Beijing does the math for Washington – it’s time to step up or go home

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Winnie Soh's picture

The AIIB. The NDB. The SRF. Acronyms which meant nothing a couple of years ago now combine to bring mounting unease in Washington. China’s list of prestige projects appear to grow endlessly, and many of these seem aimed at breaking the hegemony of the United States (U.S.) and to increase its influence in Asia.

In particular, the Asian Infrastructure Investment Bank (AIIB), though still in the early stages of conception, have been nothing short of a diplomatic nightmare for the U.S. and the Obama Administration (Washington Times, 2015). Despite expressed skepticism and disapproval, the U.S. has failed to stop a long list of their closest allies’ scramble to join the $50 billion, China-led initiative. In the Asia-Pacific, major trade partners South Korea, Thailand, Australia and New Zealand have all signed up to be founding members of the organization. This is mirrored in Europe, where Washington’s official concerns over the redundancy of the bank and its governance standard has not prevented the United Kingdom, France, Germany and Italy from adding their names to the list (Business Insider, 2015).

Washington’s worry is not unfounded[1], yet there are more pressing, unarticulated concerns which are without doubt more poignant to the current hegemony. Not least amongst them is the fact that China’s rising influence in the region is severely undermining Obama’s “pivot to Asia”. A key point in Obama’s second-term re-election campaign, the “pivot” to Asia avows to pay more attention to the previously relatively neglected region at a time when the U.S. begin to reduce their military involvement in the Middle East and turn their focus to the region which holds 3 of the world’s largest economies[2] (World Bank, 2013). Asia also houses almost half of The States’ top 10 trade partners (U.S. Census, 2015) and the U.S. is naturally keen to solidify their influence there, both on the security and economic fronts. Unspoken, the “pivot” has one other central objective, to keep Asia’s Giant in check. China’s exponential economic growth has in the last decades resulted in a rebalance of power from the West. It has surpassed the U.S. as the largest economy globally in terms of Purchasing Power Parity and looks set to overtake in terms of absolute value in the next few years (IMF, 2014). Its military size is also unrivalled in the region[3] and China has shown that she is not afraid to use hard-handed means to achieve its geo-political objectives – a la the South China Sea and Senkaku Island disputes.

Understandably, the global hegemon is worried about the changing state of affairs. While the establishment of good U.S.-Sino relations is imperative for America’s economic future, given the size of their bilateral trade and China’s continental size, the U.S. is also concerned about China’s competition for regional dominance and is eager not to lose its standing in the fast-growing region. Yet, the Administration has failed to show thus far that it is taking serious steps in cementing the “pivot”, and its miscalculations have allowed China to step up in its absence.

The establishment of the AIIB represents a subversion of Washington’s economic hegemony in many ways. Tired of waiting for Congress to push through with reforms that would alter the current voting quotas in the International Monetary Fund (IMF) which do not provide enough of a voice to emerging economies (WSJ, 2015), the AIIB is one of China’s responses to the monopoly of Washington’s international lending, dominated by Bretton Woods organizations like the World Bank and the IMF, as well as a complement to its Silk Road Fund (SRF) – an initiative to improve infrastructure and connectivity across Asia.

This is a move welcomed by many, especially developing economies in Asia, who face at least $1 trillion in infrastructure needs; a gap that the U.S. is unable to fill (The Guardian, 2015). Pertinently, the AIIB’s success could also legitimise China’s ambitious push for the Renminbi (RMB) to be the next reserve currency, a situation the U.S. is not keen to see materialize. Already, the membership of London (UK) and Singapore in the AIIB would ensure that offshore RMB transactions are largely increased at the global financial hubs. Altogether, the birth of the bank represents severe backsliding of the U.S.’ efforts to “pivot” to Asia.

What then are the next steps for the U.S.? Rather than a “pivot to Asia”, one could argue that the hegemon now seems more concerned in ensuring the region “pivots away from China”. This can be glimpsed from Obama’s adamant objections to the AIIB, despite the fact that even the very institutions which the AIIB challenge have gone on to endorse the bank (The Guardian, 2015). Security-wise, the U.S. has similarly been scrambling to tighten relations with Japan[4] and conduct joint military exercises with nations like Australia in a show of power and to combat China’s dominance in the region. Washington does not want a China-led Asia, yet their hands might be tied in time as their allies have already shown that they accept the Asian giant’s climb and what looks like an inevitable tectonic shift in power. Rather than trying to stop China’s growing influence in the region, which seems unlikely to halt with its market size, large current account and resulting investment capital, what the U.S. needs to do now is to both work with the former, and increase their relative influence in the region by building on their own multilateral ties like the “pivot” set out to do. In fact, many have called for the U.S. to join the AIIB as well, as it is more likely to have greater influence on it from within. After all, a “pivot” to Asia cannot happen without a “pivot” to China.

