WHEN people try to pinpoint the start of a ‘new world order’ they could look to March 2015.
This week, Australia announced it would sign on to China’s plans to create a new Asian Infrastructure Investment Bank to rival global institutions like the World Bank and International Monetary Fund.
But far from being some boring economic plan, the bank — which aims to address the $8 trillion infrastructure gap and provide $100 billion for new roads, bridges and ports in Asian economies — could usher in a new phase of regional influence for China without US involvement.
UNSW’s Institute of Global Finance director Fariborz Moshirian said China’s massive foreign exchange reserves and desire for more power have driven Beijing’s plan.
“China is trying to use economic muscle and also in a sense it’s a reaction to the Bretton Woods institutions like the IMF and World Bank. They are seen as US and European children and China wants to make their own mark.”
“It’s sort of a byproduct of the rise of the financial strength of China … We’re going to see more of this kind of influence because China can afford now to take part of this kind of activity.”
Overnight, Japan, Taiwan and Egypt expressed interest in become founding members taking the total number of countries involved to more than 40. They’re the latest in a flood of traditional US allies who have signalled intention to join including Australia, Britain, New Zealand, France, Germany, Switzerland and South Korea.
It leaves the US the only major economy not involved, a decision described as “problematic at best and churlish at worst” by Brookings Institution analyst Jonathan Pollack. It comes after the US waged a lobbying campaign against the plan citing concerns over how the bank will be managed.
Professor Moshirian said the fact the US is now the only holdout is a clear sign US allies are not willing to stand by at the expense of their own economic development, with many European partners saying “if you can’t beat them, join them.”
“They don’t want to be isolating themselves. They’ve got very close links with China in terms of trade and investment and why shouldn’t you? If money is being thrown about by China why shouldn’t they grab it? China is becoming strong so why should you isolate yourself?”
Australian Institute of International Affairs’ Ashley Rogge said the mass influx has left the US feeling “embarrassed” after stalled IMF reforms mean the US missed an opportunity to give China greater say in existing organisations.
“If there’s any reason for them to be embarrassed it’s for that reason,” she said. “They had the opportunity to encourage China in a cooperative manner [but] they kind of forfeited that as these reforms have stalled.”
“These new institutions are now being created because they have dropped the ball. Now they’ve created this opposition which is the total opposite of they wanted.”
Details over where the bank will based and how it will work are still underway with more discussions expected before countries formally sign on. However joining the negotiations early means they will receive a greater say in how the bank is shaped.
Prime Minister Tony Abbott said on Sunday progress in terms of transparency and governance prompted Australia’s late decision to apply for membership. However he stressed that key matters like authority over major investments and who has ultimate control still need to be resolved.
Treasurer Joe Hockey said interest from other countries also helped.
“(It) has been encouraging for Australia to know that it truly is a global organisation,” he said. “We could massively increase our exports of iron ore to India if there were better port facilities.”
Overnight, US Treasury Secretary Jack Lew said Washington wants the new AIIB to partner with other Washington-based institutions on projects, with officials still worried about how lending will take place.
Professor Moshirian said while the door is likely to remain open to US involvement, the reality is China has the money and partnerships to do it anyway.
“China will go ahead regardless of US. If the US joins it fine, if not China will set the tone for this entity anyway.”
Chinese President Xi Jinping said China will spend more than $640 billion investing in other countries in the next five years and “being a big country means shouldering more responsibility for world peace and development.”
The deadline for countries to apply to join the bank is 31 March.