On May 14, 2017, 29 world leaders attended a conference in Beijing hosted by Xi Jinping to promote China’s “One Belt, One Road” (OBOR) initiative. OBOR, a collection of trade deals and infrastructure projects throughout the Asia-Pacific and Eurasia regions, seeks to cement China’s leading role in Asia’s infrastructure development—and use that position as a springboard for further international influence. The OBOR projects aims to build bridges, roads, energy infrastructure, and manufacturing zones and they would involve 65 countries and at least $40 billion. Simply put, OBOR represents China’s latest expansionist policy within Asia, fueled by its emerging capital investment interests and excess production capacity.
One important arm of the OBOR initiative is China’s Asian Infrastructure Investment Bank (AIIB). In March, the Chinese-led bank announced that it had welcomed 13 new countries to join, including Canada, Belgium, Hungary, Ireland, Peru, Hong Kong, and Afghanistan. The news has not been welcomed by all. Even before the AIIB’s early 2016 launch, countries around the world expressed concerns that the AIIB was nothing more than a strategic ploy by China to expand its geopolitical and economic influence in Asia. Developed countries also worried that the AIIB would undercut existing development banks through lower lending, environmental, and safety standards. As the AIIB enters its second year of operation, these concerns seem more legitimate.
China’s official argument is that the AIIB is designed to address Asia’s huge infrastructure financing gap, estimated at $26 trillion between 2010 and 2020. In practice, China built the AIIB to institutionalize its outbound investment goals. China has always been discontented with its small voting shares in existing development institutions like the World Bank and the Asian Development Bank. In the AIIB, on the other hand, China holds 26 percent of voting shares. Given that a three-quarters majority is required for most decisions on projects and operations it thus has de facto veto powers.
A careful review of the AIIB’s contracts and priority areas further reveal that the AIIB has been systematically promoting China’s geopolitical interests in Asia. For instance, in its first year, the AIIB’s projects focused on Pakistan, Tajikistan and Bangladesh—three countries that happen to be very close to Beijing’s economic interests and to its OBOR initiative. AIIB projects also target European countries, where Xi Jinping has, in recent years, committed to increasing China’s involvement. With a Chinese state-owned firm in control of Greece’s Piraeus port, and another building a high-speed rail line that will transit via Belgrade all the way to Budapest, China’s “belt and road” reaches deep into the heart of the EU.
The AIIB’s policies also fit snugly with China’s domestic and international economic goals. Internally, the AIIB supports the Chinese government’s banking policy of investing aggressively at a global scale. According to Nick Marro of the Economist Intelligence Unit, “China is looking to use OBOR as a way to ship its own domestic overproduction offshore.” The AIIB will provide opportunities for Chinese companies to invest around the globe. And OBOR will represent a particular pick-me-up for the People’s Republic’s recently troubled state-owned enterprises, which tend to play a key role in transportation projects. Externally, AIIB is supposed to help lay the foundations for an international monetary system centered on the yuan. This is especially crucial after several years of subpar economic growth, which has eroded confidence in the yuan as a safe currency for global investments.
Despite China’s grand visions, many countries harbor doubts that the AIIB will find enough commercially viable and socially acceptable projects. According to Andrew Polk of Medley Global Advisors, “If there were this massive opportunity laying in wait in Central Asia, surely someone would have tapped into it before—with years of institutional knowledge and memory of how to do such things.” What motivates the AIIB’s projects, then? China’s politically guided banks have a history of lending to countries with low credit ratings in order to secure China’s economic influence in those countries.
Many countries are also worried that the AIIB’s environmental and safety standards will be lower than those of established development banks. Despite the AIIB’s promise to keep up with Western standards, environmental groups have found that the bank’s Environmental and Social Framework document lacks detail and commitment to sustainable lending.
In an address at the OBOR Conference in Beijing, President Xi Jinping said that China’s economic projects would “foster a new type of international relations.” OBOR and AIIB cannot be seen in isolation—they are elements in China’s global strategy. As the world gradually perceives the AIIB’s place in the broader strategic framework, it will remain to be seen whether China can use it indefinitely to consolidate its leadership in Asia. With or without the AIIB, however, the OBOR initiative is poised to cement the People’s Republic’s influence, not just in Asia but also in Europe and the rest of the world.