centers
view power acquisition as a central objective and use
power broadly understood as policy instrument. The AIIB
is a symbol of that historical trend.
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22 The Asian Infrastructure Investment Bank
For the past two millennia East Asia has gone through three stages of
international orders. These include the Chinese world order, modern
imperialism of the Western powers and Japan and American hegem-
ony. The Chinese world order lasted for about two millennia until the
mid-nineteenth century. Different from the Westphalian international
system, the Chinese world order was hierarchical and morality-based. It
operated as a tributary system with China on top most of the time. The
Europeans arrived in East Asia in the early sixteenth century but came to
dominate in all East Asia only after destroying the Chinese world order
in the late nineteenth century. Modern imperialism lasted less than a
century in East Asia, although much longer in Southeast Asia. European
powers forced modern sovereign states and capitalist economy on East
Asia, operating in a treaty system of open ports and extraterritoriality.
Much of East Asia was colonized in a legally equal Westphalian system.
As an exception, Japan embraced reforms after the Meiji Restoration of
1868 and grew quickly to join the rank of the imperialist powers after
1895. American hegemony established after World War II is now 70 years
old and counting.1 American hegemony differs from modern imperial-
ism in that it is a liberal democratic order. However, it shares the same
traditions as modern European imperialism. American hegemony of
course goes beyond East Asia. Yet the United States chose to emphasize
multilateralism in Europe and bilateralism in East Asia.2
Four features stand out in the East Asian international orders for the
past two millennia. First, East Asia had a long international relations
tradition distinct from that of the West. In all actuality, East Asia has
really experienced two international orders, one distinctly Asian and the
other Western. Both Western imperialism and American hegemony are
integral to the Westphalian system. Japan sought to establish its domin-
ance combining Western and Asian elements but failed.
Like every other Asian people, the Chinese are proud of their tradi-
tions, which they commonly refer to as ‘the world’s longest continuous
history’. They generally view China as the most important and powerful
country in Asia for much of the past two millennia and have a strong
sense of entitlement to be Asia’s leader again. That partly explains their
confidence in creating and leading the AIIB.
When Chinese seek to construct social reality, they necessarily draw
from their long traditions, although it is an empirical question how much
and in what way they may do so. On the basis of my past research, I hold
the view that the fact that China had a long distinct tradition does not
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The East Asian International Orders 23
mean that Chinese will necessarily favor them over modern experience.3
Rather, they can draw from a combination of traditions that are different
from those of other distinct historical regions such as the Middle East
and Europe. Put simply, they can realistically construct social reality that
is partially distinct. How much a particular tradition will be emphasized
is another empirical question.
Second, the pace of change in the East Asian international orders
has accelerated. While contemporaries and historians will see dramatic
events and transformations within the Chinese world order, what will
strike observers is how stable the system was from a historical compara-
tive perspective. We can argue rightly that the seeds for change were
already present within the Chinese world order, but there is no doubt
that the catalyst came from the West. East Asia has experienced a highly
volatile period of reforms, revolutions and revolts. The greater competi-
tive nature of the East Asian international relations and indeed the world
international system results largely from the fact that a politically frag-
mented Europe was particularly competitive, which led to innovations
4.5
3.5
2.5
1.5
0.5
0
1 1000 1500 1600 1700 1820 1870 1900 1913 1940 1950 1973 1992 2001 2008
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24 The Asian Infrastructure Investment Bank
that eventually paved the way for Europe to dominate the world and
accelerate competition globally in the process.
Growing competitiveness of the modern international system results
from and feeds back into innovative technologies and institutions. For
the first time in human history, we see a huge gap in performance by
different regions. As Angus Maddison has shown in his meticulously
gathered historical economic statistics, all the regions in the world had
similar GDP per capita until about 1700.4 I have argued previously that
if we make a simple manipulation of calculating a country’s relative size
of GDP divided by its relative size of population, we observe an even
sharper ‘achievement gap’ between the West and the rest. I argue that
such a sustained large gap is ‘unnatural’ and therefore inherently unstable
structurally.5
The competitive nature of the international system is far easier to
measure and forecast than individual choices. My own prediction is
that it should be less competitive and more stable. Emerging powers like
China and India have a large share of world population. Thus it is math-
ematically impossible for them to reach the height of achievement by
Western Europe, the United States and Japan. The rise of the rest means
a long-term trend to move ‘back to nature’.6 At the same time, how the
international order is being constructed right now is profoundly import-
ant. There are reasons to be concerned about the general trends in East
Asia.
Countries may respond to increased tension in different ways. East
Asia does not have a simple story of West advances and East responds.
The non-Western regions throughout the world faced similar challenges.
Yet East Asia is unique in that there were a few key countries such as
Japan and China that were not fully colonized by the West. This ensured
a degree of institutional continuity and national unity.
Third, power as a goal is prevalent in the strategic thinking in the
policy communities throughout East Asia. Power has always been intui-
tively understood broadly in the region despite much intellectual effort
to alter this understanding. Power has certainly been important for the
West, particularly at the start of the encounter when the West demon-
strated its superior brutal force.
Fourth, non-Western peoples have been expected to conform to the
Western international norms, standards and legal rules. Thus, scholars
have studied how West-defined and West-led international society
has expanded from Europe to the rest of the world, not necessarily
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The East Asian International Orders 25
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Sub- North Middle West South East Southeast North South
Europe Eurasia Oceania
sahara Africa East Asia Asia Asia Asia America America
American
Soviet Union
1960s hegemony
communist
nation-state
state
democracy
Scramble
for Africa 1607
1870s Jamestown
Mughal
empire
1500 1526
Columbus
Mongol empire 1492
thirteenth century
Islam rise starts
seventh century
221 BC China first
Alexander modern state
334–23 BC
City-state
democracy
60,000 BP
12,0000–
Africa 60,000 BP
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Note: The basic starting branching off followed the genotype study by Zhivotovsky et al. (2003).
The East Asian International Orders 27
the natural organizational drift that came from generational change and
the physical distance between communities that spread thinly across the
world.
Social barriers were also likely to be present when different lifestyles
shaped by different ecological environments came into contact with
one another. A German research team recently found the presence of
farmer immigrants from the Near East and indigenous hunter-gatherers
in Central Europe in the same cave. They conducted an analysis of bone
DNA and isotopes that helped determine different dietary habits between
the two groups. The team found that even though the two groups shared
the same burial site for 400–600 years they did not interbreed.8 That
fascinating scientific finding suggests the possibility that cultural norms
were stronger then than now. This example also gives us some reasons to
ponder the meaning of science. The finding was published in Science, one
of the most prestigious science journals in the world. Yet suppose social
scientists had access to the communities in the cave and conducted field
research. They then discovered that the two groups refused to mingle
even though they lived in close proximity due to strong social barriers
resulting from different lifestyles. I doubt that Science would consider
publishing that finding. However, the social science project is not inher-
ently inferior to the natural science project. The natural science project
is not based on a controlled experiment. Scientists cannot ethically and
practically put two groups in the same location for a few centuries to test
how they interact, nor can we predict that they would behave the same
way as the cave people studied in the project. While the methods used
are more precise and reliable, the science project can only infer about the
social barriers. By contrast, social scientists can study the social struc-
ture directly and are not prevented from conducting DNA tests to see
if interviewees are telling the truth. In the end, we need to think hard
about what counts as science broadly. As Jared Diamond has noted,
science is about ‘the acquisition of reliable knowledge about the world’.9
Put simply, rather than worrying whether one’s research looks scientific,
one should ask first whether reliable knowledge has been acquired.
We do not yet have sufficient evidence to make a definitive argument
about the nature and evolution of prehistorical political institutions.
Thus, I have left a gap in Figure 2.2, restarting the tree a few thousand
years BC. The figure does not capture the richness and dynamic of world
political history. It is a rough sketch of origins, evolutions and interac-
tions of political institutions.
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28 The Asian Infrastructure Investment Bank
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table 2.1 Systematics of political regimes
Location Time period Innovations Learning
Mesopotamia Middle East ,– BC Writing, cities, temples, stratification Pristine
Islam Arabian peninsula AD–present Universal values, integrating religion and politics Novel
Egypt North Africa ,– BC Writing, cities, temples, stratification Pristine
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Indus Valley South Asia ,–, BC Writing un-deciphered, cities, temples, stratification Pristine
Shang China East Asia ,–, BC Writing, cities, temples, stratification Pristine
Modern state China BC–present Centralized bureaucracy, civil service Novel
Minoan Crete Mediterranean ,–, BC Writing un-deciphered, cities, temples Diffusion from
Middle East?
Democracy city-state Athens, Greece BC– BC Town hall deliberation, government by eligible males Novel
Mesoamerica (Maya) Central America AD – Neolithic age tool technologies, stratification, Pristine
ceremonial centers, writing, the Long Count calendar
Peru South America AD – Neolithic age tool technologies, redistributive states Pristine
Inca AD – Writing equivalent, theocratic state, centralized Novel
administration
Sovereign states Western Europe –present Sovereignty, territoriality Novel
Democracy, nation- United States –present Federalism, government by people, for people, of Novel
state people
Authoritarianism Europe and Fifteenth century- Rule by individuals or a small group, limited political Partly novel
elsewhere present pluralism
Totalitarianism- Italy, German s Ideology, single party, mass mobilization Novel
fascism, Nazism
Totalitarianism- Russia Ideology, single party, mass mobilization Novel
Communism
30 The Asian Infrastructure Investment Bank
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The East Asian International Orders 31
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32 The Asian Infrastructure Investment Bank
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The East Asian International Orders 33
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34 The Asian Infrastructure Investment Bank
180
160
140
120
Number of countries
100
80
60
40
20
0
1800
1807
1814
1821
1828
1835
1842
1849
1856
1863
1870
1877
1884
1891
1898
1905
1912
1919
1926
1933
1940
1947
1954
1961
1968
1975
1982
1989
1996
2003
2010
Anocracies Autocracies Democracies
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The East Asian International Orders 35
Freedom_2014
Not free
Partly free
Free
heartland that stretches from Algeria to China and also reaches down to
a nondemocratic heart in the African continent.
Huntington discussed three waves of democratization. The first wave
began in 1828 and ended in 1926 with 33 democracies, with a reverse
wave from 1922 to 1942. The second wave spanning from 1943 to 1962
increased the number of democracies to 52 and was stopped by a reverse
wave from 1958 to 1975. The third wave began on April 25, 1974, in the
Portuguese capital and lasted until 1990.30 Larry Diamond built upon
Huntington’s waves of democracy in his book Spirit of Democracy, adding
another burst to the third wave from 1989 to the middle of the first
decade in the twenty-first century.31
The waves of democracy take place in time and space, following
a pattern of diffusion. It is interesting to see where democratic break-
outs happen and how and where democracy spreads. There should be
hidden or not-so-hidden barriers shaping the pattern of distribution of
democratization.
All three waves of democracy started from the West and were most
successful in European countries, former British settlements, Latin
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36 The Asian Infrastructure Investment Bank
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The East Asian International Orders 37
centers. Except India, none of the four ancient civilization centers is now
a democracy. China stands out in particular with its rapid economic
growth. In fact, China is providing a negative lesson about democracy
for some developing countries.
One may ask why we see such a democracy-resistant zone. Underlying
that specific question is a more fundamental question: why does democ-
racy not triumph more easily if it is such a good system? Biogeographers
ask similar fundamental questions about nature: ‘why hasn’t biotic
interchange been more complete? What processes are responsible for
the preservation of biogeographic provincialism, especially in organ-
isms that are good dispersers?’. The answer is: ‘Since biotic interchange
is due to dispersal and subsequent ecological success, the maintenance
of provincialism must be due largely to some combination of continued
isolation and resistance to invasion’.33 The same is true for patterns of the
dispersal of political institutions.
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38 The Asian Infrastructure Investment Bank
Conclusion
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The East Asian International Orders 39
view. This chapter has also highlighted democracy because China’s rise is
now viewed increasingly as presenting an alternative value system to the
United States.
