THE AIIB
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CHINA’S INTERESTS WELL SERVED?
A New Approach to Multilateral Development Banking
Nikolai Hohendanner
11741872
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University of Amsterdam
Master Thesis Political Science
European Politics and External Relations
Supervisior: Dr Lukas Linsi
2
ndReader: Dr Farid Boussaid
Word Count: 16,050
June 2018
TABLE OF CONTENT
1 INTRODUCTION... 4
1.1 OPENING ... 4
1.2 BUILDING THE ARGUMENT ... 5
1.3 EMPIRICAL FINDINGS ... 7
2 THEORETICAL APPROACH ... 8
2.1 RESEARCH INTEREST AND LITERATURE INTRODUCTION ... 8
2.1.1 The IMF and the World Bank ... 9
2.1.2 The US and China in international organizations ... 10
2.1.3 The Consensus Debate ... 11
2.1.4 Existing literature on the AIIB... 12
2.1.5 Evaluation of the Literature Review ... 13
2.2 APPLIED THEORETICAL FRAMEWORK ... 14
2.2.1 Building the framework ... 14
2.2.2 The Neo-Gramscian Theory ... 15
3 EMPIRICAL ANALYSIS ...18
3.1 METHODOLOGY ... 18
3.2 DISCOURSE ANALYSIS OF OFFICIAL STATEMENTS, NEWSPAPER ARTICLES AND SCHOLARLY CONTRIBUTIONS... 19
3.2.1 The AIIB in the context of OBOR, TPP and Regionalism ... 20
3.2.2 Voting rights in existing MDBs and the AIIB ... 24
3.3 COMPARISON OF THE STATUTES AND STRATEGIC ORIENTATION OF THE AIIB AND THE ADB ... 26
3.4 PROJECT ANALYSIS ... 30
4 CONCLUSION ...36
TABLE OF FIGURES
FIGURE 1:THE CONCEPTION OF COUNTER-HEGEMONY ...15
FIGURE 2:THE OVERLAND AND OVERSEA CORRIDORS OF THE OBOR INITIATIVE ...21
FIGURE 3:VOTING SHARE SUBSCRIPTION OF THE AIIB ...27
FIGURE 4:AIIB PROJECTS IN NUMBERS ...30
FIGURE 5:PERCENTAGE OF CO-FINANCING OF AIIB PROJECTS ...31
FIGURE 6:PROJECT FINANCING BY THE AIIB AND ADB IN 2017 PER SECTOR...32
1 Introduction
1.1 Opening
China has experienced a rapid and constant economic growth over the past decades. Since the end of the seventies the income per capita has grown at an average rate of over 8% per year. As a result, more than 500 million people have been able to escape extreme poverty, (less than 1$/day) which means that 90% of the Chinese population are now above the poverty line (Rodrik, 2011). Similar to countries like Japan and South Korea, the government in Beijing decided to diversify its economy and cautiously opened certain sectors to the global market that were able to compete, while fostering other economic sectors with far-reaching, long-term planning and assistance in order to make them competitive. This evolution is particularly interesting because China did not follow the classic development approach favoured by the West. In a globalized world, catching up economically is challenging if you open your markets to foreign competition. By adapting the exchange rate of the Renminbi the government creates an export-friendly environment for many businesses in China. The use of the cheap a labour force and government funding results in a comparative advantage for Chinese manufacture on the global market. The so-called China Model could now be of interest for other developing countries, especially in Africa where incentives from the World Bank and the IMF showed little impact (Rodrik, 2011).
In the time period between 2000 and 2011 the Chinese investment in Africa grew from 210 million USD to 3,17 billion USD per year (Report on Development of China’s Outward Investment and Economic Cooperation). The overwhelming majority of this money is used for development financing. “The billions of dollars that China commits to Africa are repayable, long-term loans. From 2009 to 2012, China provided USD 10 billion in financing to Africa in the form of concessional loans” (Yun Sun, 2014). Following President Xi Jinping‘s first trip through Africa, the Chinese commitment towards governments and projects on the continent was doubled to over 20 billion from 2013 to 2015 (Dollar, 2016).
The second region the Chinese Government is investing is the over-land connection between East Asia and Europe. In the context of the One Belt, One Road (OBOR) initiative the creation of a new Silk Road is planned and its implementation has begun. With an estimated investment volume of over 900 billion USD this would be the most extensive infrastructure project since the Marshall Plan after the Second World War. In the course of this program the road and railway network would be expanded as well as new harbours and airports being built (Zand, 2017). The analysis of which institutions and in what form the money is spend is difficult. Mainly because most of the state-owned development banks in China do not publish figures on overseas investments. The BBC has however, estimated that in 2009 and 2010, the China Export Import Bank and the China Development Bank together signed
loans of at least US$110 billion to both governments of other developing countries and private companies, more than the World Bank did over the same period (Hogg, 2011).
In 2015, China took the leading role in the design and establishment of the Asian Infrastructure Investment Bank (AIIB). This new Multilateral Development Bank (MDB) has as long-term goal to provide the financial resources to develop infrastructure projects in the Asia-Pacific region. The establishment of the AIIB was based on an initiative from the Chinese Government and now, after just three years, has eighty-six members form six continents. The proclaimed goal, according to their self-promotion, is the improvement of the social and economic situation in Asia by connecting people, services and markets. This should be achieved by investing in sustainable infrastructure and other productive sectors true to their motto: Lean, Clean and Green (About AIIB, 2015). Parallel to this, China is deeply involved in existing MDBs like the World Bank and the regionally operating Asian Development Bank (ADB). From an external perspective, the incentive by the Chinese leadership to set up and engage on a multilateral level beyond the existing MDBs and doing so outside the seemingly successful bilateral framework, needs to be analysed.
The research question I intend to answer in the context of this thesis is based on the result of observations made of the above described “Chinese Initiative” to establish this new Multilateral Development Bank.
Why was China eager to establish the AIIB?
This introduction will provide an overview of the field of interest and the theoretical framework that my argument is built on. Out of this theory, I will develop three hypotheses that give possible answer to the research question. Subsequently, the research design and the used methods will be presented the selection will be justified the results will be presented and the hypotheses tested.
