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Summary “The Asian Infrastructure Investment Bank: Multilateralism on the Silk Road” by Mike Callaghan and Paul Hubbard - Notes (GRADE 8,0)$7.57
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Introduction To International Organisations (6441HIIO)
Summary
Summary “The Asian Infrastructure Investment Bank: Multilateralism on the Silk Road” by Mike Callaghan and Paul Hubbard - Notes (GRADE 8,0)
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Course
Introduction To International Organisations (6441HIIO)
Institution
Universiteit Leiden (UL)
Summary of the material for the final exam (2021) for Introduction to International Organisations (IIOs). INCLUDES notes on Mike Callaghan and Paul Hubbard’s article “The Asian Infrastructure Investment Bank: Multilateralism on the Silk Road” from the “China Economic Journal” (Total: 14 p...
Introduction To International Organisations (6441HIIO)
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Summary of the material for the final exam (2021) for Introduction to International Organisations
(IIOs). INCLUDES notes on Mike Callaghan and Paul Hubbard’s article “The Asian Infrastructure
Investment Bank: Multilateralism on the Silk Road” from the “China Economic Journal” (Total: 14
pages).
1
“The Asian Infrastructure Investment Bank: Multilateralism on the
Silk Road” by Mike Callaghan and Paul Hubbard - Notes
Table of Contents
Introduction 2
A Brief Sketch of the AIIB 2
China’s Motivations and International Reactions to the AIIB 3
Asian Savings for Asian Infrastructure Investment 4
Why a new multilateral bank? 5
United States and Japan Share Strategic Concerns 5
Commercial Opportunities: West Meets East 6
Australia and Korea Make the China Choice 7
The AIIB’s Governance Structure 8
Making the AIIB Operative - The Hard Part 11
Will the AIIB facilitate countries accessing private financing? 13
Conclusion 13
, 2
Introduction
China’s first attempt to establish a multilateral financial institution in the Asian Infrastructure
Investment Bank (AIIB) is thought to be an attempt at reducing United States’ (US) economic
leadership following the US’ reluctance to grant China power at the International Monetary Fund
(IMF) and the World Bank (WB).
➔ The AIIB: A vehicle for China to advance its unilateral strategic objectives in Asia at the
expense of the US, thereby pushing to increase China’s role in international institutions.
China’s reasons for making sure the AIIB functions as a genuinely multilateral institution
include:
◆ Contributing to meeting Asia’s infrastructure needs.
◆ Deliver Xi Jinping’s signature foreign economic policy, the “Silk Road economic
belt” and the “21st century maritime Silk Road” (one belt, one road) initiatives.
The economic logic of integrating markets within Asia and to Europe is good for China in expanding
its export markets, and for the region.
The “one belt, one road” serves strategic goals for China and common goals for others in the region.
➔ Both APEC and ASEAN have been promoting a similar agenda: “ connectivity” for years.
China already has many existing avenues to finance infrastructure projects in Asia, including its new
“Silk Road fund” and traditional bilateral financing.
➔ Voluntarily committing resources to formal governance structures and external oversight
associated with a multilateral body appears to limit China’s freedom of action.
➔ HOWEVER, multi-lateralizing financing decisions can also insulate China from bilateral
political tensions. The countries in Asia may be more accepting of financing coming from a
multilateral institution, even if China-led, than directly from China.
The biggest risk to the bank, however, is Beijing’s instinct to retain control over all significant
Chinese institutions.
➔ China has a larger veto power over decisions in the AIIB than the major shareholders have in
these other multilateral banks (e.g. the WB, Asian Development Bank - ADB).
A Brief Sketch of the AIIB
Timeline:
● On a State visit to Indonesia in October 2013, Chinese President Xi Jinping proposed the
establishment of a new multilateral bank, focused on the development of infrastructure in
Asia.
● One year later, after 5 formal consultation meetings with interested parties, 21 Asian countries
signed a memorandum of understanding supporting the establishment of the bank on 24
October 2014.
● A joint action plan issued in March 2015 by China’s National Development and Reform
Commission, the Ministry of Foreign Affairs, and the Ministry of Commerce provided the
authoritative plan for developing the Silk Road.
, 3
● Following 5 chief negotiators’ meetings, the Articles of Agreement for the bank were signed
in Beijing by Finance Ministers or their representatives. The number of prospective founding
members of the bank had increased to 57.
● By October 2015, 53 countries had signed the Articles of Agreement.
● The AIIB is scheduled to become operational before 2016.
The US$100 billion capital base makes the AIIB a medium-sized multilateral bank. All members of
the AIIB have experience with multilateral banking, as members of the WB.
➔ The inclusion of all the BRICS members extends the membership of the AIIB to South
America and Africa.
➔ More than half of the members of the ADB are members of the AIIB.
China’s Motivations and International Reactions to the AIIB
China’s motivation behind the AIIB proposal comes from the “Silk Road economic belt” and the “21st
century maritime Silk Road” (one belt, one road) initiatives as proposed by President Xi Jinping.
➔ Xi Jinping has explicitly instructed policymakers that the “primary task” of the AIIB is to
provide capital for these initiatives
➔ China has created a new $40 billion “Silk Road fund” and injected a further $31 billion in
China’s policy banks to support the initiative.
Some scholars regard the Chinese initiative as a reaction to the US’ “new Silk Road” initiative to
create a regional market for Afghanistan.
HOWEVER, China’s proposal has its economic roots, particularly in the wake of the global financial
crisis and recession in the North Atlantic which had limited China’s potential for continued export-led
growth.
➔ In 2009, the ADB Institute published a working paper calling for a modern or restored “Silk
Road” to help Asia meet its potential.
➔ The core of the Silk Road proposal was that transport costs and connectivity had become the
major impediment to intra-regional trade. A trans-Asian highway and railway network were
advocated as a means of reducing this impediment (completing rail links from China to South
and Southeast Asia through Myanmar and Laos, and to Central Asia through Kyrgyzstan).
The highway network would connect central and southern China with the rest of Asia.
The strategic implications of a Silk Road strategy for China are
● Expanding markets for Chinese exports.
● Improvements in China’s regional security (e.g. energy imports via overland routes).
● Increases in China’s soft power through greater cultural and tourism exchanges.
● Greater regional economic integration, policy coordination, behind-the-border trade and
investment facilitation, financial integration and people-to-people bonds.
Some of the obstacles for the initiative were:
● China’s geography; some of the key countries on land routes are poor and require financial
assistance.
● There had not been a decisive platform through which to coordinate and resolve key issues
regarding the Silk Road.
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