The chapter shows that from a very long historical lens, there have
been entrenched civilizational centers in the Eurasian continent, with
China as one of them. They have been integral parts of the global process
but have been distinct in the scheme of things, importantly reflected in
their unique evolutionary paths. The traditional centers of civilization
have had difficulty adapting to democratic institutions and the trend
should continue. Geographical locations matter in and of themselves
and because of path dependence. If we combine distinct regional and
globalizing forces and consider the fact that social reality is constructed,
we know that there is nothing inevitable about what has happened and
nothing fully predictable about what will happen in the future. At the
same time, political lineage matters in that it dictates distinct mixtures
of unique and universal ideational forces and gives clues about the inter-
action effect.
Power matters. All the civilizational centers view power acquisition as
a central objective and feel entitled to it. They also use power broadly
understood as policy instrument. The key is to look at the whole range of
initiatives between the countries we want to compare, which would then
indicate systemically how close or distant they are. A major institutional
development alone cannot tell us that unless we situate it in the scheme
of things. It may be simply a functional equivalent resulting from conver-
gent evolution or borrowing from competitors.
What this historical context means is that China, as well as other great
powers that occupied the ancient centers of civilization, will have differ-
ent expectations and understanding of norms from the West and will
assert themselves more when a perceived balance of power is shifting in
their direction. The AIIB is indeed a symbol of that historical trend. The
United States has been able to collapse the layers of the world order and
Asian order to a large extent in the past decades. The United States is a
hegemon both in the world and in Asia. It is also widely believed in the
US policy community that the US-led world order will be in jeopardy if
Washington can no longer dominate in Asia. Thus, the AIIB does poten-
tially go to the heart of US-China rivalry about the rules of the game in
Asia.
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40 The Asian Infrastructure Investment Bank
Notes
1 M. Wan (2008) The Political Economy of East Asia: Striving for Wealth and
Power (Washington, DC: CQ Press), pp. 59–169.
2 Katzenstein, A World of Regions.
3 M. Wan (2015) ‘China and International Cooperation on the Environment:
Historical and Intellectual Roots of Chinese Thinking about the
Environment’, in G. John Ikenberry, Wang Jisi and Zhu Feng, eds., The United
States, China, and the Struggle for World Order: Ideas, Traditions, Historical
Legacies, and Global Visions (New York: Palgrave Macmillan), pp. 275–296;
M. Wan (2012) ‘Introduction: Chinese Traditions in International Relations’,
Journal of Chinese Political Science, 17 (2), 105–109.
4 A. Maddison (2008) ‘Historical Statistics of the World Economy: 1–2008 AD’,
3 September, http://www.ggdc.net/MADDISON/oriindex.htm. Date accessed
4 June 2014.
5 M. Wan (2013) ‘Back to Nature: An Achievement-Based Structural
Assessment of the Modern International System’, The Chinese Journal of
International Politics, 6 (4), 401–428.
6 Ibid.
7 See, for example, H. Bull and A. Watson (eds.) (1985) The Expansion of
International Society (Oxford: Oxford University Press); G.W. Gong (1984) The
Standard of ‘Civilization’ in International Society (Oxford: Oxford University
Press); Y. Zhang (1988) China in International Society (New York: Palgrave);
S. Suzuki (2013) Civilization and Empire: China and Japan’s Encounter with
European International Society (London: Routledge).
8 R. Bollongino, O. Nehlich, M.P. Richards, J. Orschiedt, M.G. Thomas, C. Sell,
Z. Fajkosova, A. Powell, J. Burger. (2013) ‘2000 Years of Parallel Societies in
Stone Age Central Europe’, Science, 342 (25 October), 479–481.
9 J. Diamond (2011) Collapse: How Societies Choose to Fail or Succeed (New York:
Penguin Books), p. 17.
10 For example, T. Ghose (2013) ‘Mysterious Minoans Were European, DNA
Finds’. LiveScience. 25 May, http://www.livescience.com/31983-minoans-were-
genetically-european.html. Date accessed 4 June 2014; J.W. Haas, W. Creamer
and A. Ruiz (2004) ‘Dating the Late Archaic Occupation of the Norte Chico
Region in Peru’, Nature, 432 (23 December), 1020–1023; J. Hughey, P. Paschou,
P. Drineas, D. Mastropaolo, D.M. Lotakis, P.A. Navas, M. Michalodimitrakis,
J.A. Stamatoyannopoulos, and G. Stamatoyannopoulos (2013) ‘A European
Population in Minoan Bronze Age Crete’, Nature Communications, 4 (1861),
14 May, http://www.nature.com/ncomms/journal/v4/n5/full/ncomms2871.
html. Date accessed 4 June 2014; A. Lawler (2007) ‘Middle Asia Takes Center
Stage’, Science, 317 (3 August), 586–590; C. Renfrew (1972) The Emergence of
Civilisation: The Cyclades and the Aegean in the Third Millennium B.C. (London:
DOI: 10.1057/9781137593870.0006
The East Asian International Orders 41
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42 The Asian Infrastructure Investment Bank
28 The data for democracies are from S.P. Huntington (1991) The Third Wave:
Democratization in the Late Twentieth Century (Norman, OK: University of
Oklahoma Press), pp. 13–16. Huntington included 33 democracies for 1926,
but he split Germany into West and East Germany. Population information
is calculated from Maddison, ‘Historical Statistics of the World Economy’.
I used the world total from 1820 for 1828 and 1920 for 1926 since there are
world totals for those years in the database. The 1926 share did not include
Iceland, Estonia, Latvia and Lithuania. Judging by their populations available
in 1950, they should have had a few million in 1926.
29 Freedom House (2014a) ‘Freedom in the World 2014’, http://freedomhouse.
org/report/freedom-world/freedom-world-2014?gclid=CPivs_
XOn74CFYw7Ogod7zsA0Q#.U20x68_D9LN. Date accessed 5 June 2014.
30 Huntington, Third Wave, pp. 13–30.
31 L. Diamond (2008) The Spirit of Democracy: The Struggle to Build Free Societies
throughout the World (New York: Times Books).
32 Fukuyama, Origins of Political Order, p. 187.
33 Lomolino, Riddle and Brown, Biogeography, p. 365.
34 Recent discoveries have strengthened the migration from Siberia theory.
J.C. Chatters, D.J. Kennett, Y. Asmerom, B.M. Kepm, V. Polyak, A.N. Blank,
P.A. Beddows, E. Reinhardt, J. Arroyo-Cabrales, D.A. Bonick, R.S. Malhi,
B.J. Culleton, P.L. Erreguerena, D. Rissolo, S. Morell-Hart, and T.W. Stafford
(2014) ‘Late Pleistocene Human Skeleton and mtDNA Link Paleoamericans
and Modern Native Americans’, Science, 344 (16 May), 750–754.
35 Searle, Construction of Social Reality, p. 2.
36 For a more positive analysis of Chinese exceptionalism, see H. Kissinger
(2011) On China (New York: Penguin Press).
DOI: 10.1057/9781137593870.0006
3
The AIIB Tied in a Belt
Abstract: Wan examines how China has been constructing
the AIIB, successfully. The AIIB is one of the major policy
initiatives such as ‘One Belt, One Road’ adopted by the
Chinese government to expand its influence overseas. The
AIIB seems ‘natural’ in the scheme of things. The Chinese
system of political economy remains distinct from that of
the United States and other major economies. Different
branches may shoot up from the Chinese tree. The AIIB is
a branch that is more acceptable than most other Chinese
initiatives such as the large-scale land reclamation projects
in the South China Sea. The more members the Chinese
government is able to attract to this international financial
organization, the more pressure there is on Beijing to follow
the existing international practices.
DOI: 10.1057/9781137593870.0007 43
44 The Asian Infrastructure Investment Bank
This chapter examines how the Chinese government has been construct-
ing the AIIB. The AIIB is an ‘artificial’ selection and one of a series of
major policy initiatives adopted by the Chinese government to expand
its influence overseas, including a ‘Silk Road economic belt’ and a
‘21st-century maritime Silk Road’. Thus, the chapter scrutinizes how the
AIIB initiative fits in the overall Chinese strategy and domestic politics.
Now that China has become a global economic power, there is greater
integration of its foreign economic policy and domestic politics and of
domestic and international players in its decision-making process. Yet
the Chinese system of political economy remains distinct from that of
the United States and other major economies.
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The AIIB Tied in a Belt 45
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The AIIB Tied in a Belt 47
countries. Lou said that the Chinese government had recently created
a preparatory committee. He also commented that some of the dozen
countries at the first working level meeting had expressed interest in
becoming founding members and the Chinese government was engaged
in bilateral talks with some countries.1
On 24 October 2014, China and 20 other countries signed the memo-
randum of understanding to form the AIIB, including Bangladesh,
Brunei, Cambodia, China, India, Kazakhstan, Kuwait, Laos, Malaysia,
Mongolia, Myanmar, Nepal, Oman, Pakistan, the Philippines, Qatar,
Singapore, Sri Lanka, Thailand, Uzbekistan and Vietnam. We learned a
few important features about the bank. It would be located in Beijing. It
would now be capitalized with $100 billion, half of which would be initial
capital (20 percent paid-in). The shares would be decided by the size of
a member state’s GDP, which would mean that China would have the
largest share. Yet Lou Jiwei said that China would not seek dominance
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48 The Asian Infrastructure Investment Bank
and its share would shrink with more members. The plan now would be
to complete the preparation and start operation by the end of 2015.2
On 9 November 2014, at the APEC summit in Beijing, Xi Jinping
highlighted the AIIB along with some other important initiatives. New
Zealand expressed interest in joining the AIIB in early January 2015.
On 6 March the Chinese finance minister announced that the number
of interested countries had increased to 27, including some European
countries.3
The avalanche
The Chinese government set 31 March 2015 as the deadline for becoming
a founding member. On 12 March, Great Britain became the first major
industrialized country to join the bank. This generated a snowballing
effect. It was immediately recognized by analysts that Britain’s member-
ship would provide a cover for countries like Australia and South Korea
that wanted to join the bank because of their close economic ties with
China but were fearful of backlash from the United States.4 On 17 March,
Germany, France and Italy decided to join. Three days later Switzerland
came on board. It was reported on the same day that Australia would
soon announce its intention to join. Australia formally made that
announcement on 29 March. South Korea joined the bank on 26 March.
On 28 March Russia and Brazil told media that they would join. By 29
March, 41 countries had decided to join the bank. As shown in Table 3.1,
57 countries became founding members, as announced by the Chinese
Finance Ministry on 15 April.
As the AIIB became more realistic, there also emerged concerns
about the bank competing against the World Bank and the ADB. This
will be discussed in greater detail in the next chapter. The Chinese
government developed several arguments. One is that there was need
for investment in infrastructure, citing the ADB study about needing $8
trillion for the purpose in 2010–2020. They also argued that the AIIB
does not compete with the World Bank and the ADB directly since the
two established banks focus on poverty alleviation. The AIIB was viewed
as complementing the existing institutions for cofinanced projects.
Moreover, the Chinese officials noted that the World Bank and the ADB
are overly bureaucratic and often advocate goals unrelated to business.5
The Chinese analysts were more explicit in their analysis. They generally
agreed that Asia has sufficient funding to support infrastructure but not
adequate platforms to mobilize financial resources. They thus saw the
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The AIIB Tied in a Belt 49
AIIB as China’s offering of public goods and complained that the United
States had been urging China to take on more international responsi-
bilities but was now apparently opposed to the idea. They did recognize
that the AIIB reflects the changing ‘global financial ecology’ and would
weaken the dominance of the West in global finance.6
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50 The Asian Infrastructure Investment Bank
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The AIIB Tied in a Belt 51
Nonregional shares may increase with new members but will not reach
beyond 30 percent. The AIIB is now scheduled to start operation by the
end of the year. Jin Liqun is still the presumed first AIIB president. The
bank will be headquartered in Beijing with possible regional centers
elsewhere. The working language is English. As reported previously, the
AIIB will differ from the existing international financial institutions by
having a nonresidential, nonpaid board of directors. It will also open
bids to all countries rather than just the member states.15 Greater detail
about the operation of the AIIB will be provided in the next chapter that
compares it to the World Bank and the ADB. On 6 July, the Chinese
government formally nominated Jin as the candidate for AIIB president.