1.2 Building the Argument
In order to understand what led to the creation of the AIIB, I took a step back and started to analyse the literature on the existing MDBs first and foremost the IMF and the World Bank. The driving interest that led to the establishment these multilateral institutions was to secure global peace and to facilitate prosperity around the world. During the eighties, nineties and in the beginning of the twenty-first century, the strategic orientation of the World Bank and the IMF was closely associated with the so called ‘Washington Consensus’. This consensus consisted of policy adjustments in developing countries in the form of increased fiscal austerity, privatization of formerly state-owned companies and properties, and market liberalization (Stiglitz, 2002). The main problem with this “one-size-fits-all” approach was that it did not take
into account the fundamental social, cultural and economic differences in the Developing World. In some instances, this had devastating consequences for the economies of the Global South. Robert Wade, who analysed the East Asian industrialization, states that “There is virtually no good evidence that the creation of efficient, rent-free markets coupled with efficient, corruption-free public sectors is even close to being a necessary or sufficient condition for a dynamic capitalist economy” (Wade, p. XV, 2003). Today’s leading industrial states all went through phases of protectionism in the form of industrial assistance policies. Wade explicitly refers to such protectionist measures in Britain, Germany, the United States, Japan, Korea and Taiwan over the course of the last two centuries (Wade, 2003).
If there is a consensus today about what strategies are most likely to promote the development of the poorest countries in the world, it is this: there is no consensus except that the Washington Consensus did not provide the answer (Stiglitz, p. 1, 2007).
The second (and simultaneous) occurring development, is the rise of China and the with it associated reconsideration of the hegemonic position of the US within the global order. As I mentioned in the opening chapter, China has used protectionist measures to enable and maintain its constant economic growth over the past decades. Now, as China gets involved in development financing, the question is raised whether the ‘Washington Consensus’ might now be challenged by the so called ‘Beijing Consensus’. The main difference is that the loan providing institution or country entrusts the borrower to know best how to improve its economy and the standard of living of its population (Ramo, 2004). Therefore, the financing focuses mostly on infrastructure projects that eventually improve the economic situation, instead of investments in the public sector and democracy promotion.
My argument builds on the evaluation of these observations and is complemented by a Neo-Gramscian framework by Li (2014). Within this approach the counter-hegemonic ambition of China is presented and transformations are anticipated. Within an institutional framework the rising state can expand its material capacities in form of economic and political power and spread its underlying supportive ideas. The resulting argument is that three central interest of the Chinese leadership could be decisive for the initiative to create the AIIB.
The first hypothesis is that the AIIB can serve the economic interests of the Chinese leadership and might remedy the evolved production and construction overcapacity of state-owned companies. The second states that the creation of the AIIB can be traced back to the ambition to intellectually challenge the existing development finance consensus and the third possible motivation for the creation of a new MDB is the building of political capacities through the AIIB.
1.3 Empirical findings
To test these hypotheses, I intend to apply a qualitative research design starting with a discourse analysis of statements and speeches by high ranking officials, newspaper and scholastic articles and expert interviews. Secondly, I will conduct a content analysis of the statutes and the released documents of the financed projects of the AIIB and will compare them separately with the strategic orientation and approved projects of the Asian Development Bank.
The results of the discourse analysis suggest that a combination of all three possible interests led to the creation of the AIIB. First of all, the AIIB serves as financial facilitator of the OBOR initiative, which will increase Chinese influence in the wider region and secondly, China's economy which will benefit from the market exploration and the improved connectivity to its consumers in Europe. Both experts emphasised the growing pressure on the existing MDB that the establishment of the AIIB constitutes. China would like to shape the understanding of development financing and uses the AIIB as a political tool to gain more influence in the long-standing MDBs, in particular in the World Bank.
The analysis of the statutes (and the following comparison with the ADB) showed that the AIIB is an alternative draft to the existing MDBs and the ‘Washington Consensus’ shaped MDBs. The process of how the Articles of Agreement were formulated the representation at a higher level on the Board of Directors of Asian countries and the emphasis on infrastructure investment, are all key findings that confirm the hypothesis that China would like to promote an intellectual alternative draft in the field of development financing.
The final section of the empirical research consists of the analysis of the projects that have so far been approved by the AIIB and a comparison with ADB projects financed in 2017. The first finding is that, despite the recent political and military tensions with China, India is profiting the most from the additional funding for infrastructure projects. The evaluation of the project also reveals that the AIIB is co-financing many of the infrastructure projects with existing MDBs. This is interesting because it partly undermines the strategic orientation of the AIIB. This fact also supports the argument that the AIIB is more of a political tool than it is an intellectual draft alternative. Another finding supporting the first and the third hypothesis is the fact that many projects financed by the AIIB are in fact part of the OBOR framework. On the other hand the in-depth analysis of the only project with published information suggests that Chinese firms are not disproportionately favoured over competition from other countries.
To conclude. I found out that there were three driving forces for the establishment of the AIIB. Firstly, while gaining international recognition through the collaboration in a new multilateral framework the Chinese leadership can safeguard its economic, intellectual and especially its political interests.
Secondly, the creation of the AIIB demonstrates the ambition China has to call the existing global order in question with the demand of acknowledgement of its accomplishments, whilst on the other hand it can be seen as a clear commitment to multilateral cooperation with the request of adequate participation.
Finally, China and the Founding Members of the AIIB provide a contemporary approach to development financing that will help to overcome the staggering infrastructure deficit in Asia without intervening in national economic policy. This will increase the pressure on the existing MDBs to revaluate their operations and involve the rising states and the Global South more into the decision-making process.
2
Theoretical approach
In this chapter of the thesis I intend to review the different approaches and theoretical frameworks that have been used in the literature to encompass the understanding of development financing institutions. Every approach listed in this document contributes to the discussion about the intentions driving the involvement of different actors, both in international institutions in general and development banks in particular. This input will then be used to draw a suitable framework that allows us to grasp the underlying motivations that lead to the creation of the AIIB. The structure of this chapter is therefore the following: Firstly, my literature review will introduce the current state of research regarding long standing MDBs as well as the AIIB and the interests of involved actors and in particular the US and China. Secondly, to fill the existing research gap regarding the AIIB in general as well as finding a comprehensive answer to my research question the approach by Sil and Katzenstein (2010), ‘Analytical Eclecticism -
In the study of world politics’ was used. This paves the way for a pragmatic approach that
creates a tailor-made theoretical framework, building on a variety of concrete and abstract considerations. In accordance with this approach, the positions of the main schools of thought in the field of political science were taken into consideration.
2.1 Research Interest and Literature Introduction
The following chapter consists of a thematic orientation in the field of MDBs. I will start by looking into the analysis of longstanding development institutions, especially the World Bank and the IMF. Subsequently, the scholarly evaluation of the role of the involved actors will be outlined, namely the US as hegemon and China as rising power. The final section will give insight into the growing amount of literature regarding the AIIB itself. Within this context, I will highlight the gap in knowledge that this thesis, together with its conducted research, would like to close.