Certainly, some actions seem obvious and necessary, of which the passing of overdue IMF reforms and signing of the Trans-Pacific Partnership (TPP) deal seems most pressing. The latter, a 12-country trade deal that would cover 40% of global GDP, is an effort to contain the Chinese economy and represents a huge opportunity for the U.S. to conclude its first-ever trade agreement with Japan. Washington has already recognised the importance of this pact, and Congress has voted in favour of fast-track approval for the deal which had previously been stalled by disagreements between the 2 major economies. The former, which has been pending since 2010, could ensure that China’s AIIB works in tandem with the incumbent lender rather than compete against it.

Improving bilateral ties with major economies like Japan, India and Pakistan would also be key in the U.S. pivot. Thus far, Japan remains the only major U.S. ally that has held out on joining the AIIB, to Obama’s relief, and the major players can do much to complement U.S. economic and military influence in the region. Already, China is leveraging on the U.S.’ absence in Pakistan with the signing of a $46 billion China-Pakistan (CPEC) trade deal which would cement Pakistan’s role as a hub in China’s “New Silk Road” (BBC, 2015). One major chance is at the forefront for the States: energy diplomacy to India, which faces a pressing energy crisis and is looking for assistance from the U.S., China and Russia. Obama needs to prove to Asia that the “pivot” is not an ad-hoc issue and make his move before China steps in again to prove that they are the rightful leaders of the region.

The AIIB has been a wake-up call, and Beijing has helped Washington sort its priorities. China is looking not just to shoulder regional leadership but to shake up global status quo – of which the New Development Bank (NDB), also spearheaded by China and ran by the BRIC[5] economies, is testament to. Obama has expressed that the “pivot” should really be termed a “rebalance” to Asia – but the terminology of it does not matter. What matters is a re-establishment of the nature of the pivot – as one that is enduring and committed rather than fleeting and hesitant.

 

[1] China was ranked last in the 2014 Aid Transparency Index over fears of its weak governance and lending procedures that are often subjected to politicization, corruption and waste (CSIS, 2015).

[2] China, Japan and India (World Bank, 2013)

[3] Data from http://www.globalsecurity.org/military/world/armies.htm ranks China’s military size second, behind only the U.S. Army.

[4] U.S. and Japan has committed to re-write the 1997 Security Cooperation Pact to strengthen military ties between the two countries.

[5] Brazil, Russia, India and China

References: 

BBC (2015). “China's Xi Jinping agrees $46bn superhighway to Pakistan”. Retrieved on 25 April 2015 from http://www.bbc.co.uk/news/world-asia-32377088

Business Insider (2014). “China Just Overtook The US As The World's Largest Economy”. Retrieved on 20 April 2015 from http://uk.businessinsider.com/china-overtakes-us-as-worlds-largest-economy-2014-10

Business Insider (2015). “China's new development bank is becoming a massive embarrassment for Obama”. Retrieved 20 April 2015 from http://uk.businessinsider.com/us-allies-joining-asian-infrastructure-investment-bank-aiib-embarrassment-2015-3

CSIS (2015). “Washington Should Not Fight with Its Allies over China’s Infrastructure Bank”. Retrieved 20 April 2015 from http://cogitasia.com/washington-should-not-fight-with-its-allies-over-chinas-infrastructure-bank/

The Diplomat (2015). “China, Philippines Spar Over South China Sea Run-Ins”. Retrieved 25 April 2015 from http://thediplomat.com/2015/04/china-philippines-spar-over-south-china-sea-run-ins/

The Guardian (2015). “Trans-Pacific Partnership: bill on trade deals passes key Congress committee”. Retrieved on 27 April 2015 from http://www.theguardian.com/us-news/2015/apr/24/trans-pacific-partnership-bill-on-trade-deals-passes-key-congress-committee

U.S. Census (2015). “Top Trading Partners - February 2015”. Retrieved on 20 April 2015 from http://www.census.gov/foreign-trade/statistics/highlights/top/top1502yr.html

Wall Street Journal (2015). “How Congress’s Inaction on IMF Reform, Trade Hinders the U.S.” Retrieved 17 April 2015 from http://blogs.wsj.com/washwire/2015/03/31/how-congress-inaction-on-imf-reform-trade-hinders-the-u-s/

Washington Post (2015). “Anatomy of a whole-of-government foreign policy failure”. Retrieved on 25 April 2015 from http://www.washingtonpost.com/posteverything/wp/2015/03/27/anatomy-of-a-whole-of-government-foreign-policy-failure/

Washington Times (2015). “Diplomatic disaster: Obama humiliated by allies’ rush to join China’s new bank”. Retrieved 20 April 2015 from http://www.washingtontimes.com/news/2015/mar/18/obama-humiliated-as-allies-join-chinas-asian-infra/?page=all

World Bank (2013). “Gross Domestic Product 2013”. Retrieved on 20 April 2015 from http://databank.worldbank.org/data/download/GDP.pdf