The AIIB initiative came straight from the top, Chinese president Xi
Jinping himself. Thus, who Xi is and what he wants China to be is a
central question. We do not know for sure how successful Xi will ultim-
ately be and indeed what the standards for success will be defined. Yet
we do know that Xi has been far more ambitious than his two cautious
predecessors, has acquired more power and has been more willing to use
that power as well. Xi’s ideas have been highly publicized in China. Xi
Jinping’s book The Governance of China was issued in October 2014. The
book has also been translated into seven other foreign languages.
Is this a case that an assertive leader will necessarily emerge when a
country has arisen to a certain level? It might and might not be. The most
logical thing we can say is that a strong leader can but does not have to
rise in a rising country. We just have to accept that there are fundamental
uncertainties what people choose to do individually or collectively. The
fact is that Xi is more ambitious by Chinese standards.
The AIIB is firmly situated in Xi Jinping’s bigger initiative called ‘One
Belt, One Road’.16 Xi first discussed the idea about a ‘Silk Road economic
belt’ when visiting Kazakhstan in September 2013. In October of that
same year, Xi proposed a ‘21st century maritime Silk Road’ while in
Indonesia. On 28 March 2015, the Chinese government published its
plans for the initiative and identified the AIIB as playing an important
role in all this. China has committed $40 billion for a ‘Silk Road fund’. The
emphasis would be on transportation, energy and telecommunications.
Some compare China’s funding to the Marshall Plan. Xi is open about
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52 The Asian Infrastructure Investment Bank
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The AIIB Tied in a Belt 53
beneficial fashion for the country. The ‘One Belt, One Road’ initiative
was broader, including Southeast Asia as well as Central Asia and West
Asia, and more economic than political. One should immediately note
that the initiative is not meant to be overly confrontational with the
United States. The Chinese government has also been promoting other
regional schemes. In November 2014, Xi promoted FTAAP and pushed
to start the process of creating a roadmap to achieve that goal. Finally, in
the scheme of things, China has used its financial power in a way that is
not detrimental to the United States and Japan. After all, it lends trillions
of dollars to the United States and would to Japan if allowed. The AIIB is
also open to the United States and Japan, thus less provocative than the
Trans-Pacific Partnership initiative led by the United States and strongly
supported by Japan that explicitly excludes China.
At the same time, one should indeed see the strategic implications
of the Chinese initiatives. The geostrategic calculations are embedded
in the larger plan. As a case in point, when Xi visited Pakistan in April
2015, he pledged $46 billion of Chinese investment in the country by
2030. This will mainly go to infrastructure called the China-Pakistan
Economic Corridor (CPEC) to link China’s Xinjiang to Pakistan’s deep-
water port Gwadar to reduce dependence on the Malacca Strait. And
the economic corridor may go through Kashmir, which is contested by
India.24 Moreover, greater influence by China, however achieved, would
pose a greater challenge for the United States. The Chinese government
has also pursued assertive security policy in recent years.
I have discussed in the previous section how the AIIB has resulted from
an ambitious Chinese leader’s grand initiatives. At the same time, we
need to understand that the AIIB is consistent with the Chinese political
economy system.
The shorthand for the contemporary Chinese political economy
system is ‘the China model’. Having spent several years writing a book
on this very topic, I know firsthand that there is no easy way to charac-
terize the Chinese system. In my own thinking, the China model started
with Deng Xiaoping’s economic reform and opening in 1978. Therefore,
this is different from the revolutionary Mao model before then. It is hard
to pin down because it is multifaceted and evolves. Yet at its essence the
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54 The Asian Infrastructure Investment Bank
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The AIIB Tied in a Belt 55
Conclusion
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56 The Asian Infrastructure Investment Bank
Notes
1 Xinhua net, 7 March 2014, http://news.xinhuanet.com/politics/2014-
03/07/c_119658822.htm. Date accessed 6 November 2014.
2 Xinhua net, 24 October 2014, http://news.xinhuanet.com/finance/2014-
10/24/c_1112965880.htm. Date accessed 6 November 2014.
3 Reported in Mainichi shimbun, 6 March 2015, http://mainichi.jp/select/
news/20150307k0000m020027000c.html. Date accessed 6 March 2015.
4 J. Perlez (2015) ‘With Plan to Join China-Led Bank, Britain Opens Door
for Others’, New York Times, 13 March, http://www.nytimes.com/2015/03/14/
world/asia/asian-infrastructure-investment-bank-britain-china.html?_r=0.
Date accessed 14 March 2015.
5 Xinhua net, 24 October 2014, http://www.chinanews.com/gn/2014/10-
24/6715973.shtml. Date accessed 2 May 2015.
6 Xinhua net, 25 October 2014, http://news.xinhuanet.com/world/2014-
10/25/c_127139472.htm. Date accessed 6 November 2014.
7 Yomiuri shimbun, 16 May 2015, http://www.yomiuri.co.jp/economy/20150516-
OYT1T50008.html?from=ytop_main2. Date accessed 15 May 2015.
8 Nikkei shimbun, 16 May 2015, http://www.nikkei.com/article/
DGXLZO86882190W5A510C1FF2000/?n_cid=TPRN0005. Date accessed 15
May 2015.
9 Yomiuri shimbun, 22 May 2015, http://www.yomiuri.co.jp/world/20150522-
OYT1T50128.html?from=ytop_ylist. Date accessed 22 May 2015; Sankei
shimbun, 22 May 2015, http://www.sankei.com/economy/news/150522/
ecn1505220028-n1.html. Date accessed 22 May 2015.
10 M. Magnier (2015) ‘How China Plans to Run AIIB: Leaner, with Veto’, Wall
Street Journal, 8 June, available at http://www.wsj.com/articles/how-china-
plans-to-run-aiib-leaner-with-veto-1433764079. Date accessed 10 June 2015.
11 Yomiuri shimbun, 16 June 2015, http://www.yomiuri.co.jp/economy/20150616-
OYT1T50073.html?from=ytop_main5. Date accessed 16 June 2015.
12 World Bank, ‘Everything You Always Want to Know about the World Bank’,
http://treasury.worldbank.org/cmd/pdf/WorldBankFacts.pdf. Date accessed
17 June 2015; ADB (2014) ‘Capital Structure’, 31 December, http://www.adb.
org/site/investors/credit-fundamentals/capital-structure. Date accessed 17
June 2015.
13 Yomiuri shimbun, 17 June 2015, http://www.yomiuri.co.jp/economy/20150617-
OYT1T50019.html?from=ytop_ylist. Date accessed 17 June 2015.
14 Yomiuri shimbun, 29 June 2015, http://www.yomiuri.co.jp/economy/20150629-
OYT1T50068.html?from=ytop_main2. Date accessed 29 June 2015.
15 Asia Unhedged (2015) ‘China Gets 30 Stake in AIIB as Bank Takes Shape’,
Asia Times, 29 June, http://atimes.com/2015/06/china-gets-30-stake-in-aiib-
as-bank-takes-shape/. Date accessed 29 June 2015; G. Wildau and C. Clover
DOI: 10.1057/9781137593870.0007
The AIIB Tied in a Belt 57
(2015) ‘AIIB Launch Signals China’s New Ambition’, Financial Times, 29 June,
http://www.ft.com/intl/cms/s/0/5ea61666-1e24-11e5-aa5a-398b2169cf79.
html#axzz3ePJT0krw. Date accessed 29 June 2015.
16 For a useful analysis of the initiative, see Asia Center of the European
Council on Foreign Relations (2015) ‘One Belt, One Road: China’s Great Leap
Outward.
17 ‘Through a Fog of Hazy Slogans, the Contours of China’s Vision for Asia
Emerge’, The Economist, 11 April 2015, 41.
18 China News Agency, 28 March 2015, http://finance.chinanews.com/
cj/2015/03-28/7166871.shtml. Date accessed 8 April 2015.
19 Zhengquan ribao, 1 April 2015, http://finance.chinanews.com/stock/2015/04-
01/7175864.shtml. Date accessed 8 April 2015.
20 See for example Xinjiang’s top leader Zhang Chunxian’s talk with the AIIB
interim officials. China News Agency, 2 April 2015, http://www.chinanews.
com/gn/2015/04-02/7178289.shtml. Date accessed 8 April 2015.
21 China News Agency, 8 April 2015, http://www.chinanews.com/gn/2015/04-
08/7192994.shtml. Date accessed 8 April 2015.
22 See for example, Cao X., Financial Times Chinese site, 8 June 2015, http://
www.ftchinese.com/story/001062389?full=y. Date accessed 13 June 2015.
23 B. Goh and K.G. Qing (2015) ‘China-Backed Multilateral Bank to Take
Concrete Shape This Week’, Reuters, 28 June, http://www.reuters.com/
article/2015/06/28/asia-aiib-idUSKBN0P802E20150628. Date accessed 28
June 2015. For the information about CCIEE, see their website http://english.
cciee.org.cn/index.aspx.
24 China News Agency, 1 June 2015, http://www.chinanews.com/gn/2015/06-
01/7314706.shtml. Date accessed 1 June 2015.
25 M. Wan (2014) The China Model and Global Political Economy: Comparison,
Impact, and Interaction (New York: Routledge).
26 Mainichi shimbun, 28 June 2015, http://mainichi.jp/select/
news/20150628k0000m020109000c.html. Date accessed 28 June 2015.
27 Yomiuri shimbun, 28 June 2015, http://www.yomiuri.co.jp/world/20150628-
OYT1T50068.html. Date accessed 28 June 2015.
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4
The AIIB versus the World
Bank and the ADB
Abstract: Wan compares the AIIB with the World Bank
and the ADB, particularly at the moment of creation.
The World Bank was truly a novel international financial
institution but fully consistent with the American systems
and legal practices. Japan successfully built the ADB,
which was a hybrid of the World Bank and the Japanese
institutions. Yet it failed in its attempt to create a Japan-
led Asian Monetary Fund in 1997. The material and
ideational resources China is using to construct the bank
are not drastically different from those employed by the
Americans and Japanese. The AIIB is nested to the World
Bank and the ADB, thus firmly situated within the existing
international financial order. But China is now further
away from the US-led international structure.
58 DOI: 10.1057/9781137593870.0008
The AIIB versus the World Bank and the ADB 59
This chapter compares the AIIB to the World Bank and the ADB, particu-
larly at the moment of creation. Areas of comparison include the larger
international relations context and the embedded purposes and institu-
tional designs. Although China differs from the United States and Japan,
the AIIB reveals so far hybrid features that are only partially different
from the existing international financial institutions. The material and
ideational resources the Chinese government is using to construct the
bank are not drastically different from those employed by the Americans
and Japanese. This chapter also examines the US and Japanese reactions
to the AIIB initiative.
The United States did not start with the World Bank in its construction
of a liberal international economic order. It is generally agreed that the
United States turned to free trade with the Reciprocal Trade Agreements
Act (RTAA) in 1934, which changed the US trade policy institution and
prepared the country for future leadership in international trade. The law
mandated reciprocal tariff reduction and authorized trade agreements
approved by a simple majority rather than a supermajority stipulated in
the US Constitution.1 The RTAA case reveals a clear trace of how the
United States came to be the type of leader it did. For China, one may
trace a more liberal thinking to 1978 when Deng Xiaoping decided to
conduct economic reform and opening.
