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wendy dobson

Wendy Dobson is an executive fellow at The School of Public Policy at the University of Calgary

When Chinese President Xi Jinping announced plans for the Asian Infrastructure Investment Bank (AIIB) at the APEC summit in Indonesia in 2013, and launched the initiative in Beijing at the China-hosted APEC summit a year later, who would have predicted that such an idea would cause an international furor – in which Canada is silent, both in word and deed?

The AIIB is a welcome Chinese initiative, in line with American calls for China to become a 'responsible stakeholder' in the international system. The AIIB will become a multilateral development bank that finances programs addressing huge infrastructure deficits in Asia. Myanmar, Cambodia and Laos are just of few of countries emerging from years of economic and political isolation to join the region's economy. Connecting them to each other and their larger neighbors, including China and India, requires major investments to create modern transportation corridors and other infrastructure. Development is also essential to a shared vision of integration of the region's economies as an engine of global growth.

The Asian Development Bank estimates that $8-trillion (U.S.) is required to make this vision a reality. Yet the scale of available funding available through the World Bank and the Asian Development Bank, which is dominated by Japan, has declined in recent years. The latter has welcomed the AIIB as a new source of funding that encourages badly-needed commercial financing of these investments. The AIIB will differ from traditional development banks in that it is open to shareholding by any government and by private investors and will see participants shape its governance and operations.

Significantly, the AIIB will facilitate access to China's plentiful savings. China is already a major bilateral donor to existing programs and, in 2007, became a net contributor to the World Bank's International Development Mechanism. As China and other emerging market economies have increased their shares of the world economy, the World Bank and International Monetary Fund (IMF) have come under pressure to reform their membership structures to give these economies more say in how they are run. While the IMF members have approved such reforms, U.S. congressional approval, which is necessary for U.S. support, has not been forthcoming. The U.S. has also opposed increasing the capital of the Asian Development Bank.

The issue that has drawn intense scrutiny from the international press in recent weeks has been driven by U.S. resistance to the very existence of the bank, as was evident in the public rebuke to British Prime Minister David Cameron following his announcement that the U.K. would become a founding member. Twenty countries from Asia and the Middle East signed up to be founding members in late 2014; India is the second-largest shareholder. South Korea, and Europeans including the U.K., Germany and France, followed in late March. As founding members they will participate in shaping the bank's governance and operations.

The real issue, however, is fear of China, the shift of global power to Asia, and the reality that the rise of new regional institutions and agreements in Asia and the Pacific could pose a threat to U.S. leadership in the region. This is the first of what will be many such skirmishes in the years ahead. China has accepted the international architecture of the WTO, World Bank and IMF constructed around Western rules and values because they have served its interests. But since China had no role in writing these rules, that does not preclude the possibility that as China develops its own world view it will suggest new rules and form new institutions.

U.S. criticism of the AIIB initiative is hypocritical. The public position has been that there is no need for a new development lender. China should channel its resources into the existing international institutions that follow global standards – which of course would continue to be U.S.-dominated and in which other shareholders and donors do not have much say. Further, it is argued a Chinese-dominated institution would not necessarily adhere to global standards of transparency and procurement. It could open the door to regional fragmentation of the global economy, to unwanted competition and the rise of more exclusive 'spheres of influence'. This position is wrong. Competition is healthy. And the best way to ensure that rules and practices are transparent and efficient is to join the institution and play a role in writing and enforcing the rules.

Of course, none of this explains Canada being silent and missing-in-action. Canada should join the AIIB. Now. Canada's relationship with China has been warming in modest ways in the past year. Joining the AIIB would be a useful signal of engagement and support for China as a constructive international player. Joining as a founding member would have entitled Canada to ensure the institution is not only innovative but open and inclusive. Canada could also encourage close co-operation between the new institution and existing lenders. Failure to join signals that the Canadian government is following the U.S. lead – or has little interest in Asia and its economic priorities – and indifference or opposition to Chinese willingness to lead.

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