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Prime Minister Justin Trudeau and China’s Premier Li Keqiang prepare to leave at the end of a joint press conference at the Great Hall of the People in Beijing on Wednesday, Aug. 31, 2016. ( (Mark Schiefelbein/AP)
Prime Minister Justin Trudeau and China’s Premier Li Keqiang prepare to leave at the end of a joint press conference at the Great Hall of the People in Beijing on Wednesday, Aug. 31, 2016. ( (Mark Schiefelbein/AP)

Globe editorial

Should Canada join China’s new bank? Add to ...

On Prime Minister Justin Trudeau’s visit to China, one of the big questions has been whether he will upset the Chinese leadership by mentioning their abysmal human rights record. (So far, he’s touched on the subject gingerly, using delicate language.) But while in China, Mr. Trudeau’s government did say something very pleasing to Beijing – and equally displeasing to Japan and the United States.

On Wednesday, Canada announced that, before the end of this year, it will apply to join the Chinese-founded, Chinese-led and Chinese-headquartered Asian Infrastructure Investment Bank, or AIIB. The Communist Party-run Global Times newspaper described bringing Canada on board as a “political coup.” And that it is.

When Beijing unveiled the idea of the AIIB a few years ago, it was met with suspicion and hostility in many capitals. The world already has an equivalent institution: the World Bank. What’s more, Asia has long had its own regional version, known as the Asian Development Bank (ADB). The sense that China was trying to sideline two long-standing and pro-Western organizations meant that no G7 countries agreed to join the Chinese-led AIIB.

But that unified front quickly crumbled. Britain, angling for better relations with China and benefits for its financial sector, last year surprised everyone by announcing it wanted to become a member. The floodgates opened, and most major and minor European and Asian countries are now on board. The last major hold-outs are Canada, Japan and the U.S.

The concern is that this is going to be an organization run and led by China, for China. There is also a worry that this is a precedent: Instead of being restrained by existing international institutions, China is taking steps to build competing structures of global governance that it can dominate.

The World Bank is one of the institutions created by the Bretton Woods conference, at the end of the Second World War. Members states have voting rights in proportion to their contributions, but the organization is always headed by an American, because the U.S. was and is the largest economy. The International Monetary Fund, the global financial security body also created at Bretton Woods, is always headed by a European.

The Asian Development Bank was set up in the 1960s, when the U.S. was the region’s dominant power, and Beijing was an isolated economic backwater. The Americans wanted the ADB to help develop the continent, while also assisting in improving relations between Japan and the rest of East Asia. Japan was the region’s largest economy, but it was also under a cloud of suspicion in the aftermath of its behaviour in World War II. The Americans made Tokyo, not Washington, the bank’s largest shareholder, and the CEO is always Japanese. It is based in Manila, Philippines.

Back in 2010, the IMF agreed to give China more votes on its governing body, reflecting its rising weight in the global economy. Until then, Beijing had been a bit player. Similar steps were taken at the World Bank and at the ADB. In each of these institutions, China became the third-largest shareholder, after the U.S. and Japan. Better to move China to the head of the club of world powers, rather than trying to keep it out.

However, the U.S. Congress refused to approve the increase to China’s IMF voting weight until the end of 2015. That five-year delay provided an impetus and an excuse for China’s creation of the AIIB.

The best outcome would have been for China to have bought in to the existing banking and development clubs, and given a stake at the table commensurate with its growing economic power. It is, after all, the world’s second largest economy, and that has to be fully recognized. But a China operating through multilateral institutions cannot dominate others; it must negotiate and conciliate. That matters when you consider that the Beijing regime makes many neighbours and trading partners distinctly uncomfortable, in a way that the democratic U.S. and Japan do not.

However, given that the AIIB is alive and kicking, and with so many other countries already having signed on, there’s no reason for Canada to remain on the outside. Under the circumstances, joining is the right call. Better to work within this new bank than stand aloof from it.

And so far, the AIIB appears eager to co-operate with the World Bank and the ADB. If the various democratic members of the AIIB, such as Canada, can push for proper oversight and good governance, it could turn into something more than just a vehicle for Beijing’s economic and foreign policy interests.

The whole episode has been a reminder of China’s rising power, and the challenges that presents. The goal should always be evolving the long-standing international order to accommodate China – but with the aim of forcing China to evolve into one of the pre-existing international order’s model citizens.

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