RTAA was adopted in a larger historical context of the United
States’s efforts to avoid a leadership role in the interwar period. Charles
Kindleberger famously argued that the Great Depression was inter-
national in nature and resulted from the absence of a stabilizing greater
power. ‘Britain could not act as a stabilizer, and the United States would
not. When every country turned to protect its national private interest,
the world public interest went down the drain and with it the private
interests of all’.2 The United States would learn a lesson and begin concep-
tualizing a world economic order under its leadership during World War
II. The United States built a liberal international order consistent with its
democratic, market economy domestic system.3 Some have challenged
what they view as myths about a liberal American hegemony.4 Yet my
own view is that a country does not have to possess complete domin-
ance to create an order. The United States was certainly more liberal than
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60 The Asian Infrastructure Investment Bank
any alternatives at the end of World War II. Unlike the previous British
hegemony, the United States endorsed what John Ruggie terms ‘embed-
ded liberalism’ in setting up intergovernment organizations for greater
international cooperation and building domestic welfare institutions to
cushion potential losers in sovereign states participating in free trade
against volatility in the global market.5
Along with the International Monetary Fund (IMF), the World Bank
was created during the negotiations at Bretton Woods in New Hampshire
before World War II ended. In hindsight, it seemed only natural that the
great power that won a great war would create a new international order.
Yet it was not obvious for contemporaries how this institution would
look like. In fact, E.S. Mason and R.E. Asher who wrote an authoritative
work on the World Bank noted that looking back, ‘one is struck by both
the magnificence of the achievement and the lack of prescience of the
founding fathers’.6 After all, there was no ready blueprint for the framers
of the Bretton Woods system. The Japanese would later benefit from the
World Bank experience when they were ready to build the ADB. The
Chinese are in a better still position in this regard.
While purposes were crucial in terms of the nature of the international
order, power was central to whether the international order could
be constructed in the first place. The United States had emerged from
World War II as a world hegemon. The World Bank was created based
on the American plan, with some input from Great Britain. Unlike the
United Nations General Assembly, the IMF and the World Bank do not
give equal voting power to their members. The United States contributed
$3.175 billion of the initial $10 billion capitalization and a 37.20 percent
voting power. The United States dominated and provided a larger share
of subscribed capital because Great Britain and others were not in a
strong financial position. They preferred that the United States take on
a bigger share of the burden in a development bank. Despite resistance
from Great Britain, the United States also secured the headquarters
in Washington, DC,7 US nationals by practice have always headed the
World Bank.
The Bretton Woods conference was held on 1–22 July 1944. The
44 allied nations that attended the conference signed the Articles of
Agreement on 22 July 1944. The US Congress passed the Bretton Woods
Agreements Act signed by President Harry Truman on 31 July 1945.
The Articles of Agreement were signed into effect by 28 countries on 27
December 1945 and the bank opened to business on 25 June 1946. Not
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The AIIB versus the World Bank and the ADB 61
every country that attended the Bretton Woods conference ratified the
Articles of Agreement. Most noticeably, the Soviet Union decided not to
join the IMF and the World Bank. Thus, the AIIB compares favorably to
the World Bank on this score.
The World Bank had 38 members in 1946. Currently known as the
World Bank Group, it has 188 members in its International Bank for
Reconstruction and Development (IBRD) and 172 members in its
International Development Association (IDA). The World Bank was
only part of a US strategy. Immediately after the war, the United States
resorted to a bilateral approach, launching the Marshall Plan to assist the
European countries in their reconstruction.
The World Bank has not moved in a straight line. Rather, it has
gone through different stages of lending policy driven by real world
challenges and ideological conventional wisdoms.8 With the Marshall
Plan for the European countries, the World Bank focused on the non-
European countries. The bank focused on infrastructure projects until
1968. Under Robert McNamara’s leadership from 1968 to 1980, the
World Bank emphasized basic human needs, and lending expanded in
size and in areas from infrastructure to social service. The bank took a
neoclassical ideological turn in the 1980s, focusing on market efficiency
and structural adjustment for indebted developing countries. The World
Bank has incorporated environmental protection and participation by
nongovernmental organizations since 1989.9 The World Bank has been
severely criticized for a whole range of issues, particularly its structural
adjustment loans that were perceived as worsening poverty in indebted
developing countries.10 Jim Yong Kim became World Bank president
in April 2012. He has discussed the funding needs for infrastructure
frequently in the context of increasing the scale of World Bank lending.11
The World Bank Group financed $24 billion of infrastructure projects or
nearly 40 percent of the total in fiscal year 2014.12
Japan joined the IMF and the World Bank in 1952 after regaining its
sovereignty earlier that year. Japan was a major beneficiary from the
IBRD in the early years and kept a low profile in the World Bank and the
IMF through the 1970s. With its rising economic power, Tokyo sought a
higher status in the global financial institutions in the 1980s. It achieved
a number two position in the World Bank in 1984 and a joint number
two position with Germany in the IMF in 1990. Yet Japan had more
limited policy influence, creating the image of a one-dimensional power.
In response, the Japanese attempt at greater intellectual and policy
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62 The Asian Infrastructure Investment Bank
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The AIIB versus the World Bank and the ADB 63
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64 The Asian Infrastructure Investment Bank
accept foreign aid and was influenced by how aid works based on their
collaborations with foreign donors, particularly Japan. In fact, there are
striking similarities between China’s aid program and Japan’s early ODA
projects.20
The World Bank leadership has sounded mostly supportive of the
AIIB. World Bank President Jim Yong Kim has repeatedly expressed
strong interest in cooperation with the AIIB. The AIIB would be yet
another regional development bank, adding to the existing ones. Kim
also observed that the funding need for infrastructure in the develop-
ing countries is ‘simply enormous’.21 In his recent visit to China, Kim
told journalists in Beijing on 17 July 2015 that the World Bank and the
AIIB would start discussions later in the year about specific cofinancing
projects.22 The AIIB would be more a challenge for the ADB than for
the World Bank. More broadly, the US government has not been overly
critical of the AIIB since its setback suffered when Great Britain decided
to join the AIIB on 12 March. Rather, the United States has focused on
what it does the best, namely, more motivated to conclude the TPP nego-
tiations and to shore up alliances and friendships with the East Asian
countries. By contrast, the Japanese leaders have been far more willing to
criticize the Chinese project.
The ADB is the institution that the AIIB competes against the most. The
ADB was founded on 22 August 1966, almost half a century ago and 20
years after the World Bank. The ADB now has 67 members, with 48 from
Asia. The Japanese media has been far more focused on the AIIB and its
implications for the ADB than the American media.
Why did Japan build the ADB? It seemed natural for Japan to take
such a step for those who wrote about the bank in the 1970s. There had
been an extensive practice of foreign aid by developed countries and
multilateral financial institutions. There was an Asian regional dynamic
for greater cooperation. Japan had recovered and was now looking
outward. Japan wanted greater prestige and influence.23 Japan would be
the first country to match the United States in its financial contributions
to a major international organization. Japan was ambitious. Japan sought
to establish a regional development organization less than ten years after
it regained sovereignty in 1952.
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The AIIB versus the World Bank and the ADB 65
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66 The Asian Infrastructure Investment Bank
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The AIIB versus the World Bank and the ADB 67
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68 The Asian Infrastructure Investment Bank
1983, three years after it joined the World Bank. Much of the negotiation
was about the Republic of China, which was an original member. After
a shuttle diplomacy conducted by Fujioka Masao, the ADB president,
China joined in March 1986 while Taiwan changed its name in the ADB
to ‘Taipei, China’.36 There was a long delay in China being accepted into
the ADB due to concern over greater financial burden on the bank and
US congressional opposition.37 Politics has always mattered for the ADB,
including its operations.
China has benefited from its ADB membership. With China’s rise, a
gap has emerged and grown between China’s growing economic power
and its voting share in the bank. When China joined the ADB, it was
given a voting share of 6.2 percent, slightly ahead of India (6.1 percent),
and behind Japan (12.5 percent) and the United States (12.3 percent).38
China’s voting share in the ADB has actually decreased over time. China’s
share decreased to 5.4 percent in 2006 while Japan’s share increased to
12.8 percent, therefore a 15 percent decrease relative to Japan.39 That ratio
between China and Japan remains largely unchanged. In fact, China
fares much better relative to Japan in the World Bank (64.6 percent of
Japan’s voting share) than in the ADB (42.6 percent).40
As Joel Rathus pointed out correctly in his 2008 article, China’s rising
power had not come at Japan’s expense in the ADB. Japan had begun
decreasing ADB loans to China due to concern over that country’s mili-
tary development. He did forecast potential tensions between the two
countries if China became an aid great power.41 If we look at the overall
Sino-Japanese relations, we realize that the ADB has not been a source of
tension. Now that we have the AIIB drama, one might go back and dig up
some issues related to China and the ADB. Mark Magnier of Wall Street
Journal, for example, has commented on two incidents. In 2009, China
attempted but failed to prevent an ADB project in an area in India that
China claims. In 2010, China blocked the ADB investigation of whether
an ADB environmental protection project in a coastal Chinese city had
treated the residents properly. The Chinese government proceeded with-
out ADB funding.42 Yet as a specialist who has followed Sino-Japanese
relations closely, I know that the ADB has virtually never come up
voluntarily for both the Chinese and Japanese experts and officials. The
two governments have had enough tensions since the start of the 2000s.
The ADB has not been one of them.
For the ADB infrastructure has traditionally been an important
component of its efforts though its declared policy preference is now
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The AIIB versus the World Bank and the ADB 69
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70 The Asian Infrastructure Investment Bank
the largest power being India. The Japanese believed that Australia and
South Korea would not join the bank. When New Zealand joined in early
January 2015 amid stories about Australia’s keen interest, the Japanese
became more concerned and paid particular attention to South Korean
moves. The British decision to join the AIIB was a shock for the Japanese
government. Prime Minister Abe Shinzō had previously been assured
by the Ministry of Foreign Affairs and Ministry of Finance that no G-7
country would join the AIIB. Much resentment against Great Britain
was expressed within the Japanese government but there was nothing
Japan could do about it. The Japanese became even more shocked when
continental European powers such as Germany and France decided to
join as well. They had explained away Britain’s decision as driven by
special circumstances such as the scheduled general election in May.
Abe had just met German Chancellor Angela Merkel eight days earlier.
They talked about the AIIB and Merkel did not give any indication that
Germany would join the bank according to Japanese media report.46
There was some support within the Japanese government to join as
well.47 On 20 March Finance Minister Asō briefly entertained the possi-
bility of Japan joining the AIIB if the bank met the standards of transpar-
ency in project decision and the environment, but both the chief cabinet
secretary and the foreign minister maintained a cautious stance.48 Asō
would toe the government line later. The Japanese Foreign Ministry and
Prime Minister Abe prioritized relations with the United States.49 With
Abe’s upcoming visit to the United States, Japan did not want to appear
to be breaking away from the United States. Another perceived oppor-
tunity was the end of June when the founding members would sign the
Articles of Incorporation. Yet Abe did not want to make a move so close
to his successful visit to the United States. Japan has a larger strategic
interest that is different from the distant European powers.
While it is difficult to predict what will happen, we already know
that the AIIB has added competition to the development institutional
landscape in Asia and beyond. In fact, the Japanese have already begun
to respond by adapting the ADB, something they would not have done
judging by the recent history of the bank and the reform-resistant nature
of the Japanese bureaucracy.
Pressure was building on the ADB even before the AIIB caught on. It
was reported in Japanese media after the British decision on 12 March
that the ADB now wanted to increase its financing by 1.5 times to around
$20 billion a year from 2017 on to compete for leadership with the AIIB.50
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The AIIB versus the World Bank and the ADB 71
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72 The Asian Infrastructure Investment Bank
setting up a special fund for the purpose. They also signed an agreement
with several major banks including HSBC Holdings and Bank of Tokyo-
Mitsubishi UFJ to accomplish this goal.
Besides increasing the capacity of the bank, the Japanese government
has also sought to differentiate the bank from the AIIB by emphasiz-
ing the quality of Japanese aid programs. That is exactly what Finance
Minister Asō said at a panel discussion at the annual meeting with the
Chinese present. Prime Minister Abe also made a similar pitch for high-
quality Japanese investment in infrastructure at the G-7 summit held in
Germany in May 2015.
