In the area of finance and creation of new financial institutions much hope of many nations has been placed on China. Last year China played a catalytic role in helping establish a new BRICS Infrastructure Development Bank to finance infrastructure projects in select emerging economies. Soon after Beijing announced it was creating another Asian Infrastructure Investment Bank (AIIB) to finance a part of Asia’s huge infrastructure deficit. Now as the details of the just-launched AIIB become clearer, and as the Washington-based IMF appears finally eager to embrace China with larger voting rights, the question is whether Beijing is being seduced by a desire to be included in the “family” of the Western hegemon powers, the USA and the EU, the “Great White Masters.”
The Asian Development Bank (ADB) estimates that Asia will need $8 trillion over the next decade for energy, transportation, telecommunication and water sanitation. Now private investment in infrastructure runs a mere $13 billion a year, most in low-risk projects. Official development assistance adds another $11 billion a year, a shortfall exceeding $700 billion a year.
Early this year, China announced it was turning from the US-dominated IMF and its sister, the World Bank, and creating a new alternative that would presumably operate to address that $8 trillion infrastructure deficit across Asia and Eurasia. Washington was furious. The Obama Administration urged Britain and Germany, France and other major EU Western “allies” to boycott the new bank, to no avail. Washington then, like a petulant school bullyboy, arm-twisted loyal vassal Japan to boycott the membership in the Asian Infrastructure Development Bank. Where do we stand today, some eight months later, as Beijing celebrates the official opening of the AIIB?
On December 4, at an annual China-South Korea Banking Development Forum in Shanghai, Chen Huan, head of the AIIB’s Multilateral Interim Secretariat, announced that when it begins raising capital on international bond markets beginning January, 2016, the new bank will concentrate on energy, transportation, rural development, urban development and logistics. So far, so good. He added that in the first year of operation AIIB will move cautiously, issuing between $100 million and $500 million of non-rated infrastructure bonds, which is pretty timid to say the least. Jin Liqun, the president-designate of the AIIB, has stated that the AIIB plans to lend $10 billion to $15 billion a year for the first five or six years, a modest contribution to an $8 trillion infrastructure deficit.
Mr. Jin, former Chinese Vice Finance Minister, was also China’s Alternative Executive Director of China to the World Bank and the Vice-President of the Asian Development Bank, a Japan-led affiliate of the World Bank. Alright, that just means the new President-designate of the AIIB is thoroughly grounded in the alternative US-dominated World Bank model and knows all that is wrong with it. Or is the Boston University-educated Mr Jin Beijing’s selection in order to win approval of its AIIB by the “Great White Masters” of Wall Street and the City of London?
Then it begins to get pretty fuzzy. At the same Shanghai forum, Yang Zaiping, executive vice-president of the China Banking Association (CBA), announced that the CBA has been authorized to lead the founding of the Asian financial cooperation association, “in the hope that Asia will have a bigger say and greater influence in global finance.”
This starts to sound strange. China, South Korea, Malaysia, India, Indonesia are resource-rich and economically formidable Asian founding members of AIIB. China itself will subscribe 30% of the new bank’s initial $100 billion share capital. In addition, Germany has just formally informed the AIIB that it will contribute $4.5 billion to become the fourth largest capital provider for the AIIB globally and the largest one outside Asia. On December 25, the AIIB announced that 17 of the initial founding AIIB member countries had formally ratified their funding participation in the bank, giving a total 50.1% of all potential member countries, allowing the AIIB to formally open its doors at a formal meeting January 16 in Beijing, according to its Articles of Agreement. China’s Finance Minister, Lou Jiwei, stated, “The AIIB is legally established as the Articles of Agreement take effect today. The establishment of the AIIB marks a milestone in the reform of global economic governance system.”
But does it, or is it becoming just another member of the Bretton Woods institutional system that has allowed Wall Street, the US Treasury and the Dollar System to dominate post-1945 world finance and investment? This is the decisive question. The preliminary answers seem disappointing.
A place at the Masters’ Table?
One of the architects of the AIIB, Zheng Yongnian, director of the East Asia Institute of National University of Singapore, told a local Singapore newspaper that what China has sought is the improvement of the existing international framework instead of radical revolution of the system. China has implemented its “reform and opening up” policy to blend into the US-defined international order, Zheng said, adding that the East Asian nation has played an increasingly important role in it. Zheng, who is a well-known China authority, added that the AIIB, since its founding, assumed duties that are impossible for the World Bank and Asian Development Bank given the limits of their mandate. Zheng’s remarks were covered in the official China state news agency, Xinhua.
On December 18, after exactly five years stall, the US Congress approved a 2010 IMF reform of the Fund’s quotas and governance. Now the IMF will double its available resources to $660 billion. Some 6% of quota shares will shift to “dynamic emerging market and developing countries” and also from over-represented to under-represented members. Four emerging market countries–Brazil, China, India, and Russia– will for the first time since 1944 be among the ten largest members of the IMF. Other top 10 members include the United States, Japan, France, Germany, Italy, and the UK.
Is this long-awaited and little-expected change of heart from Washington a major concession to China and the BRICS countries? It would seem not on careful reading of the fine print of the IMF Reform agreement. Since it drafted the IMF bylaws in Bretton Woods New Hampshire at the international monetary talks, Washington and Wall Street banks made certain the IMF would be a US institution controlled by the US Treasury and no “democratic” body. For a major policy change in the IMF operations, a majority not of 50.1% is required but of 85%. That insures that the USA, with a voting share of 17.4% can still block anything it doesn’t like. The US voting share under the new reforms remains precisely 17.4%, a blocking vote as before.
Under the new IMF “reform,” little changes. Yes China is in the “top ten” for voting share, but going from 3% before to 8% today, for the world’s second largest economy. That and a dime will buy nothing today. Japan, a loyal US vassal stays at 6%, Germany another quasi US vassal, loses a mere 0.4% to 5.6%. UK, which since decades is scarcely anymore an economy worth noting beyond its bankrupt banks, drops a mere 1% to 4% as does France.
That December 18 US approval of the long-awaited IMF “reforms” followed another decision of Washington to vote in favor of China membership in the select IMF basket of currencies called Special Drawing Rights. The IMF official statement then declared, “The Board today decided that the RMB met all existing criteria and, effective October 1, 2016 the RMB is determined to be a freely usable currency and will be included in the SDR basket as a fifth currency, along with the U.S. dollar, the euro, the Japanese yen and the British pound.”
In brief, the US unblocked the IMF reforms as well as opening admission of China’s Renminbi currency into the IMF SDR basket to further seduce China into being a polite, well-behaved junior member of the club of the “Rich White Masters.” Unless Beijing is playing a far more subtle and sophisticated game of deception on the tradition of the great Chinese strategist Sun Tzu, Beijing is locking its horse to the dollar wagon rather than pursuing the urgently-needed end of the tyranny of the Dollar System in the world economy. China’s leaders, including President Xi Jinping, appear to have a clear vision. It’s looking more and more, however, that it is a clearly mistaken vision, assuming the Club of the Rich White Masters is worth seeking a place at the table anymore. Let’s hope not.