Policy Memo: Asian Infrastructure Investment Bank
Summary:
The Asian Infrastructure Investment Bank (AAIB) is a multilateral banking institution focused
on lending to developing economies. It is primarily made up of Asian countries but also includes
European and African States. This institution may present a serious threat to American economic
interests as many western countries, as well as China, have joined what is essentially a
competitor to the International Monetary Fund and World Bank (Brant-2018). America needs to
continue to be involved in assisting underdeveloped economies through multilateral institutions;
therefore, joining the AIIB is the correct course of action. This allows the US to maintain
leverage over lending while criticizing abuses of authoritarian governments.
Background:
AIIB was initially proposed in 2009 by the Chinese think tank, China Center for International
Economic Exchanges as an alternative to buying cheap American debt (Callaghan-2019). The
idea was adopted by the Chinese Communist Party who wanted to establish Sino-centric trading
blocs and increase Chinaàinternational influence (Callaghan-2019). This action came on the
heals of the United States choosing not to ratify the treaty to activate the Trans-Pacific
Partnership leadig to its collapse. The AIIB began operating in 2016 and is an infrastructure
development fund with 107 active members (AIIB.org-2020). The United States has perceived
AIIB as a threat to its financial hegemony and attempted to keep its allies from joining the banks
membership; however only Japan and Taiwan have supported this position. Currently AIIB
membership includes most Asian countries, several countries in Africa; as well as the U.K.
Germany, South Korea, Canada, and Australia. With membership extending well into Western
Europe and Africa, this rising contender to the US led World Bank has gained incredible traction
in the last six years, and already reaches roughly half of the World Bankàcapital
(ValueWalk.com-2021).
Analysis:
1) America joins the AIIB and encourages Japan, Taiwan, and other OECD members to do the
same. Obviously, this would be an admission of defeat by the U.S, but our inability to prevent
allies from joining has been a huge diplomatic embarrassment; in some sense the damage has
already been done. Refusing to participate in the institution looks isolationist and only reduces
our ability to influence decision making. The world is becoming more multipolar and America
is losing step with its allies, itàcritical that the U.S take a more liberal view towards
international cooperation, even if it involves China. Additionally, engaging China by joining the
AIIB could increase the complex-interdependence between the two world powers and make it
more difficult for China to act unilaterally or support policies that are not in the US’s interest.
2) The United States forms its own international investment institution and tries to lure allies into
forming a bloc against China. The IMF and World bank have significant financial and
humanitarian requirements which has left many states unable to access western capital (Leite2017). Forming a bipolar financial system will curtail Chinaàrise and allow the U.S. to
continue balancing against the upstart power. Unfortunately, this would require a huge
investment from the U.S. and would be unpopular domestically, and internationally. China has
built economic interdependence with many states who may resent the forced economic
disruption. Also, on an state level, the previous administration has undermined AmericaÊcredibility when making international commitments. Withdrawal from the Iran Nuclear Deal,
Paris Agreement, and INF may make other countries hesitant to make long term commitments to
a temperamental power. Lastly, this new intenational investment institution may be redundant
with the existing Bretton Woods Instutitions and create unecessary costs for the US at this
time.
3) Work within the current international monetary system while criticizing Chinaàincreasing
economic dominance. IMF and World Bank restrictions on funding exist for a reason, eventually
there will be humanitarian or environmental fallout resulting from AIIBàlending.
A constructivist approach would criticize these abuses and appeal to the norms of western
states in the AIIB to abandon the bank. It is doubtful this would work considering the level of
humanitarian abuse the western business community already puts up with from China.
Furthermore the U.S. may be accused of hypocrisy for our own lack of climate action and tacit
support for, or relationships with, other regimes engaged in rights abuses (Jackson-2017). An
additional step would be to re-start the Trans-Pacific Partnership in order to support an alliance
of countries against the AIIB.
Recommendation:
America should join the AIIB. The U.S. is no longer a unipolar power who can dictate
which multilateral institutions are relevant and which are not. In the last few years some of
Americaàbiggest foreign policy decisions include the failure of the Trans-Pacific Partnership,
withdrawal from the Iran Deal, withdrawal from the Paris Agreement, abrupt withdrawal from
northern Syria and Afghanistan, withdrawal from the World Health Organization during a global
pandemic, the unilateral killing of an Iranian general, and frivolous broad ranging tariffs. Policy
choices made by the previous administration such as these have weakened American soft power.
The TPP was our last chance to martial a broad economic coalition against China and it is
unlikely America has the international credibility to attempt such a multilateral trade deal
again. If America joins the AIIB it can act as a spoiler vote and try to form coalitions with other
western states. We can criticize China’s approach to fishing rights, debt trap diplomacy, and
humanitarian issues while still benefiting America’s construction companies. It is also important
to remember that increased investment in underdeveloped countries is an unquestionable
economic and humanitarian good.
Works Cited
Brant, Philippa. 25 September 2014. “Why Australia should join the Asian Infrastructure
Investment Bank” (Links to an external site.). The Interpreter. Lowy Institute for International
Policy.
Callaghan, Mike; Hubbard, Paul. 4 April 2016. “The Asian Infrastructure Investment Bank:
Multilateralism on the Silk Road” (Links to an external site.). China Economic Journal.
Leite, Pereira Sergio. 2001. 5man Rights and the IMF Finance and Development.
International Monetary Fund.

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