Right before the G-7 summit, Abe had announced that Japan would
commit $110 billion to fund Asian infrastructure projects. This is a larger
amount of money than the AIIB subscribed capital. What is striking is how
drastically different Japan’s approach is now compared to its past. Japan
used to act regarding the ADB in a way suggesting that it did not particu-
larly care how much concrete benefits it would gain from the bank as long
as it maintained its high status.56 This is part of a broader change in Japanese
official development assistance (ODA) policy.57 There is little visible resist-
ance in Japan to this drastic change as if it is only natural. A long-term
economic slowdown and China’s intensifying competition have contributed
to this change, but such a sharp turnaround raises a fundamental question
about the nature of the Japanese political economy system. Although Japan
has been a mature, functioning democracy since the end of the World War
II, it is hardly liberal. Thus, a more nativist, nationalist instinct resurfaces
as soon as the system is under duress. In that context, Japan is focusing on
‘doing well’ rather than ‘doing good’ in its economic foreign policy.58
On 4 July, Abe pledged 750 billion yen ($6 billion based on the
exchange rate of the day) of ODA in three years starting in Fiscal Year
2016 to Thailand, Vietnam, Cambodia, Laos and Myanmar at the
Japan-Mekong summit held in Tokyo. Abe emphasized the importance
of the Mekong River region for Japan and ‘high-quality’ infrastructure
investment. The pledge is much bigger than the 600 billion yen pledge
in the previous three-year cycle. The Japanese media again saw the Abe
administration’s clear intention to counter the AIIB.59 Like the previous
Democratic Party of Japan administration, the Abe government has also
been promoting infrastructure exports as a way to bring Japan out of
a two-decade-long economic slowdown. Yet the Japanese have faced
tough competition from the Chinese who have been able to deliver large
infrastructure projects at a faster time and lower cost.
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The AIIB versus the World Bank and the ADB 73
It makes sense for the Japanese to emphasize quality given the higher
costs of Japan-exported infrastructure projects. Japan needs to go to that
niche and put China down at the same time. Yet a project has to be cost-
effective for the recipient countries. Sino-Japanese rivalry in this area
is fundamentally good news for the recipient countries given greater
quantity of assistance and a greater variety of products and services
available. Better infrastructure in East Asia, funded by whomever, would
be beneficial for all. Moreover, the competition will necessarily force
the Japanese to lower costs and the Chinese to improve quality, gener-
ating even more benefits for the recipient countries. The Chinese do not
appear threatened by Abe’s moves.60 They are on the rise and have proven
competitive with their aid packages that often are suitable for developing
countries. It is also arguably easier for China as a catch-up economy to
improve quality than for Japan as a mature economy to lower costs.
The Japanese keep talking about the importance of transparency.61 At
the same time, the integrational projects Japan and the United States
have championed are not transparent either. As a case in point, the
details of the TPP were not disclosed to the members of the Japan Diet
as late as early May 2015. The Japanese government made it clear on May
5 that the Diet members would be shown the detail of the negotiations
in the next week on the conditions that they not reveal the secrets.62 The
members of US Congress can view the texts in a secure room but cannot
discuss them in public. In fact, the content of the ongoing TPP negoti-
ations have been such a closely kept secret that WikiLeaks announced an
award of $100,000 to anyone who can get a copy of the TPP agreement.
WikiLeaks had already published some chapters of the agreement under
negotiations but had not been able to have its hand on the whole thing.63
The Japanese have also been talking about ‘governance’. Yet the ADB
did not take on this issue until the mid-1990s and only under US pressure.
The ADB adopted a board-approved policy on governance in October
1995. The governance issue was controversial for the multilateral devel-
opment banks because their articles of agreement typically emphasize a
principle of political noninterference. Recipient countries also typically
resent what they view as infringement upon their sovereignty. China
and a number of other ADB member countries were especially opposed
to any linkage between policy and capital. The ADB adopted a narrow
definition of governance. It chose the definition in the 1979 edition of
Webster’s New Universal Unabridged Dictionary that says that govern-
ance is ‘the manner in which power is exercised in the management
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74 The Asian Infrastructure Investment Bank
The World Bank, the ADB and the AIIB were created in different points
of time and the three key players were situated in different places in the
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The AIIB versus the World Bank and the ADB 75
global system. The United States was a world hegemon and especially
powerful in the economic and financial arena at the end of World War
II. The winning great power gets to restructure the postwar international
order. As a defeated and protected country, Japan sought to enhance
its standing within American hegemony, which largely explains why it
proceeded with the ADB project. The Japanese commentators viewed
the creation of the ADB in which Japan held as high a share of voting
power as the United States as indication of its growing importance in
world economy. By contrast, the Chinese government was willing to
push ahead without the United States.
Different from Japan, the Chinese government has been far more
assertive. The AIIB initiative came straight from the top, which partly
explains the fast pace of its creation. This difference results from differ-
ent positions the two Asian great powers occupy and the different nature
of their relationships with the United States. Japan was not as powerful
relatively speaking in the early 1960s as China is in the mid-2010s. Japan
was an ally with the United States and had been occupied by the United
States merely a decade ago. Japan wanted to elevate its position vis-à-vis
the United States but did not want to challenge the hegemon. In fact, the
Japanese government viewed securing US participation as central to the
success of the ADB project. Moreover, Japan did not want to shoulder
the financial burden alone. Conversely, the US government was initially
indifferent to the ADB initiative.68 By contrast, the China-led AIIB
greatly alarmed the United States.
In the scheme of things though, China has started at a slower pace
than Japan did with the ADB. Japan began to think about creating a
regional development bank merely ten years after regaining its sover-
eignty. By contrast, it took longer for China to take this step—34 years
after its opening and reform in 1978. One important reason is that Japan
was a developed country while China is yet to reach that stage.
The AIIB is commonly viewed in Japan as a rival with the ADB in
terms of membership: 67 for the ADB and 57 for the AIIB. But we should
also compare the two banks at their birth. The AIIB is relatively more
successful judging by the size of membership. The ADB was founded by
31 member states, which were divided into two categories of 19 regional
and 12 nonregional members. The 19 regional included Afghanistan,
Australia, Cambodia, India, Indonesia, Japan, South Korea, Laos,
Malaysia, Nepal, New Zealand, Pakistan, Philippines, Samoa, Singapore,
Sri Lanka, Taipei (China), Thailand and Vietnam. The nonregional
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76 The Asian Infrastructure Investment Bank
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The AIIB versus the World Bank and the ADB 77
centered in the Pacific Ocean and spread into Western Europe, Australia,
some Southeast Asian countries and India. It overlapped with the Cold
War divide. The AIIB membership overlaps with the ADB original
membership in Southeast Asia, South Asia and Oceania, but sharply
differs from the ADB in that it occupies almost all of the Eurasian
continent, plus two BRICS countries in Brazil and South Africa. Map 4.2
shows that the two banks now overlap much more, but still differ in the
ADB’s tilting to the Pacific and the AIIB centered in Eurasia.
With the AIIB, the Chinese intend to improve international financial
institutions. They view the World Bank and the ADB as overly bureau-
cratic, overstaffed and cumbersome. This is an assessment on which
some longtime World Bank insiders agree. On the eve of the official
signature for the Articles of Agreement on 29 June 2015, Jin Liqun,
the Chinese candidate to be the first AIIB president, told journalists
that the AIIB would learn both positive and negative lessons from the
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78 The Asian Infrastructure Investment Bank
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The AIIB versus the World Bank and the ADB 79
tionary linkage from the World Bank and the ADB to the AIIB even
though they took place in different historical contexts.
The World Bank was unquestionably the original multilateral devel-
opment institution. The ADB borrowed much from the World Bank.
Participants such as Watanabe had direct experience with the World
Bank. The World Bank also provided valuable advice. The ADB was thus
a strong functional equivalent to the World Bank within Asia. There were
necessarily institutional adaptations from the World Bank and existing
regional development banks such as the IDB and the AfDB.73
The ADB was nested to the World Bank and the West-led international
order. As discussed earlier, the ADB was officially created under the
auspices of ECAFE, a UN organization. There were also other nesting
links. For example, the ‘Agreement Establishing the Asian Development
Bank’ signed in December 1965 stated in Article 3 of Chapter 1 that
‘membership in the Bank shall be open to: (i) members and associate
members of the United Nations Economic Commission for Asia and
the Far East; and (ii) other regional countries and nonregional devel-
oped countries which are members of the United Nations or of any of
its specialized agencies’. The instruments of ratification or acceptance
needed to be deposited with the secretary general of the United Nations.
As discussed in the previous paragraph, there were all these experience-
based and personnel linkages with the existing institutions.
China has borrowed from both the World Bank and the ADB. China
did not need the filter of the ADB to learn about contemporary inter-
national financial system. China joined the World Bank six years before
the ADB admitted Beijing. China has gained practical experience from
its participation in the ADB just as it has gained experience from the
World Bank and other international organizations. Most noticeably, Jin
Liqun, the AIIB’s secretary general of the Multilateral Interim Secretariat,
worked as an ADB vice president (August 2003–July 2008). Jin also had
extensive experience working with the World Bank, including as an
alternate executive director to the World Bank groups in 1988. The AIIB
is nested to the ADB, the World Bank and other international financial
institutions just like the ADB before it. However, it is arguably less so than
the ADB. Such nestedness is an indication of evolution in international
financial institutions. As Coyne has argued, ‘the nested arrangement of
life is precisely what evolution predicts’.74 I argue that institutions that are
not evolutionary cannot be nested. The AIIB is evolutionarily linked to
the World Bank, the ADB and other postwar international institutions.
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80 The Asian Infrastructure Investment Bank
According to the Articles of Agreement for the AIIB, the bank defines
‘Asia’ and ‘region’ as ‘the geographical regions and composition classified
as Asia and Oceania by the United Nations, except as otherwise decided
by the Board of Governors’. And the AIIB membership is open only to
the members of the IBRD or the ADB. This is not convergent evolution
because of time difference. There were no historical precedents in China’s
own traditional institutions.
In Table 4.1 I compare the Articles of Agreement for the IBRD, the
ADB and the AIIB. The table reveals a striking similarity between the
three institutions, at least on paper. In the following paragraphs, I will
elaborate on a few evolutionary traits between the three documents.
The starting point for comparing international agreements is their
preambles and objectives. The Articles of Agreement for the IBRD (as
amended effective 27 June 2012) goes directly to five purposes, namely,
to assist reconstruction and development, promote private foreign
investment, promote balanced growth of trade, arrange loans for more
useful and urgent projects, and bring about a smooth transition from
a wartime to a peacetime economy. Both the ADB and AIIB Articles of
Agreements have a preamble that look similar except that the AIIB high-
lights infrastructure as its core mission. The ADB charter and the AIIB
charter both emphasize economic development and regional cooperation
as key purposes. Then the ADB charter lists six functions and the AIIB
lists four, which are similar to the listed purposes for the IBRD except
that they both emphasize the need to ‘promote investment in the region
of public and private capital for development purposes’, using identical
languages, for Function (i). The IBRD charter does not mention public
capital. Thus, the AIIB is more similar to the ADB than to the IBRD in
purposes. Note, however, that both the ADB and AIIB documents follow
the conventional format of international agreements.
In terms of membership, the AIIB is closer to the IBRD because it is
open to virtually all countries in the world. The ADB restricts nonre-
gional members to developed countries. Yet similar to the ADB, the
AIIB differentiates regional from nonregional member states and gives
preference to the former. The AIIB is fundamentally a regional financial
institution. What is defined as regional for the ADB is not exactly the
same for the AIIB. As shown in Table 3.1 Turkey is considered a nonre-
gional member at the ADB but a regional member at the AIIB.
Both the ADB and the AIIB follow the authorized and voting share
model established by the IMF and the World Bank. Yet the AIIB is closer
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The AIIB versus the World Bank and the ADB 81
table 4.1 The AIIB versus the IBRD and the ADB
IBRD ADB AIIB
Continued
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82 The Asian Infrastructure Investment Bank
to the IBRD in terms of basic votes that are distributed equally among
member states. The AIIB has a 12 percent basic vote arrangement,
compared to 5.55 percent for the IBRD and 20 percent for the ADB. Both
Japan and the United States had hoped to keep the basic vote ratio to
10 percent but to no avail before the founding of the ADB. The AIIB
innovated by giving the founding members 600 votes, differing in prac-
tice from the IBRD and the ADB. Unlike both the IBRD and the ADB,
the AIIB has given greater prominence to emerging powers like India.