2.1.1
The IMF and the World BankThe idea behind the establishment of the IMF and the World Bank was to balance the growth of the global economy and guarantee peace and stability. Ideally, this should be achieved whilst protecting employment and raising the living standards all over the world. International trade would generate growth by stimulating the productivity in developing countries which would then lead to real income gains and more employment (Woods, 2014). “This vision has been translated into a determination to ensure trade liberalization, privatization of state-owned enterprises, the opening up developing countries to foreign investment and the deregulating of labour markets in Member countries” (Woods, p. 1, 2014). In reality, the interventions undertaken by the IMF and the World Bank, especially in the 1980s and 1990s, had devastating consequences for the countries they were enforced on. The global economy saw itself confronted with essentially three problems. The first was the crisis management in East Asia and Latin America where the IMF and the World Bank were called in to manage and contain the financial crises. The second obstacle that needed to be dealt with was the transition phase that the former Soviet Union found itself in. The introduction of a market-oriented economy had been initiated in the form of ‘shock-therapy’. The third problem the institutions were facing was the fact that the development was taking place in some of the poorest and mostly war-torn countries in the world. They tried to jump start the economy through radical interference in order to fight poverty (Woods, 2014).
One of the most prominent critics, from a theoretical point of view, was Joseph Stiglitz. In his book Globalization and its Discontents (2002) he stated that after working with the World Bank for three years: “I saw first hand the devastating effect that globalization can have on developing countries, and especially the poor within those countries. I believe that globalization - the removal of barriers to free trade and the closer integration of national economies - can be a force for good and that it has the potential to enrich everyone in the world, particularly the poor” (Stiglitz, p. 9, 2002). The problem was the implementation of the ‘Washington Consensus’ and the effects it had for the developing world. “Fiscal Austerity, privatization, and market liberalization were the three pillars of ‘Washington Consensus’ advice throughout the 1980s and 1990s” (Stiglitz, p. 53, 2002). This “one-size-fits-all” proceed disregarded the economic, social and cultural condition in the recipient countries and is responsible for the further on widespread poverty especially in Africa (Rodrik, 2011).
Ngaire Woods (2014) made even further-reaching claims regarding the misguided functioning of both multilateral institutions. In addition to the observations made by Stiglitz (2002) she states that, because of the political nature of the two institutions, every decade had individual financial and political limits and objectives. On top she criticises the ‘turf’ of activities by the staff and management of the IMF and the World Bank: “Like most bureaucracies, these two tend to fall back on existing habits and solutions to deal with unforeseen and unexpected
problems, tailoring their solutions or advice to match available resources. What they do is not just a product of how good their economics is or isn’t” (Woods, p. 2, 2014). In her book The Globalizers she looks into how politics, ideology and economics affect the way these multilateral financing institutions operate and whether they learn from the mistakes they made in the past and therefore adapted their behaviour. The combination of perspectives for the assessment of the two biggest multilateral financial institution is informative for further studies on similar banks, for example as in this case the AIIB.
2.1.2
The US and China in international organizationsThis section will focus on the topic of rising powers, their ambitions and changing role in multilateral development institutions.
Until now, the existing global order has been shaped by institutions that are dominated by Western countries and their values - first and foremost the United States. The following section will review how rising powers, like China, challenge both the rules and leading actors of international institutions and development financing organizations and how on the other hand, the declining hegemony react (Wade, 2002). In the book Power and Economic Institutions by Ayse Kaya (2015) the question is raised, “What is the relationship between states’ economic power and their formal political power in multilateral economic institutions?”. The book accesses the correlation of growing or decreasing international significance of an actor and its influence on institutions, like the World Bank and the IMF. The constant and sustainable economic growth in China is, according to Kaya, not reflected in the multilateral institutions that China is involved in. “Taking the rise of China as an example, some institutional settings will be relatively more responsive to China’s increasing importance in the global economy, while other institutional settings will be more immune to this shift in the inter-state distribution of economic power” (Kaya, p. 7, 2015).
John Ikenberry stated in his essay The Rise of China and the Future of the West (2008) that existing institutions, which are led by the US, should be used to embed rising powers like China. His prognosis is that China will use its growing influence to alter the rule set of the international institutions in order for them to better serve their own interests. Whereas the declining hegemon, the United States, will be threatened by losing its control. Through the engagement of multilateral institutions this conflict could be averted. “The KEY thing for the US leaders to remember is that it may be possible for China to overtake the United States alone, but it is much less likely that China will ever manage to overtake the Western order” (Ikenberry, p. 36, 2008).
A more radical approach to both the ongoing change in power relations in international relations and the interest of a rising power was proposed by Robert Gilpin. “Those actors who
benefit most from a change in the social system and who gain the power to affect such change will seek to alter the system in ways that favour their interests. [...] a rising state attempts to change the rules governing the international system” (Gilpin, p. 186, 1981).
2.1.3
The Consensus DebateThe topic of this chapter is the already mentioned “Conditionality” that was and partly is, imposed on lending countries in return to the granted loans by the hegemon and its allies. The concept behind this policy is the so called ‘Washington Consensus’. The term was coined by the British economist John Williamson (2004) and describes a market fundamentalist approach in the context of development strategies. For Williamson, the foundation of economic development is a series of policy adjustments to enable that country to participate in an increasingly globalized world. Firstly, he proposes internal changes like the privatisation of state owned companies, deregulations of environmental and consumer protection laws, tax reforms and a refocusing of public spending, away from subsidies towards broader investments in infrastructure and basic education and health care. Regarding the external policies, Williamson states that trade liberalization and the admission of Foreign Direct Investments are crucial for economic growth (Williamson, 2004). The IMF and the World Bank Group, both attached the condition of the implementation of the recommended policies, while in return granting loans to the governments of the respective country. Two fundamental critics of the ‘Washington Consensus’ and its implementation are the famous economists Joseph Stiglitz and Dani Rodrik. Their main point of criticism is the “one-size-fits-all” conceptualization and the non-observance of cultural, social and economic country-specific characteristics. The second point of criticism is that the ‘shock-therapies’ carried out in developing countries all over the World, by far did not work for every economy. In some countries, like in Russia, the wave of privatization and liberalization did indeed lead to short-term growth, but the inequality in the oligarchic system that was created also increased rapidly (Rodrik, 2011; Stiglitz, 2002). In order to understand the different ways of thinking about development, one needs to analyse how China has become economically so successful. The reformative statesman Deng Xiaoping decided to slowly develop the Chinese market from a “centrally planned” to a “free-market” economy and emphasized the need for market-supporting institutions. So, instead of the shock-therapy with instant liberalization and privatisation, China shapes till date its own economic development while taking their own cultural and social characteristics into account. Every new legislation regarding economic development was only implemented after careful consideration and passing an experimental phase. By doing so they proved countless economists wrong and demonstrated how governmental interventions can promote development (Rodrik, 2011).
