When the world gets closer.

We help you see farther.

Sign up to our expressly international daily newsletter.

Already a subscriber? Log in .

You've reached your limit of one free article.

Get unlimited access to Worldcrunch

You can cancel anytime .

SUBSCRIBERS BENEFITS

Exclusive International news coverage

Ad-free experience NEW

Weekly digital Magazine NEW

9 daily & weekly Newsletters

Access to Worldcrunch archives

Free trial

30-days free access, then $2.90
per month.

Annual Access BEST VALUE

$19.90 per year, save $14.90 compared to monthly billing.save $14.90.

Subscribe to Worldcrunch
CAIXINMEDIA

Why Europe Wants A Piece Of Our Bank - A Chinese Take On AIIB Expansion

Chinese Vice Premier Ma Kai and German Finance Minister Wolfgang Schaeuble. On March 17 Germany confirmed it was joining the AIIB.
Chinese Vice Premier Ma Kai and German Finance Minister Wolfgang Schaeuble. On March 17 Germany confirmed it was joining the AIIB.
Wang Bijun and Zhang Ming

BEIJIJNG — On March 12, Britain applied to join the China-led Asian Infrastructure Investment Bank (AIIB) as a founding member. It was the first major Western country to do so. Other European countries including France, Germany, Italy, but also Luxemburg and Switzerland have since followed suit. Not only has the AIIB attracted more than 20 Asian countries, but it has surprised many by appealing to the advanced Western nations.

So why are European countries so eager to join the AIIB?

First, because as the Chinese economy's global influence grows, developing their trade and investment cooperation with China has become a strategic priority. Even though China's rate of growth has been slowing recently, as the world's second largest economy the absolute level of China's economic influence remains high and enables it to play a pivotal role in the global economy.

This is why even when, for its own strategic and geopolitical considerations, America repeatedly expressed its opposition to its allies' joining the new financial institute, these countries ignored Washington, preferring to bet on both sides.

Secondly, these European countries are expecting immediate benefits from the investment returns of the AIIB, aiming to win a share of the fruit of the emerging Asian economic growth. The overall economic performance of the Eurozone is sluggish while Europe's political landscape is uncertain and plagued by complicated and entangling problems such as Greece and Ukraine. The Old Continent is in urgent need of a new path to economic growth.

Infrastructure appetite

The establishment of the AIIB dates back to 2013 during visits by China's President Xi Jinping and Premier Li Keqiang to different Southeast Asian countries. The aim is to support infrastructure construction in these developing countries, amidst a large shortfall in the funding of these projects. As the Asian Development Bank estimated, in the next eight to ten years, demand for Asian infrastructure funding will reach $730 billion a year.

By contrast, the World Bank and the Asian Development Bank's investments in Asia total only around $30 billion annually. The establishment and operation of the AIIB is expected to make up the shortfall, to promote regional development and undoubtedly bring about huge business opportunities. Therefore, it is not at all difficult to understand the eagerness of the major European states in grasping a potential investment opportunity outside the EU.


The implication of signing up advanced countries to the AIIB is twofold. First, it significantly boosts the representation and diversity of the institution since before the UK, France, Germany and Italy joined up, the new bank's funding members were, except for
China and India, relatively small economies, hailing almost exclusively from Asia. The United States continues to preach that without major Western countries' participation in the structure it will not reach the high standard of other multilateral development organizations such as the World Bank, especially in such aspects as linking loans to environmental standards and clean governance.

The European countries' eagerness to join can thus be viewed as a slap to America, and a helping hand to the new bank in exerting greater influence in multilateral economic cooperation.

In addition this will also put greater pressure on the countries which, for various reasons, haven't yet applied to sign up for AIIB. To avoid being marginalized, South Korea and Australia have in the last few days given indications that they would reconsider their previous refusal to join.

The European countries' participation in the AIIB is also likely to stimulate the US and Japan to step up their negotiations over the "Trans-Pacific Partnership Agreement" (TPP). Since President Obama informed Congress of his intention to launch the America-led regional free trade talks, originally programmed to be finished by the end of 2013, the negotiations have stalled.

The US and Japan account for more than 70% of the total economic output of TPP members. One of the important reasons why the talks haven't progressed is because of an increasing divergence between the two powers, in particular over their respective industrial sectors' interests, such as in automotive and agricultural issues, and the resulting political pressure.

A question of leadership

The emerging countries have long wished to play a more important role in international economic and financial governance, particularly in light of the lessons of the 2008 financial crisis, as well as their growing share of global economy. Against this background, the new China-led international bank aims to provide a platform for raising the influence of the emerging markets.

Nevertheless, whether China has the ability to play the leading role in smoothly and successfully operating this bank has repeatedly been questioned. Not only does China lack experience in operating a multilateral institute or project, it does not possess the knowledge base and the corresponding institutional mechanisms. Meanwhile, China's experience in developing Africa has always been accused of lacking transparency and being entirely devoted to extracting resources.

Since the UK, France, Germany and Italy are key stakeholders in existing development banks, their accession to AIIB will help on many fronts: its governance structure, decision-making mechanism, financing and fund-raising, project operations, risk management, information disclosure and performance evaluation. With their proven experience and team work this will increase the AIIB's operational capability to an international level.

The advanced countries' joining the AIIB is a great opportunity, but will also render it an even greater test of Chinese leadership in the world.

You've reached your limit of free articles.

To read the full story, start your free trial today.

Get unlimited access. Cancel anytime.

Exclusive coverage from the world's top sources, in English for the first time.

Insights from the widest range of perspectives, languages and countries.

A Ukrainian soldier crouches in a snowed-in trench on the frontlines.

A Ukrainian soldier crouches in a snowed-in trench on the frontlines. Major snowstorms sweeping Ukraine since Sunday have killed at least 10 people across the country.

Anne-Sophie Goninet, Valeria Berghinz and Bertrand Hauger

👋 އައްސަލާމު ޢަލައިކުމް*

Welcome to Tuesday, where more hostages and prisoners are expected to be exchanged as the Gaza ceasefire is extended for 48 hours, Indian rescuers are ready to extract the 41 workers trapped in a tunnel since Nov. 12, and the first green transatlantic flight takes off. Meanwhile, Manuel Brug in German daily Die Welt looks at how the emergence of trans performers and storylines in modern opera follows in the genre’s long history of playing with the idea of gender.

[**Assalaamu alaikum - Dhivehi, Maldives]

Keep reading...Show less

The latest