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The AIIB versus the World Bank and the ADB 83
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84 The Asian Infrastructure Investment Bank
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The AIIB versus the World Bank and the ADB 85
about these features and have made them more important independent
of their intrinsic importance for an organization. At the same time, if we
follow the definition of regime change by international regime theory, the
AIIB constitutes change within a regime rather than change of a regime
because it does not challenge the fundamental purpose and norms of
the existing international organizations.76 As a comparison, the AIIB is
nothing similar to the Organization of Petroleum Exporting Countries
(OPEC) that is an illiberal production cartel.
Since the AIIB is yet to start its lending operation, we cannot compare
it to the World Bank and the ADB in that regard yet. Yet my discus-
sion previously in the chapter should show that it is not always easy to
compare the AIIB to the World Bank because the latter has gone through
different stages of ideologies and lending practices. In some way, the
AIIB looks similar to the early stage of the World Bank that also focused
heavily on income-generating big projects.77 We can imagine the growth
of the World Bank as a crooked tree. It is then difficult to compare the
ADB or the AIIB against it. One can imagine a three-dimensional grove
of institutional trees. Closeness or distance would look different when
we look at the trees in the grove from different angles.
We should expect to see conflictual forces at work. The Chinese
government faces a dilemma even if it wants to differ completely from
the existing institutions. This is not the case because a successful insti-
tution needs to attract more member states. Success ironically would
reduce its control over the direction and operation of the bank. If we
look into the organizations more closely, we see the active participants
in the AIIB and other financial institutions know each other and have all
largely been socialized into a similar mindset.
Conclusion
The World Bank was truly a novel international financial institution but
it was fully consistent with the American systems and legal practices.
The United States has overtime reduced financial support for multilat-
eral institutions and become seemingly more focused on military and
defense. This has opened up the institutional landscape for newcomers.
Moreover, US resistance to expanded Japanese role in the ADB and other
regional institutions made it more possible for China to fill up the vacant
institutional space.
DOI: 10.1057/9781137593870.0008
86 The Asian Infrastructure Investment Bank
Notes
1 M. Bailey, J. Goldstein, and B. Weingast (1997) ‘The Institutional Roots of
American Trade Policy’, World Politics, 49 (3), 309–338.
2 C.P. Kindleberger (1986) The World in Depression, 1929–1939, revised and
enlarged ed. (Berkeley: University of California Press), 290–291.
3 G.J. Ikenberry (2012) Liberal Leviathan: The Origins, Crisis, and Transformation
of the American World Order (Princeton: Princeton University Press).
4 A. Acharya (2014) The End of American World Order (Cambridge: Polity
Press), pp. 33–45.
5 J.G. Ruggie (1982) ‘International Regimes, Transactions, and Change:
Embedded Liberalism in the Postwar Economic Order’, International
Organization, 36 (2), 379–415.
DOI: 10.1057/9781137593870.0008
The AIIB versus the World Bank and the ADB 87
6 E.S. Mason and R.E. Asher (1973) The World Bank since Bretton Woods
(Washington, DC: The Brookings Institution), p. 1.
7 Ibid., pp. 11–33.
8 P. Krugman (1995) ‘Cycles of Conventional Wisdom on Economic
Development’, International Affairs, 71 (4), 717–732; W. Easterly (2014) The
Tyranny of Experts: Economists, Dictators, and the Forgotten Rights of the Poor
(New York: Basic).
9 G.A. Cornia, R. Jolly and F. Stewart (eds.) (1987) Adjustment with a Human
Face: Protecting the Vulnerable and Promoting Growth (New York: Oxford
University); P. Mosley, J. Harrigan and J. Toye (1995) Aid and Power: The
World Bank and the Policy Based Lending, Vol. 1, Analysis and Policy Proposals,
2nd ed. (London: Routledge); M. Goldman (2005) Imperial Nature: The World
Bank and Struggle for Social Justice in the Age of Globalization (New Haven: Yale
University Press).
10 R. Peet (2009) Unholy Trinity: The IMF, World Bank and WTO, 2nd ed. (New
York: Zed Books); T.W. Pogge (2002) World Poverty and Human Rights:
Cosmopolitan Responsibilities and Reforms (Cambridge: Polity Press); N.
Woods (2006) The Globalizers: The IMF, the World Bank, and Their Borrowers
(Ithaca, NY: Cornell University Press).
11 See, for example, his interview with the Wall Street Journal, 22 June 2015,
http://www.wsj.com/articles/jim-yong-kim-on-progress-in-emerging-
nations-1434739648. Date accessed 22 June 2015; J.Y. Kim (2014) ‘Tackling
the Most Difficult Problems: Infrastructure, Ebola and Climate Change’,
at IMF/World Bank annual meeting, Washington, DC, 10 October, http://
www.worldbank.org/en/news/speech/2014/10/10/speech-world-bank-group-
president-jim-yong-kim-tackling-difficult-problems-infrastructure-ebola-
climate-change. Date accessed 22 June 2015.
12 Jim Yong Kim, ‘Tackling the Most Difficult Problems: Infrastructure, Ebola
and Climate Change’, at IMF/World Bank annual meeting, Washington,
DC, 10 October, http://www.worldbank.org/en/news/speech/2014/10/10/
speech-world-bank-group-president-jim-yong-kim-tackling-difficult-problems-
infrastructure-ebola-climate-change. Date accessed 22 June 2015.
13 M. Wan (2001) Japan between Asia and the West: Economic and Strategic Balance
(Armonk: M.E. Sharpe), pp. 126–150.
14 N.R. Lardy (1999) ‘China and the International Financial System’, in E.
Economy and M. Oksenberg (eds.) China Joins the World: Progress and
Prospect (New York: Council on Foreign Relations Press), pp. 206–230.
15 G. Chin (2012) ‘Two-Way Socialization: China, the World Bank and
Hegemonic Weakening’, Brown Journal of World Affairs, 19 (1), 211–230.
16 World Bank, ‘World Bank Finances’, https://finances.worldbank.org/
Shareholder-Equity/IBRD-Statement-of-Subscriptions-to-Capital-Stock-a/rcx4-
r7xj#column-menu. Date accessed 1 July 2015.
DOI: 10.1057/9781137593870.0008
88 The Asian Infrastructure Investment Bank
17 L. Summers (2015) ‘A Global Wake-Up Call for the US?’ The Washington Post,
6 April, A17.
18 B. Robertson (2015) ‘Bernanke Blames US Congress for Pushing China
to Launch AIIB’, South China Morning Post, 3 June, http://www.scmp.com/
business/banking-finance/article/1815568/bernanke-blames-us-congress-
pushing-china-launch-aiib. Date accessed 6 June 2015.
19 D. Kopinski and Q. Sun (2014) ‘New Friends, Old Friends? The World Bank
and Africa When the Chinese Are Coming’, Global Governance, 20 (4), 615.
20 M. Wan (2015) Understanding Japan-China Relations: Theories and Issues
(Singapore: World Scientific), pp. 200–201.
21 Kim, ‘Tackling the Most Difficult Problems’.
22 Nikkei Shimbun, 17 July 2015, http://www.nikkei.com/article/
DGXLASGM17H5B_X10C15A7FF1000/?dg=1. Date accessed 17 July 2015.
23 P.-W. Huang, Jr. (1975) The Asian Development Bank: Diplomacy and
Development in Asia (New York: Vantage Press), pp. 11–18; D.T. Yasutomo
(1983) Japan and the Asian Development Bank (New York: Praeger), pp. 24–26.
24 For the draft private plan, see T. Watanabe (1977) Toward a New Asia (Manila:
ADB), pp. 3–4.
25 For the role of ECAFE, see R. Krishnamurti (1977) ADB: The Seeding Days
(Manila: ADB).
26 Huang, Asian Development Bank, pp. 16–43.
27 Yasutomo, Japan and the Asian Development Bank, pp. 39, 52.
28 Watanabe, Toward a New Asia, pp. 1–2.
29 Krishnamurti, ADB, p. 3.
30 Ibid, p. 43.
31 Ibid., pp. 75–78.
32 S. Park (2014) ‘Institutional Isomorphism and the Asian Development Bank’s
Accountability Mechanism: Something Old, Something New, Something
Borrowed, Something Blue?’ Pacific Review, 27 (2), 217–239.
33 C.S. Chin (2015) ‘What Is Next for the AIIB?’ Japan Times, 1 July, http://www.
japantimes.co.jp/opinion/2015/07/01/commentary/world-commentary/whats-
next-aiib/#.VZXymijOCwA. Date accessed 2 July 2015.
34 Wan, Japan between Asia and the West, pp. 150–170.
35 R. Wihtol (1988), The Asian Development Bank and Rural Development: Policy
and Practice (New York: St. Martin’s Press).
36 D. Wilson (1987), A Bank for Half the World: The Story of the Asian Development
Bank 1966-1986 (Manila: ADB), pp. 269–272.
37 Wihtol, Asian Development Bank and Rural Development, p. 102.
38 Ibid., p. 102.
39 J. Rathus (2008), ‘China, Japan and Regional Organisation: The Case of the
Asian Development Bank’, Japanese Studies, 28 (1), 92–93.
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The AIIB versus the World Bank and the ADB 89
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90 The Asian Infrastructure Investment Bank
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The AIIB versus the World Bank and the ADB 91
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5
A New Hegemonic
Order in Asia?
Abstract: The AIIB is a major diplomatic success for
China. China has the necessary financial power to
accomplish its objective. Virtually every country has
accepted China’s leading role in a financial institution, a
global social reality construction process that legitimizes a
greater Chinese influence. But the global financial market
affects China just like anyone else. The AIIB does not
measure up to the ordering projects by the United States.
Yet it still constitutes more of a change to the status quo
powers than the Japanese attempt at institution building.
While the AIIB is a hybrid borrowing much from the
existing international order, the birth and operations of
such institutions will weaken the liberal international
order because the dominant country in it is not a liberal
democracy.
92 DOI: 10.1057/9781137593870.0009
A New Hegemonic Order in Asia? 93
Why did China choose to build this AIIB? The answer is straightfor-
ward. The Chinese government under Xi Jinping is seeking greater inter-
national influence that also addresses China’s domestic challenges. What
does the case say about China’s power and strategic competency? This is
a harder question to answer.
The AIIB is a major diplomatic success for the Chinese government.
China has the necessary financial power to accomplish its objective in
this area. Beijing’s commitment of $6 billion paid-in capital for the AIIB
is nothing in the scheme of things. The Chinese government has commit-
ted infrastructure funding all around the world. China has pledged $250
billion in infrastructure investment in Latin America in the next decade.
China has poured investment money into Africa for over a decade now.
The ‘One Belt, One Road’ initiative simply adds more financial resources
to a region in which China has already invested significantly. According
to the Chinese government statistics, China has an FDI stock of $161.2
billion in 64 countries along the belt and road as of May 2015, which is
20 percent of its overall outward FDI.1 One needs to be mindful of these
large numbers of financial commitment, some of which are exaggerated or
double-counted. Yet China has invested in a major way around the world.
The global financial market affects China just like anyone else. The
recent Chinese stock market crash is a case in point. China is not immune
to the volatility of the global financial market. At the same time, China
can mobilize more financial resources at this point because of relatively
low entitlements and the dominance of the Chinese state.
