What Is China’s Infrastructure Bank All About?

The US wanted to isolate China on the project but now several European allies are joining the Asian Infrastructure Investment Bank

Chinese President Xi Jinping, center, shows the way to guests who attended the signing ceremony of the Asian Infrastructure Investment Bank at the Great Hall of the People in Beijing. China, Oct. 24, 2014. (AP Photo/Takaki Yajima)

At the end of the day, the issues surrounding the Asian Infrastructure Investment Bank (AIIB) are about politics, not economics.

So let’s first get the economics straight. The AIIB is an organization founded by China and India in 2014, which has $50 billion to $100 billion to lend out, hence the name bank. The bank will loan out that money to government and private sector projects in Asia, mostly for infrastructure, hence the name infrastructure and investment.

Comparable international organizations include the World Bank and the International Monetary Fund, as well as the Asian Development Bank (ADB), which have been doing these things for decades, sometimes more and sometimes less successfully.

In fact, Europe and Australia can control the activities of the bank from inside and not from outside, an option the United States still has as well.

The goal is to develop infrastructure in Asia, which can hardly be a bad thing.

In addition, compared to the ADB ($163 billion), IMF ($737 billion), and World Bank ($352 billion), the scope of the AIIB is rather small.

So what is all the fuss about? The Australian’s Greg Sheridan thinks it’s all about politics:

“The decision by the Abbott government to sign on for negotiations to join China’s regional bank, foreshadowed by Tony Abbott at the weekend, represents another defeat for Barack Obama’s diplomacy in Asia.”

For some reason, the Obama administration wanted to isolate China on the project, urging Australia and European nations not to join. It failed, as the U.K., Germany, Italy, and France are now negotiating their entry passes.

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However, pressure from the United States to keep Europeans and Asians from joining was hardly necessary. Yes, the United States provides a counterbalance to China in the region for good reasons, but the AIIB is not one of them.

China has been active in creating infrastructure in developing countries in Asia for years on its own, often garnering severe criticism on the management of projects.

If it is now developing infrastructure together with Europe and Australia, it will actually decrease its influence on individual projects.

In fact, Europe and Australia can control the activities of the bank from inside and not from outside, an option the United States still has as well.