In the context of China's economic development, which is a potential role model for other lower and middle-income countries, the term ‘Beijing Consensus’ was created as an alternative draft to the ‘Washington Consensus’. Joshua Cooper Ramo (2004) describes this paradigm as the reason behind over twenty years of fast and sustainable growth in China. He heavily criticized the self-complacency of developed countries when it comes to transferring the rules of their own success on developing countries. Instead of the often cited one-size-fits-all solutions suggested by the ‘Washington Consensus’ and implemented by the Bretton Woods institutions, he advocates country specific and dynamic development strategies for the individual developing economies (Ramo, 2004).
The ongoing scientific debate (Dirlik, 2004) on the term ‘Beijing Consensus’ also addresses the concerns of the Chinese government's overriding intentions to challenge the global order and supremacy of the United States of America. Stefan Halper, who is the Director of Development Studies at Cambridge University states that the ‘Beijing Consensus’ means a transformation “away from the market-democratic model - and toward a new type of capitalism, which can flourish without the values and norms of Western liberalism" (Halper, 2010).
2.1.4
Existing literature on the AIIBThe field of research concerning the AIIB is growing rapidly. However, most authors, as I will demonstrate, either focus on its role within the global order of existing MDBs or simply on one motivation of the participants who were involved in the establishment of the bank.
The AIIB is often mentioned in the context of the New Development Bank (NDB). A very interesting article published in 2016 predicts the potential role of the AIIB and the NDB in the global financial system. The scholars Larionova and Shelepov calculate in two different scenarios the growth of their loan portfolios. The conclusion of the article suggests that the AIIB will be able, within a timeframe of ten years, to compete on an “eye to eye” level with the regional operating MDBs like the ADB and the World Bank (Larionova & Shelepov, 2016). This prospect shows the importance of getting involved in the scientific debate about this new MDB based on its possible large sphere of action and impact on development financing in Asia.
Bin Gu (2017) focuses on the multilateral character of the AIIB based on his argumentation that the AIIB, under the leadership of China, is following a balancing and complementing approach within the existing order of global governance. Explicitly, he assumes that China is not at all challenging the hegemony of the US within the global order through the creation of the AIIB. Instead he states that China would like to increase the influence of the Global South within this order. Gu (2017) therefore analyses the AIIB in the context of other MDBs and multilateral institutions like the WTO. Part of his argument is the possible economic interests of China to engage and deepen their engagement in the global economic order.
Ikenberry who was previously mentioned in this article because of his intellectual examination of the rise of China and the predicted conflict with US about the dominant position within the global order, wrote together with Lim about the opportunities for China resulting from the establishment of the AIIB and the member influx from all around the world. They argue that the AIIB is a tool of Chinese statecraft that should help to expand its institutional influence. The AIIB is therefore part of an overarching strategy to challenge the existing US hegemony in the global order and needs to be analysed in the context of a network of institutions like the NDB and the Regional Comprehensive Economic Partnership trade agreement (Lim & Ikenberry, 2017).
Peng and Tok (2016) analyse the growing normative power, which China can wield through the multilateral engagement and its role in the AIIB. Their argument is closely related to the ongoing debate on the ‘Beijing Consensus’. In their opinion China will use its growing influence on the international stage to alter the understanding and implementation of development financing. The focus of development financing should therefore be shifted on the individual economic development of a country instead of institution building and the promotion of democracy. Learning from the economic success story in China means, following this article, to invest in infrastructure projects to enable long term and sustainable growth (Peng & Tok, 2016).
2.1.5
Evaluation of the Literature ReviewThe Literature Review provided a necessary overview of the state of research in the field of MDBs. My reasoning is that these institutions and the motivations behind their creation are highly complex. Following the analyses of the existing literature on the AIIB and in particular China’s role therein, it will be interesting to see whether there was more than one reason that led to the establishment of the AIIB. Therefore, I need to build a customized framework to guarantee an extensive answer to my research question. The findings of this literature review also have implementations for my methodological approach. The existing research on the AIIB is mostly based on assumptions by other scholars and statements of political actors. For my research I intend to deepen the analysis of the AIIB in regards to its statutes and projects and present a comparison case to classify my findings. In combination with a discourse analysis and expert interviews I feel well-positioned to gain knowledge on the driving interests of the Chinese leadership that led to the creation of the AIIB.
2.2 Applied theoretical framework
In this segment of the theory chapter I will develop the theoretical framework applied to this thesis and in conclusion I will present the hypotheses resulting from this approach that are tested in the empirical analysis. This process will enable an extensive response to the research question. As briefly mentioned in the introduction to this chapter I intend to proceed in a pragmatic and inclusive way in order to present a sufficient framework.
Following the approach of Analytic Eclecticism by Sil and Katzenstein (2010) I will create a mostly customised theoretical framework, influenced by a variety of scholarly writing concerning the possible interests of political actors to establish and engage in multilateral development institutions. The idea is to be able to build a complex argument. Not with the intention of proofing a metaphysic assumption but to analyse an ongoing process with the underlying motivations as precise and unbiased as possible. This framework should take into account the complexity of ‘real world’ procedures and the multitude of involved actors and their interests and therefore constitute a research approach that prioritizes the answering of scientific issues instead of proving an argument (Sil & Katzenstein, 2010). Following the Analytic Eclecticism, possible interests for the creation of a new MDB from different and partly disported theoretical approaches will be taken into consideration.
2.2.1
Building the frameworkIn order to grasp the underlying interests that drove the Chinese Government to initiate the establishment of the AIIB I will now develop the theoretical framework within which the empirical analysis will take place. The theory is that the applied framework roots in different schools of thought and concerns the concept of counter-hegemony in international relations. During the so called ‘Post War Order’, resulting from the devastating Second World War and shaped by the principles of American Liberal Institutionalism, the US hegemony was seen as a necessity to guarantee stability and peace within the global order. Part of the mission to safeguard this order was the introduction of the Bretton Woods Economic Structure. “The institutionalist school essentially suggests that as rules-based platforms for multilateral cooperation, institutions create a different universe of inter-state interaction, where reputational worries in iterative games, predictability achieved through information-sharing, and greater trust in compliance reign in the place of power” (Kaya, p. 21, 2015). The existing MDBs can therefore be seen as manifestation of the willingness to create global peace and stability with a set of rules dictated by the US. The idea was to embed, much like Ikenberry (2008) stated, non-democratic and raising powers in the system and make it very costly and difficult for them to leave the club again. The developing countries on the other hand, in particular China, consider their influence in this system as disproportionate to their economic power (Ikenberry 2008). It could be for that reason that states such as China are building independent
multilateral institutions as alternatives to US-led institutions. China, as the rising economic power, will eventually challenge the underlying consensus of the dominance of the United States within the existing institutions or, and that could be the case with the AIIB, create their own institutions (Wade, 2011). The specific research interest of this thesis is to find out why China is establishing a new development financing institution within which it takes a leading role.