What matters here is why China has chosen to use its financial power
in this particular way and what objectives it has chosen to advance. The
Chinese government has been assertive in terms of the goals it has set for
itself, namely, greater influence in global finance and Asian geoeconom-
ics and geopolitics. However, it has not been heavy-handed in its actual
conduct in this case. What is notable is how little expressed discord there
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94 The Asian Infrastructure Investment Bank
has been. Some Japanese journalists reporting on the AIIB have apparently
been searching for any sign of trouble that supports their assertion that
China would not succeed. Yet they have had precious little to report in this
regard. On the contrary, we read reports of the Chinese government being
magnanimous rather than vindictive in their wooing of new members. As
a case in point, even though Australia and South Korea appeared to pull
away from the AIIB in late 2014 due to US pressure, the Chinese govern-
ment signed free trade agreements with them instead of saying any harsh
words.2 Beijing has also openly extended invitation to the United States and
Japan to join the bank. A key reason for China’s interest in having developed
countries join the AIIB is to boost the credit rating of the bank in the finan-
cial market. In a way, the more successful in attracting new members, the
more ‘constrained’ Beijing would be in running the bank. The fact that we
hear little open complaint from the developed country members is that the
Chinese government is addressing their concerns. Australian Treasurer Joe
Hockey announced on 24 June 2015 that Australia would contribute $720
million of paid-in capital as the sixth largest shareholder in the AIIB. He
said that Australia had initial concerns but was now confident that China
will ensure ‘appropriate transparency and accountability’ in the bank.3
What is striking about the AIIB case is how quickly virtually every
country has accepted China’s leading role in a financial institution, as
discussed in Chapter 3. Although we cannot predict how any rising
power would behave in a particular area we can determine whether
what it has done can be explained for what reasons. Fundamentally,
we observe a global social reality construction process that legitimizes
a greater Chinese influence in global finance. China is aware of that
expectation and is now actively pushing the process further along.
Yet there are also natural limitations to how much Beijing can do. In
a way, it would not be realistic for the Chinese government to act overly
aggressively because it would be hard to force people to join their multi-
lateral institutions against their will. Besides, the Chinese government
has recently suffered a major defeat. After the Chinese fishing boat
collision incident in September 2010, the Chinese government used its
dominance in rare earths supplies as a weapon against Japan. However,
this tactic has backfired. China abolished its export quota in January 2015
after losing the case in the WTO and then removed export tariffs on rare
earths in May. China lost badly in this fight.4 Like every other country in
the world, China is both powerful and weak.
Liberal institutionalism helps to partially explain China’s conduct around
the AIIB. As liberal institutionalists would predict, China has chosen to
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A New Hegemonic Order in Asia? 95
create the AIIB because the bank presumably gives Beijing something
valuable not readily available in the bilateral route. At the same time, the
AIIB would condition China’s behavior just as the World Bank for the
United States and the ADB for Japan before China. It is well recognized
inside and outside China that it takes more than brute financial power to
make an intergovernmental financial institution work. Ironically, the more
successful China becomes in attracting member states, the more it has to
accommodate them and see its relative power diminish in the process.
Moreover, if we look beyond the AIIB, we see that China cannot seek to
dominate in all the financial institutions. It needs to share influence and
prestige to allow these institutions to succeed. The Development Bank
of the BRICS is a case in point. Although the bank is headquartered in
Shanghai, five member countries have equal shares of authorized capital.
The position of president will be rotated among the five countries start-
ing with an Indian national.
At the same time, one should not neglect the importance of power
related to the China-led bank. Beijing has chosen to create its own
institutions because it expects status quo powers like the United States
and Japan to resist its effort to gain greater influence in the existing
international financial institutions. Furthermore, China has visibly given
more attention to the AIIB than to the BRICs development bank.
From a broader, evolutionary perspective, China is adapting to the
existing international order, an ecosystem that favors liberal international
arrangements. The AIIB has to be more liberal as well or to meet ‘the
international standards’ as the United States. Japan and some others
have urged Beijing to do so as well. Thus, we hear the Chinese leaders
frequently sound outright liberal and altruistic. On the official launch
day, President Xi emphasized to the representatives of the member states
that ‘Our motivation [for setting up the bank] was mainly to meet the
need for infrastructure development in Asia and also satisfy the wishes of
all countries to deepen their co-operation’. Finance Minister Lou said that
‘This is China assuming more international responsibility for the develop-
ment of the Asian and global economies’.5 One may dismiss such remarks
as merely rhetoric. Yet it is still meaningful that the Chinese leaders feel
that it is important to say the right things because of the larger global
environment. More importantly, they will have to walk the walk as they
have already done to some extent to make the AIIB a success. The AIIB
looks like a functional equivalent to the World Bank and other existing
international financial institutions. As discussed in the previous chapter,
the bank is nested to the existing development financial institutions.
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96 The Asian Infrastructure Investment Bank
The AIIB has been viewed by some as all about a struggle for hegemonic
order in East Asia, particularly in the United States, Japan and China.
Objectively speaking, the AIIB does not measure up to the ordering
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A New Hegemonic Order in Asia? 97
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98 The Asian Infrastructure Investment Bank
45.0
40.0
35.0
Shares of world total GDP
30.0
25.0
20.0
15.0
10.0
5.0
–
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
Japan China India United States Russia
figure 5.1 Power distribution among the Big Five, 1960–2014 (Current $US)
Source: Calculated from World Bank, World Development Indicators online.
25.0
20.0
Percentage of world total GDP
15.0
10.0
5.0
–
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
figure 5.2 Power distribution among the Big Five, 1980–2014 (PPP)
Note: GDP PPP constant 2005 international $ for 1980–2012 and GDP PPP constant 2011
international $ for 2013–2014.
Source: Calculated from World Bank, World Development Indicators online
DOI: 10.1057/9781137593870.0009
A New Hegemonic Order in Asia? 101
800.000
700.000
600.000
Constant 2011 $US million
500.000
400.000
300.000
200.000
100.000
0
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
United States Russia China Japan India
institution. Put simply, lineage reveals what comes more naturally for
a country. Moreover, the spread of political institutions is necessarily
constrained by natural and man-made barriers.
Many people focus on performance, and they may be attracted to
nondemocratic countries that exhibit some functional equivalency with
democracies or even perform better in certain areas. Thus, the prospect
of alternative and emerging political institutions is improving. Some
democracies may well learn from these models or change to compete,
weakening their democracy in the process either way. One needs to watch
particularly the non-Western democratic great powers such as India and
Japan. Democracy is likely to weaken in these countries because they are
under competitive pressure to adapt to a changing international envir-
onment drawing from their predemocracy traditions.
Specific to some Asian countries, China is most likely to experience
greater economic challenges and will have a financial crisis sooner or
later like any major country that operates fully or partially on market
principles. How the Chinese government handles a crisis will be at least
as consequential as the crisis itself. At the same time, China will continue
to grow, albeit at a lower pace than over the previous three decades,
and will continue to gain power and influence in Asia and the world.
Beijing will continue to make power moves, which will increase tension
with the United States, which can be expected to make its own moves
to reinforce its position in Asia. Japan will continue to be a major rival
with China, strengthening its alliance with the United States and finding
and supporting friends against China. Japan may at some point join the
AIIB because all other East Asian countries are already in and because it
makes strategic sense to be in as many groups as possible.
The rest of East Asia is already hedging but will face greater pres-
sure from both China and the United States to do things that might be
viewed as unfriendly by the other great power, an awkward but likely
inescapable situation. All eyes will be on South Korea. Southeast Asia
is already divided over appropriate response to China and will continue
to be divided given the asymmetry of stakes and ties with China among
the ASEAN members. China both benefits and loses from its central
geographical location in East Asia, particularly compared to the United
States. China will not move away and other countries have strong incen-
tives to deal with China. Some Asian countries like Vietnam believe that
they have learned how to deal with China based on the experience of
millennia of interaction. But China will also pose greater immediate
threat to some of its neighbors than any outside great powers. In short,
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104 The Asian Infrastructure Investment Bank
Notes
1 People’s Daily site, 7 July 2015, http://finance.people.com.cn/n/2015/0707/
c1004-27267033.html. Date accessed 7 July 2015.
2 ‘The World Is Xi’s Oyster,’ The Economist, 6 December 2014, p. 48.
3 J. Scott (2015) ‘Australia Pledges A$930M to Become 6th-Largest AIIB
Shareholder,’ Bloomberg, 24 June, http://www.bloomberg.com/news/
articles/2015-06-24/australia-pledges-a-930m-to-become-6th-largest-aiib-
shareholder. Date accessed 24 June 2015. He also indicated that the American
and Japanese officials understood Australia’s position.
4 Wan, Understanding Japan-China Relations, pp. 165–182.
5 Quoted in Wildau and Clover, ‘AIIB Launch Signals China’s New Ambition’.
6 For the imperial overreach argument, see P. Kennedy (1987) The Rise and Fall
of the Great Powers (New York: Random House).
7 Waltz, Theory of International Politics; J.J. Mearsheimer (2001) The Tragedy of
Great Power Politics (New York: W.W. Norton).
8 Cited in David Nakamura, “Clinton’s Hedging Leaves Obama without
Political Cover”, The Washington Post, 13 May 2015, A5.
9 P.A. Petri, M.G. Plummer and F. Zhai (2014) ‘The TPP, China and the
FTAAP: The Case for Convergence’, East-West Center, 19 May.
10 ‘A Weighting Game,’ The Economist, 30 May 2015, p. 77.
11 See, for example, the Washington Post editorial board, “Past, Present and
Future: America Should Welcome Japan’s Moves toward a More Assertive
Role in the World,” The Washington Post, 28 April 2015, A16.
DOI: 10.1057/9781137593870.0009
A New Hegemonic Order in Asia? 105
12 For a detailed analysis along this line, see T.J. Christensen (2015) The China
Challenge: Shaping the Choices of a Rising Power (New York: W.W. Norton).
13 For some representative views on the AIIB, see K. Mahbubani (2015) ‘Why
Britain Joining China-Led Bank Is a Sign of American Decline,’ Huffington
Post, 16 March 2015, http://www.huffingtonpost.com/kishore-mahbubani/
britain-china-bank-america-decline_b_6877942.html?ir=World&ncid=newsl
tushpmg00000003. Date accessed 24 June 2015; L. Summers (2015) ‘Rescuing
the Free-Trade Deals,’ The Washington Post, 15 June, A17.
14 H. Root (2015) ‘China’s $100 Billion Infrastructure Bank: Bumpy
Road Ahead,’ The Fiscal Times, 3 May, http://www.thefiscaltimes.com/
Columns/2015/05/03/China-s-100-Billion-Infrastructure-Bank-Bumpy-
Road-Ahead. Date accessed 8 May 2015.
DOI: 10.1057/9781137593870.0009
Appendix
Introductory Have agreed to (Preambles) Considering, . (Preambles) Considering, . .
Article operate based on realizing, recognizing, acknowledging,
DOI: 10.1057/9781137593870.0010
following rules convinced, have agreed realizing convinced,
have agreed
Authorized shares only for Authorized capital shares only for capital shares only for members
capital members members
107
108
Section 3. (a) Minimum shares Article 5. . Initial subscription . Article 5. Subscription . Initial subscription .
Appendix
Subscription of for original members Subscription of for original members of shares for original members
shares based on Schedule shares based on Annex. A. based on Schedule A.
A. Shares of new Initial shares by new . Initial shares by new
members determined members determined members determined by
by the bank by board of governors. the board of governors.
(b) The bank Regional members Regional members
determines shares minimum of minimum of
additional to the subscribed capital subscribed capital
minimum . Board of governors . Board of governors
(c) May increase within every five may increase a
subscription in years review capital member’s share at
proportion when stock. In case there request, but regional
authorized stock is an increase of members at least of
increases subscription, members subscribed capital
may increase shares in . Board of governors
proportion within every five years’
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may increase a In case of increase
member’s share at subscription, members
request, but regional may increase shares in
members at least proportion
of subscribed capital
Section 4. Initial subscription Article 5.4. Initial subscription at Article 6. Payment of Payment in own
Issue price of at par, other par, other subscription subscriptions currency equivalent
shares subscription at par at par unless decided Article .. (b) (ii) to full value in terms
unless decided by the by board of governors of US
bank with a majority with a majority
Section 5. paid-in, Article 4.2. paid-in, Article 4.2. paid-in, .
Division and callable callable callable
calls of subscribed
DOI: 10.1057/9781137593870.0010
capital
Section 6. Liability of members Article 5.6. Liability of members . Article 7. Terms of Liability of members . .