2.2.2
The Neo-Gramscian TheoryThe Neo-Gramscian Theory analyses how the global order is defined and shaped by an interaction of states, social forces and intellectuals. Cox (1981; 1983). It also studied the rise and decline of hegemonies in the history of the world order. Together with Stephen Gill (1991) he is the pioneer in the field of science focusing on the hegemony from a Neo-Marxist perspective. A transnational elite is responsible for economic and political dynamics and uses the influence for capital accumulation, through institutions like the World Bank, and the consolidation of their power by reinforcing the neoliberal agenda as common sense. The result is, what Cox and Gill call a Historic Block. The so-called transnational Historic Block enables global hegemony by pushing for the standardization and liberalisation of economies around the world.
Today this hegemony might be questioned by the rise of China. Li (2014), who was influenced by the Neo-Marxist school of thought, presents a concept of how such a rearrangement of the global order could be achieved, for example through rules, products, ideology, elites and the adoption of counter-hegemonic ideals. As illustrated in Figure 1, the drive for a new hegemony consists of three elements. The first element is the building of ‘Capacities’, both military but more importantly, economically. The second element would be of an intellectual nature. In order to convince the vast majority to accept or even support the hegemonic structure it takes a far reaching narrative and key actors from academia, media and politics to spread this ‘idea’. The third element of a potentially successful counter-hegemony is the institutionalisation of power and ideas. Therefore, institutions are the manifestation of the rising counter-hegemony and a tool to expand influence (Li, 2014).
Based on this Neo-Gramscian perspective, this thesis will analyse the three elements of China’s counter-hegemonic endeavour in the particular case of the AIIB. The course of history showed that in order for a hegemon to decline and for a new hegemony to take over, the decisive measure was a disturbing dynamic in the global order. One of four crises named by Li is the “Crisis of Authority” (Li, 2014). He refers to Khanna’s Surge of the Second World (2012), a Dependency Theory related approach, which determines the declining influence, control and rule setting ability by the ‘core states’ of the West namely the US and the EU. The “Dependency Theory” finds that in order to conserve the status quo, the developed core states create growing dependency in lesser developed periphery countries. By spreading the ideal of capitalism into the developing world the core countries try to integrate the periphery states in an ongoing global economic competition with heavily differing starting conditions. By providing political advisory and loans to implement the political and economic reforms the core state elites gain influence and dependency. Foreign competition is invited by the opening of markets and creates new sales markets for transnational corporations from the core states while superior products and big-scale production is bankrupting local competitors (Baran, 1957; Khanna, 2012). Explicitly, Li names China as the potential power to challenge the hegemonic power of the ‘First World’ (Li, 2014). The unwillingness of the US to embed and specially to listen and adapt to input from China in institutions like the World Bank and the IMF might now be a possible driving force for the establishment of the AIIB.
The resulting evaluation of the Literature Review in combination with the theoretical discussion on “Counter-Hegemony” has lead me to three hypotheses that I intend to test through the empirical analysis.
Hypothesis 1: The establishment of new development banks could be a tool for
the Chinese elite to pursue economic interests.
The investment in infrastructure projects in the region could help to create new sales markets for Chinese products and provide employment for Chinese workers. The additional funding for infrastructure projects provided by the AIIB might help fight possible overcapacities of the Chinese economy. The new infrastructure could not only open up new markets for Chinese production but it might also improve the connectivity towards the already opened-up markets e.g. in Europe and in the US. Following the Dependency theory, China could try to leave the status of a periphery state behind and establish itself as the new centre of global production and trade. This hypothesis is also related to the above-mentioned predictions regarding possible economic interests of the Chinese leadership by Gu (2017).
Hypothesis 2: The AIIB is an intellectual countering of the Western dominated
development financing consensus.
The Neo-Gramscian approach argues that the dominance of the existing institutions is supported by the intellectual narrative of the successful free market economy. The ‘Beijing Consensus’ is not only challenging the “idea” but also the “tools” used by the ‘Washington Consensus’ driven development banks. This could explain why China is interested in establishing a new institution for development financing. Its own economic development in the absence of democracy and an open market economy is the evidence for challenging the Western dominated understanding of a development policy. The scope of the AIIB could be more focused on infrastructure projects in comparison to the ADB which is also in Asia. The AIIB would not attach too much importance to building a national institution, the promotion of democracy or the compliance with human rights and therefore would not interfere with national politics. Therefore, this new MDB would be shaped in compliance with a Chinese understanding of economic development. Its main objective being a development financing institution influenced by the ‘Beijing Consensus’, which would be used for the promotion of economic and infrastructure investments which would help to build up sectors that eventually can compete in the global market. The existing research in this context only focused on the formation process of the AIIB and not, as I intend to do, on the operations of the new MDB.
Hypothesis 3: China might promote political interests through the AIIB. This hypothesis sees the AIIB in the context of Chinese foreign policy considerations. The AIIB might be used as a tool to expand Chinese influence in the region and on the stage of global cooperation. In order to exert influence through the AIIB the Chinese leadership should have as much control within the AIIB as possible. For example, this control would then be used to implement strategic projects along the New Silk Road. Another way to utilize a MDB would be to build up pressure on the already existing development Banks like the World Bank and the ADB, to recognize the growing political significance of China and to revaluate its role and position itself amongst the existing multilateral institutions. Therefore, the establishment of the AIIB could be a result of the unwillingness or incompetence to listen and adapt, to the input given by China and other developing countries within existing MDBs.
3
Empirical analysis
In the third section of this thesis the methodological approach selected for the empirical research will be presented and advocated. The main objective in the choice for the applied methods is to ensure the best possible evaluation of the underlying interests the Chinese leadership had when initiating the establishment of the AIIB.
The following chapter will test the hypotheses set in the previous theoretical section. The first dimension of research consists of a discourse analysis of speeches and statements made by high-ranking officials that might provide insight into the driving interest of the Chinese leadership. This discourse will be complemented with articles by scholars and financial experts and in particular the two conducted expert interviews. In the second research dimension I will evaluate the statutes of the AIIB and the approved projects. This section also features a comparison with the Asian Development Bank to work out the differences with respect to the existing MDBs operating in Asia. This will lead me to the closing chapter of this thesis where the outcome of this project will be discussed and potential room for subsequent research will be pointed out.
3.1 Methodology
In order to visualise the driving interests that led to the initiating of the introduction of a the AIIB I carried out qualitative research that consists of a set of methods and sources to guarantee a detailed examination. From the question raised at the beginning and the associated research objective, the methodology to be used now emerges. For a qualitative research, the research design only provides the rough framework within which the research objective can be achieved by a suitably selected methodological approach and the evaluation of the empirical findings.
In the course of this study I decided to use the triangulation approach, which was conceived by Norman Denzin (1970). He distinguishes four types of triangulation - sources, methods, researchers and theories. Within this research strategy it is possible to combine, like in this thesis, forms of triangulation. For this research I am guided by the article by Downward and Mearman (2004) and I outline the framework for the method and source triangulation in economic research. The two main reasons for involving more sources and methods is firstly to collect sufficient empirical evidence to enable the answering of the research question. By collecting empirical data from different sources and using different methods, the validity of the empirical data is improved. Secondly, to avoid the lack of sufficient insights the triangulation enhances not only the quality but also the quantity of information (Downward & Mearman, 2004). In a political discourse analysis, the lack of transparency and honesty in regards to the motives of politicians and bank staff complicated the fact-finding. In order to guarantee a more
in-depth analysis I decided to complement the research with expert interviews and the factorial discussion.
For the first perspective I will analyse the political and academic discourse on the driving interest behind the creation of the AIIB. The design of this analysis is inspired by the Political Discourse Analysis formulated by Teun van Dijk (1997). Following this approach, the evaluation of speeches and interviews by high-ranking officials, both in the Chinese leadership and in the AIIB is used as a starting point. The examination focuses more on the content then on the linguistic dimension of the research subject and is conducted as objective as possible - a clear differentiation to the Critical Discourse Analysis. The discourse also includes the statements of academic scholars and financial analysis on the topic. In addition, I have conducted semi-structured expert interviews with academic specialists on the emergence of the AIIB for the purpose of addressing specific concerns that could not been adequately answered by consulting my remaining sources. Therefore, I developed a catalogue of five questions (see Appendix A) aiming to confront the academic experts with the hypotheses and the ongoing political and academic discourse. For the interviews I chose Dr. Jiajun Xu, an Assistant Professor and the Executive Deputy Director of the Centre for New Structural Economics at Peking University and Dr. Christopher Humphrey, researcher at the NADEL Center for Development and Cooperation at ETH Zurich. Both are experts in the field of MDBs and have published on the Chineses involvement in the AIIB (Humphrey, 2015; Xu, 2015, 2016). As evaluation method for the taped interviews a selective transcription was chosen with close consultation with the interviewees (Misosch, 2014). The transcript of the two expert interviews is attached in the appendix of this thesis (see Appendix A).
The second component of the conducted research consists of a content analysis of the statutes and the project protocols provided on the website of the AIIB. The results of both evaluations are set in context of the statutes and project information from the ADB in from of a comparison case study. My research strategy, following Yin (1981), is to analyse the newly established AIIB and contrast it with a long-standing case of multilateral development financing in Asia, the ADB. Within this comparison the differences are outlined and interpreted. This insight will then be used to test the three hypotheses constructed in the theory chapter.
3.2 Discourse analysis of official statements, newspaper articles and scholarly
contributions
In the first part of my empirical analysis, I will analyse the discourse on the AIIB and more precisely the driving interests from the Chinese leadership to establish this new MDB. Therefore, I have evaluated speeches from high-ranking officials from China and from the AIIB, newspaper articles about the topic written by financial experts scholarly contributions such as
scientific papers and most importantly the expert interviews I have conducted. In the context of this analysis, I will test my hypotheses.
3.2.1
The AIIB in the context of OBOR, TPP and RegionalismI will begin with the analysis of the discourse regarding the contextual classification of the AIIB and how officials, financial analysts and scholars locate it within a regional and supra-regional framework. The initiative of the establishment of the AIIB coincided with the announcement by Chinese President Xi Jinping of the One Belt One Road (OBOR) initiative during his visit to Kazakhstan in September 2013. This strategic framework of building the “Silk Road Economic Belt” and a maritime counterpart, the “21st Century Maritime Silk Road,” combined referred to as the OBOR initiative, seems to be comprehensive, focused, and personal to President Xi (Johnson, 2016). The Chinese proposal for the increase in infrastructure spending reaching from Asia to Africa and Europe has its own economic drive. China and its very China-centric perception of economic integration and growing connectivity exists to serve its interests and guide its rise as a regional, and later global, power. The question remains how China will incorporate the interests of its neighbouring countries in order to achieve the implementation of the OBOR initiative (Mishra, 2016). Following a report issued by the Congressional Research Service in the US: “Xi Jinping's overarching goal is to leverage China’s economic power to build a network of new institutions, inspired by new ideas, to pursue new projects that will knit Eurasia, the South Pacific, and Eastern Africa into a tight network of economic, cultural, political, and strategic relationships” (Weiss, 2017). During my expert Interview with Dr Xu she doubted that Chinas has a grand strategy to overthrow the US hegemony. China is more pragmatic and wants to foster regional integration in Asia which will benefit both China and other countries in the region (Interview 1 with Dr Xu, No 6).
From this more geostrategic and counter-hegemonic perspective, the Chinese incentive to establish a new multilateral development bank under their leadership might also be related to the Trans Pacific Partnership (TPP) agreement put forward by the US. The agreement, from which the new US leadership under Donald Trump has withdrawn in 2018 (BBC, 2018), was negotiated without China but with Vietnam. “After all, Vietnam is also a command economy with huge state-owned enterprises, opaque regulations and a keen disregard for intellectual property” (Pilling, 2013). The “Anything but China Club” (Pilling, 2013) consists of 12 countries, including Australia, Brunei, Canada, Chile, Japan, Malaysia and Singapore, and makes up a third of world trade and 40% of global output (Pilling, 2013). Scholars assume that the US and its close allies in the Asian-Pacific region had the intention to create external pressure on the Chinese leadership in order for them to further liberalise its
economy and to exercise control over the rules of trade in East and Southeast Asia (Naughton et al., 2015, Solis, 2013).
The Chinese incentive for the establishment of the AIIB can therefore be seen as part of a geostrategic strategy against the present American influence in Asia. “International politics has had a role to play in China’s decision to establish the AIIB and that, together with OBOR, it is part of a soft-balancing strategy to counter the US’s ‘containment’ policy in the region” (Chan 2017). Looking at the growing number of member states of the AIIB and the list of countries that negotiated the TPP agreement, overlapping can be found. In the long-run, the combination of new financial institutes that facilitate infrastructure investments and regional integration could benefit Asian and American countries. As Dollar (2015) has stated both processes could eventually even complement each other in regards to the regional integration in Asia: “The kind of infrastructure financed by the Chinese initiatives is the “hardware” of trade and investment, necessary but not sufficient to deepen integration. TPP, on the other hand, represents the ‘software’ of integration, reducing trade barriers, opening up services for trade and investment, and harmonising various regulatory barriers to trade” (Dollar, 2015).
Following the global financial crisis in 2008, the resulting far-reaching recession and the consequences for China’s potential for continued export-led growth, the Chinese leadership was in search of a new narrative for its foreign policy. The main objective was “the expanding of markets for Chinese exports, improving security for China’s energy imports via overland routes, increasing China’s soft power through greater cultural and tourism exchanges, contributing to regional economic integration, and improving China’s regional security” (Gan as cited in Callaghan & Hubbard, 2016).