Limitation on limited to unpaid limited to unpaid shares limited to unpaid
liability portion of issue price portion of issue price Article .. portion of issue price
Article 5.7. No member liable for Article 7.4 No member liable for
obligation of the bank obligation of the bank
Section 7. in gold or US Article 6. Payment in gold or . Article 6.2. Each installment in US . .
Method of dollar, in the of subscription convertible currency, dollar or convertible
payment of currency of the Article 6.2. in the currency of currency
subscriptions for member the member
DOI: 10.1057/9781137593870.0010
shares
Section 8. days after Article 6.1. days after AOA Article 6.1 days after AOA
Time of payment operation begins enters into force enters into force
of subscriptions
Section 9. Adjusting for Article 6.4; The bank shall . Article 6.5. (b) (iii), Adjustment payment . .
Maintenance of change in par value Article 25. determine what (iv) (v) depending on foreign
value of certain or foreign exchange Maintenance of constitutes the full exchange change.
currency value of a currency. value of the dollar equivalent of May be waived by the
holdings of the May be waived by currency holdings payment. bank
bank the bank of the bank May be waived by the
bank
Section 10. Shares transferable Article 5.5. Shares transferable . Article 7.2 Shares transferable only . .
Restriction on t only to the bank only to the bank to the bank
he disposal of
shares
Article 7. Ordinary Article 8. Ordinary
capital resources resources
ARTICLE III General Provisions Chapter III Operations Chapter III. Operations of the bank
relating to loans and
guarantees
Section 1. Exclusively for Article 8. Use of Exclusively for . Article 9. Use of Exclusively for members .
Use of resources members for resources members in resources in accordance with the
development and accordance with the purposes and functions
Appendix
principles
IBRD ADB AIIB
110
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the bank
Article 15. Technical
assistance
Section 5. Article 14. Article (ix). . Article 13. Article 13.8. .
Use of loans Operating principles Provisions for Operating principles Provisions not
guaranteed, member countries restricted to member
participated in or only countries
made by the bank
Section 6.
Loans to the
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International
Financial
Corporation
Article 19. Article 17. .
Special funds Special funds
Article ., ., .
Article 20. Article 17.4 .
Special funds
resources
ARTICLE IV Operations Chapter IV. Borrowing and other Chapter IV Finances of the bank
miscellaneous powers
Section 1. Lend, guarantee and Article 21. Detailed, more than Article 16. General Detailed
Methods of borrow General powers AIIB powers
making or
facilitating loans
Section 8.
Miscellaneous
operations
Appendix
111
IBRD ADB AIIB
112
Chapter V Currencies
Article 23. IMF definition .* Article 19. 2 By the bank . .
Determination of
Appendix
convertibility
Section 2. Four items Article 24. Five items, and Article 19.1 Members shall not . .
Availability and Use of currencies members shall not impose restrictions on
transferability of impose restrictions on currencies
currencies currencies
Section 3. Provide currencies Article 13. Provision Provide currencies Article 14.4 The bank may finance
Provision of other than that of the of currencies for other than that of the its operation in the
currencies for member in whose direct loans member in whose currency of the country
direct loans territory the project territory the project concerned
concerned is carried concerned is carried
out. out.
May provide local May provide local
currency for local currency for local
expenditure expenditure
Section 4. –. commission Article 16. commission, .
Payment Commission and guarantee fee, other
provisions for fees charges
direct loans
Section 5. Guarantee Article . Guarantee fee .
Guarantees commission
Section 6. Article 17. Special .
Special reserve reserve
Section 7. Article 18. Methods Far more detailed than . Article 20. Methods of .
Methods of of meeting liabilities the IBRD and AIIB meeting liabilities of
meeting liabilities of the bank versions the bank
of the bank in case
of defaults
Section 8. See Article IV.
Miscellaneous Section
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operations
Section 9. Conspicuous Article 22. Notice to Conspicuous Article 16.6 Conspicuous statement . .
Warning to statement that it is be placed on statement that it is not that it is not an
be placed on not an obligation of securities an obligation of any obligation of any
securities any government government government
Section 10. No interference in Article 36.2. No interference in . Article 31.2 No interference in . .
Political activity political affairs political affairs political affairs
prohibited
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management and management
Section 1. List of positions Article 26. Article 21.
Structure of the Structure Structure
bank
Section 2. (a) One governor Article 27. One governor and one Article 22. One governor and one
Board of governorsand one alternate Board of governors: alternate from each Board of governors: alternate from each
from each member composition member state composition member state
state, five-year term Bank may pay expense Bank may pay expense
for attending meetings for attending meetings
(b) Article 28. . Article 23. .
Board of governors: Board of governors:
powers powers
(c) through (h) Article 29. . Article 24. .
Board of governors: Board of governors:
procedure procedure
Section 3. . Basic votes: . Article 33. . Basic votes: of . Article 28. . Basic votes: of all .
Voting of all votes Voting all votes distributed Voting votes distributed equally
distributed equally equally . One vote for one
. One vote for one . One vote for one share of authorized
share of authorized share of authorized capital (, a
capital capital share)
. votes each for
founding members
Appendix
113
114
Section 4. (b) Article 30. Board of Seven regional . Article 25. Board of Nine regional elected .
Executive Five from five largest directors: governors and three directors: composition by regional governors
Appendix
directors share holders each, composition nonregional, elected and three nonregional
seven elected by nonregional elected nonregional
governors governors governors
Two-year term Two-year term Not-paid
Two-year term
Responsible for Article 31. Board of Four specific powers Article 26. Board of Seven specific powers .
general operation of directors: powers directors: powers
the bank
(e) Resident at Article 32. Board of resident in . Article 27. Board of Nonresidential and . .
principal office, meet directors: procedure headquarters, meet as directors: procedure not paid
as often as required often as required
Section 5. Article 34. Five-year term Article 29. Five-year term
President and The president The president
staff
No mention of vice Article 35. One or more vice Article 30. One or more vice
president. But vice Vice president(s) presidents appointed Officers and staff of presidents appointed by
presidents operate by by board of directors the bank the board of directors
practice Article .
Article 36. President and staff Article 31. The President and staff ’s
Prohibition of own duty entirely to international character own duty entirely to the
political activity: the the bank and no other of the bank bank and to no other
international authority authority
character of the bank
Section 6.
Advisory council
Section 7.
Loan committees
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Section 8. Cooperation Article 2 (v) . Article 35. .
Relationship to Cooperation
other international with members
organizations and international
organizations
Chapter VI General Provisions
Section 9. Principal office in Article 37. Office of Principal office in Article 32. Principal office in
Location of offices the country with the the bank Manila Office of the bank Beijing
largest number of Article 37.1. Article 32.1
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shares
Section 10. Bank may establish Article 37.2. Bank may establish . Article 32.2 Bank may establish .
Regional offices offices elsewhere offices elsewhere offices elsewhere
and councils
Section 11. Each member Article 38. Each member Article 33. Each member .
Depositories designates its central Channel of designates its central Channel of designates its central
bank or such other communications, bank or such other communication: bank or such other
entities as depository depositories entities as depository depositories entities as depository
for bank holdings of for bank holdings of for bank holdings of its
its currency. its currency. currency.
The bank may The bank may hold
hold other assets its assets with such
in depositories depositories as board
designated by the five of directors shall
members having the determine
largest number of
shares
Section 12.
Forms of holdings
of currency
Section 13. Annual report, etc. Article 39. Working language is Article 34. Reports Working language is
Publications Working language, English and information English.
of reports and reports Annual report, etc. Annual report, etc.
provision of
Appendix
information
115
116
ARTICLE VI Withdrawal and Chapter VII Withdrawal and Chapter VII Withdrawal and
suspension of suspension of suspension of
membership: members, temporary members
suspension of suspension and
operations termination of
operations of the
bank
Section 1. Right Article 41. More detailed . Article 37. More detailed .
of members to Withdrawal Withdrawal of
withdraw membership
Section 2. Article 42. Suspension More detailed . Article 38. Suspension More detailed .
Membership of membership of membership
suspension
Section 3.
Cessation of
membership in
International
Monetary Fund
Section 4. Article 43. Settlement Article 39. Settlement
Settlement of of accounts of accounts
accounts with
governments
ceasing to be
members
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Chapter VIII Suspension and
termination of
operations of the bank
Section 5. (a) Article 44. Temporary . Article 40. Temporary .
Suspension of suspension of suspension of
operation and operations operation
settlement of
obligations
(b) Article 45. . Article 41. .
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Termination of Termination of
operations operations
(c) (d) Article 46. Liability of . Article 42. Liability of .
members and payment members and payment
of claims of claims
(e) through (i) Article 47. . Article 43. .
Distribution of assets Distribution of assets
ARTICLE VII Status, immunities Chapter VIII. Status, immunities, Chapter IX Status, immunities,
and privileges exemptions and privileges and
privileges exemptions
Section 1. Purpose Article 48. Purpose Article 44. Purposes of
of the article of chapter chapter
Section 2. Status Article 49. Legal status Article 45. Status of
of the bank the bank
Section 3. Position Article 50. Immunity Article 46. Immunity
of the bank with from judicial from judicial
regard to judicial proceedings proceedings
process
Section 4. Article 51. Immunity Article 47. . .
Immunity of assets of assets Immunity of assets
from seizure and archives
Article 47.1
Section 5. Article 52. Immunity Article 47.2 . .
Appendix
Immunity of of archives
archives
117
118
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application
(c) Article 61. Arbitration . Article 55. Arbitration .
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Section 2. Open to signatures, Article 63. Signature Open at ECAFE. Article 57. Signature Open to signatures,
Signature deposited with US and deposit Deposited with UN and deposit deposited with Chinese
government secretary general government
Article 64. Ratification Article 58. Ratification,
or acceptance acceptance or approval
Section 3. Article 66. . Article 60. Inaugural Shall elect the president
Inauguration of Commencement of meeting and Else is the same as ADB
the bank operations commencement of
operations
SCHEDULE A Subscriptions Annex A Initial subscriptions . SCHEDULE A Initial subscriptions .
SCHEDULE B Election of executive Annex B Election of directors . SCHEDULE B Election of directors .
directors
.=./ .=/ .=./
Note: *The IBRD AOA does not mention who defines convertibility. But it is safe to assume that the IBRD follows its sister institution IMF.
Appendix
119
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Index
Abe, Shinzō, 70, 72–3, 99 intergovernmental financial
ADB (Asian Development institution, 10–12
Bank) international order, 9–10, 12
AIIB nested to World Bank membership, 45–7, 76, 77, 78
and, 78–85 nested to World Bank and
Articles of Agreement, ADB, 78–85
107–19 ‘One Belt, One Road’
comparing AIIB to World initiative, 51–3, 54–5, 93
Bank and, 74–8 organization vs. IBRD and
Japan and, 64–74 ADB, 81–2
membership, 45–7, 76, 77, 78 origin of, 44, 47–8
organization vs. AIIB and political power, 2
IBRD, 81–2 snowballing effect, 48–9
AfDB (African Development US-China rivalry, 28, 39
Bank), 66, 79 amensalism, 4
Afghanistan, 38, 45, 75 American hegemony, 7, 22, 26,
AIIB (Asian Infrastructure 59, 75
Investment Bank), 2, 6–9, AMF (Asian Monetary Fund),
16 67, 86
Articles of Agreement, Articles of Agreement
107–19 ADB, 73, 76
‘bad money’ and ‘good AIIB, 44, 49–50, 54, 77, 80, 83
money’, 89n49 Bretton Woods conference,
China model, 11, 16, 53–5 60–1
comparing AIIB to World comparing IBRD, ADB and
Bank and ADB, 74–8 AIIB, 107–19
constructing, 44–51 IBRD, 83
East Asian international Asher, R. E., 60
orders, 96–9, 101–2 Asian Financial Crisis, 62, 67
future of, 102–4 Asō, Tarō, 69–70, 72
getting down to business, Australia, 25, 36, 45, 48, 69–70,
49–51 75, 77, 82, 94, 99
hybrid system, 14, 16, 54, 59, authoritarianism, 28, 29, 31, 32,
86, 97, 102 38, 54
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Index 131
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132 Index
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