The geographic positioning of China with a huge landmass between its production sites and the consumers in Europe is the biggest obstacle that needs to be overcome in order for China to sustain its economic growth. Most of the countries to its west, however, have very poor infrastructure and are in need of financial assistance. “The AIIB is one of more than a dozen financial integration initiatives by China aimed at promoting the Silk Road initiative, which encompasses regional bond markets, bilateral currency swaps and the internationalisation of the renminbi” (Callaghan & Hubbard, 2016).
The AIIB leadership itself made it clear that it interprets its role as an independent entity with no compulsion to favour projects within the OBOR framework. Laurel Ostfield, the Head of Communications at the AIIB, argued: “So the OBOR is an initiative put forward by the Chinese government to promote connectivity in Asia; AIIB, our mandate is to use infrastructure to improve economic development in the region. There are naturally going to be overlaps with the investments that we make, but they are still separate entities” (Ostfield cited in Shepard, 2017). With regard to the projects the AIIB is granting loans to she stated: “If a project comes to you and it's One Belt, One Road are you going to invest in it?' Well, we could, but just because it's One Belt, One Road doesn't mean we will” (Ostfield cited in Shepard, 2017). In line with the statements by the Head of Communications of the AIIB, Mr. Alexander, vice-president of the AIIB, said: “We have member countries that are enthusiastic about BRI (OBOR) and member countries that are not enthusiastic about BRI. We finance projects in those countries irrespective of any engagement or politics or whatever” (Alexander cited in Kynge, 2018). The analysis of the discourse of the classification of the AIIB shows some inconsistencies. With regards to the hypotheses there are indications to support the statement that China uses the AIIB to implement its OBOR initiative as a political tool.
At the 2015 summit of the Asian-Pacific Economic Cooperation in Beijing, President Xi Jinping said that “only when there is a road can people and things flow” (Xi Jinping cited in Xuequan, 2015). The desired economic advantages from the infrastructure investment framework OBOR are the expansion of markets for Chinese exports, the hedging for China’s energy imports via overland corridors and overall regional economic integration (Gu, 2017). “AIIB will also play the role of a ‘financial’ facilitator for the OBOR initiative, which will eventually work to China’s advantage to expand its economic clout” (Mishra, 2017).
The choice of words the Chinese president used in the opening ceremony of the AIIB about his vision of the scope of the new development financing institution, shows the parallels in his perception: “It (AIIB) will bring a better investment environment and more job opportunities and trigger greater medium to long-term development potential on the part of developing member countries in Asia. This, in turn, will give impetus to economic growth in
Asia and the wider world” (Xi Jinping, 2016). For Xi, the AIIB is therefore part of the economic strategy with a main focus on the economic integration in Asia.
The academic perception of the economic driving forces for the establishment of the AIIB paints a less altruistic picture. “China’s need to export its production overcapacity in order to arrest its domestic economic slowdown” (Chan, 2017). The fact that most countries on the new Silk Road and the other members of the AIIB are less developed than China creates the opportunity to expand its market and to regionally integrate the perspective of leading and making the rules. This includes challenging the predominant position in infrastructure investment and high-quality constructing of Japan. Therefore, the AIIB should promote more basic infrastructure development projects as opposed to the Asian Development Bank (Panda, 2017). The long anticipated economic slowdown in China reveals structural difficulties as well as a market dependency. “As labour costs rise and manufacturing losses mount, China’s planners see the export of excess production capacity as a way out of its industry-heavy trap and a path to economic transformation” (Lelyveld, 2015). The AIIB is seen as a part of Beijing’s banking policy to financialise the infrastructure development overseas. The second advantage is for construction companies to be able to globalise themselves by competing within the tendering processes of the approved projects. Especially in sectors like solar energy, steel, cement and construction, the AIIB will help to create new markets for the surplus volume. This will aid in generating revenue for state-owned enterprises and further strengthen regional integration with China in a leading role. The AIIB is complementing the OBOR framework in combination with the New Development Bank by adjusting the focus of development financing on basic South-South infrastructure investments. Ultimately, this could help China to emerge as the epicentre of the new global economic order (Panda, 2017). “The AIIB allows China to deepen its economic engagement with the rest of the world, fostering the development of such supportive constituencies, and potentially eroding the bilateral political influence of the United States” (Ikenberry & Lim, 2017). Following the celebrations for the one-year anniversary of the AIIB, the conclusion was that China’s interests are safeguarded quite well through this new multilateral development bank. “Under the auspices of the AIIB, China has therefore been able to advance its soft power, expanding its economic interests while gaining acceptance on the world stage. The AIIB one-year anniversary can be said to be a successful one” (Hsu, 2017).
Peter Garber, a financial analyst at Deutsche Bank, predicts an increase in oversea projects won by Chinese construction firms due to their ability to outbid the foreign competition through higher efficiency and lower costs. With regard to the tendering process in the AIIB he stated: “Even if China had limited control over the loan contracts, AIIB projects were likely to employ Chinese builders even if the awarding of contracts was conducted by objective standards and competitive bidding” (Garber cited in Wright, 2015). Two years later, and after the first tendering processes have started, the high standards set by the AIIB and the fact that
most projects are co-financed with the World Bank or the ADB leaves the critical observer with a different impression. “If a Chinese company wants to win the bid for an AIIB-financed project, it must conform to the high standards that apply to all phases of the project” (Gu, 2017). Following this debate, the operations of the AIIB will be closely evaluated in the chapter about the project analysis.
A summary of the main findings of this discourse analysis show that the leadership in Beijing is eager to refer to the AIIB as a multilateral project designed by its members for the purpose of financing infrastructure projects in Asia and promoting regional integration. This can be seen as an indicator to support the second hypothesis that China might have altruistic motives and intellectual considerations for the development of Asia. The academic perception of the AIIB is critical in regards to this self-perception and assumes underlying economic interests not only from the high officials of the Chinese leadership, but also from the state-owned construction and production companies. This on the other hand would support the first hypothesis, stating that China initiated the establishment of the AIIB particularly with regard to economic interests.
3.2.2
Voting rights in existing MDBs and the AIIBAnother important possible driving force for the establishment of the AIIB is the disproportional distribution of voting shares in the existing MDBs. “For years, many around the world have called for reforms to the IMF’s governance to give other countries a greater voice in decision-making. To date, those efforts have been largely stymied” (Subacchi, 2015). Looking at the recent developments in the World Bank and its vote sharing system, there is no denying that China wants to play a more prominent and influential role in the existing MDBs. While China’s economy accounted 2015 for nearly 15% of the global GDP, its voting shares were at 4,45% in the World Bank. Through the recent bank capital increase of $13 billion and some small voting cuts from other countries, China now has 5,71% of the voting share (Zumbrun, 2018). Still, “the developing countries voting shares in the existing institutions has not been growing as fast as their proportion in global economy” (Interview 2, Dr Humphrey, No 4) stated Dr Humphrey and added:
China wants to capitalise the World Bank and other MDBs more, not only to foster infrastructure investment but to get more saying, but the other shareholder won't let them. China cannot channel its financial resources towards international development and towards more influence within the existing institutions. So is set up two new MDBs and many other countries, also many Western ones were happy to join. (Interview 2, Dr. Humphrey, No 5)
Not only the voting structure of the existing MDBs was a driving force that lead to the establishment of the AIIB, but also the fact that China might want to reform the way development is financed and implemented. The rising economy develops into what Ikenberry and Lim call an ‘authority-seeking stakeholder’. China seeks to become a more prominent voice and will then try to exert influence on the formal processes of the institution (Ikenberry and Lim, 2017). China has reservations regarding the operations of the World Bank and would like to bring their experience on development to the table (Interview 1 with Dr XU, No 3). One example for a different approach in the AIIB is the non-application of the Country Policy and Institutional Assessment (CPIA). Within this framework, which is applied by the World Bank, countries with the right policy and institutions are more likely to receive aid. But the benchmarks set there are uniform and not individual. China is criticising this universal benchmark, because there is no blueprint of what works best for a country, which does not ignore the different development stages. That is why the AIIB does not have this kind of evaluation (Interview 1 with Dr Xu, No 10). The AIIB instead focuses on productive investments rather than of policy adjustment loans (Interview 1 with Dr Xu, No 8).
Dr Xu agrees that China has very limited influence in existing MDBs and would like to enhance its influence in the World Bank and the ADB. The progress was slow, and thus the Chinese government decided to establish the AIIB to build competitive pressure on the World Bank (Interview 1, Dr XU, No 1). Ikenberry and Lim argue along the same line by coming to the conclusion that the AIIB is a political tool of Chinese statecraft through which the rising power uses its authority to build bilateral or multilateral influence and in a long-term, challenges the hegemony of the US. They argue that while the establishment of the AIIB will not, particularly in a short term, erode the standing of the United States in the international order, it marks the starting point for a counter-hegemonic development with China as the peer competitor questioning the unchallenged position of the United States as leader of the global order (Ikenberry & Lim, 2017).
Dr Xu concludes that the AIIB can be seen as a new World Bank, modelled after the experiences and ideas of China, because it leaves the policy choices to the countries (Interview 1 with Dr Xu, No 9). This is a point where Dr Humphrey disagrees. He states that although China is not reinventing development financing, they have the opportunity to test some new ideas and ways of operation, for example that the President of the AIIB can approve loans on its own up to a certain amount (Interview 2, Dr Humphrey, No 14).
This discussion is another indicator for the verification of the hypothesis that China has established the AIIB first and foremost as a political tool - in this case to build up pressure on existing MDBs. As Dr Xu said towards the end of our interview, China is not trying to challenge the US hegemony but is playing the role of a reform-oriented stakeholder within the existing
institutions and with the AIIB (Interview 1 with Dr Xu, No 11). The Chinese leadership is very pragmatic in that sense and tests what works instead of coming up with a new universal framework (Interview 2, Dr Humphrey, No 15). Following this statement and the previous discussion, the second hypothesis about the intellectual conviction of the Chinese leadership to change the understanding of development financing played a subordinate role for the establishment of the AIIB.
In conclusion to the analysis of the ongoing discourse regarding the driving interests of the Chinese government neither of the three hypotheses can thus far be confirmed nor debunked completely. When analysing the underlying interests driving a complex decision like the establishment of a new MDB, it is difficult to establish a final and definitive answer. All three interests described in my hypotheses seem to have played an important role for the Chinese initiative for the AIIB. In the following two chapters an in-depth analysis of the statutes, strategic orientation and the projects will provide reliable proof to answer my research question adequately. This is necessary because of the insufficient and inconsistent information the analysis of the political and academic discourse has revealed.
3.3 Comparison of the statutes and strategic orientation of the AIIB and the ADB
When the founding members of the AIIB came together for the first conference they started to work out the Articles of Agreement (AoA) in 2014. These have been analysed in the course of this research with the purpose to indicate the function, scope and strategic orientation of this Multilateral Development Bank. Through the comparison of the two multilateral development banks, I intend to find out about the differences in structure and scope of the AIIB and the ADB as well as their underlying ideology. First, I will present the membership agreement, the shareholder structure and the governance of the AIIB before focusing on the strategic orientation of the AIIB. In the concluding part of this section, I compare and evaluate the findings with the ADB.
The membership is regulated in Article 3 of the AoA and states that the membership is open to members of the ADB and the International Bank of Reconstruction and Development (IBRD). In June 2018, the AIIB consists of 86 approved members from six continents (AIIB, 2015). The 57 Prospective Founding Members negotiated the Articles of Agreement and became Founding Members by signing and ratifying it in their home country (Article 3, AoA, 2016). The leadership in Taiwan expressed the interest of becoming a Prospective Founding Member. The attempt, much like in the case of similar efforts to join international organisations, was blocked by the Chinese leadership without naming any reasons. Later on, a spokesman of the Chinese Taiwan Affairs Office stated that Taiwan could, under the right name, still
become a member of the AIIB. In recent years, Taiwan has used the name ‘Chinese Taipei’ to join multilateral organisations independently from China (Chiu & Chen, 2015). The United States and the unofficial leader of the ADB, Japan, are to this date not members despite the repeated invitation by the banks leadership. Leaders of both countries have expressed concern about the operations of the bank. Over two years later the choice of words, at least in Japan, has changed and they indicate the critical analysis with a potential accession in the near future (Lu, 2016).
The shareholder structure of the AIIB is regulated in Chapter 2 of the Articles of Agreement; namely Article 4 to Article 8. The Authorised Capital Stock of the AIIB is $100 billion, which is divided into 1 million shares of $100,000 each. The allocation of shares is based on the size of the members economy, which is calculated using GDP Nominal (60%) and GDP PPP (40%), the origin of the member (Asian or Non-Asian country) and whether the member has authorised the capital to full extent (Article 4-8, AoA, 2016). As visualised in Figure 3, Asian countries account for 75% of the AIIB’s voting shares. Following this distribution, China holds a veto power. Though this might change in the near future as President Jin Liqun stated at the World Economic Forum in Davos in 2016. Further member growth will alter the share distribution in as far as China will no longer have a blocking minority anymore. He emphasised that China, in comparison with the US in the World Bank, has no legal claim for a certain voting share (Jing, 2016).
