C3S Paper No. 0135/ 2015
Yesterday in Beijing, 50 founding members of the Asian Infrastructure Investment Bank (AIIB) signed the Bank’s Article of Agreement (AoA) and laid ground rules for officially inaugurating the Bank, thought to be challenging Bretton Woods financial institutions like International Monetary Fund (IMF) and the World Bank (WB). There are seven more prospective founding members that will sign the agreement once approved by their domestic legislatures. People’s Daily, the official mouthpiece of the Communist Party of China reported that 57 ‘passengers’ are ready to board the ‘luxury coach’ of AIIB valued at $100 billion.
The size of the shares has been in accordance with the GDP strength of respective countries. 70-75 per cent of the shares would be held by the Asian countries, while 25-30 per cent could be allocated to non Asian countries. China has contributed USD 29.78 billion making it the largest shareholder with 26.06 per cent of the total votes, enabling China to be the sole veto power. However, the analysts are of the view that China may not exercise this veto in actual functioning of the Bank. As speculated, China will be the president of the bank, however, countries like India and Russia may settle for vice presidency of the Bank. China had earlier proposed the idea of ‘one president and 10 vice presidents’.
The importance of the AIIB lies in the fact that it is the outcome of the Bretton Woods System that has been on shaky grounds after the 2008-09 financial crises as well as the present Greece debt crises, a reminder that if the institutions like IMF, the WB and ADB continue to attach strings to the developmental aids and loans, there is going to be a serious demand for alternative institutions like AIIB. Especially when the global economic recovery is weak, the establishment of such institutions will promote infrastructural as well as social and economic development in the regions. Even if AIIB does not challenge the existing financial institutions, it would be seen as complementing the existing order.
China has all along argued that the AIIB would be an inclusive, open and constructive multilateral institutions, it would be a collaborative project aimed to achieve mutual benefits and a platform for providing financial assistance to various regional, sub regional and trans- regional infrastructural development. More importantly, China has linked the AIIB to President Xi Jinping’s ‘Belt and Road’ initiative that intend to link Asia to Europe by land and sea routes. Like the ‘Belt and Road’ initiative the idea of AIIB was also floated by President Xi Jinping in October 2013 while visiting Southeast Asian countries. A year later on the sidelines of the APEC meeting, 21 Asian countries signed the MOU of setting up such a bank, India being one of them.
Being the founder member of the AIIB and BRICS Development Bank, and likely to enter the Shanghai Cooperation Organisation (SCO) shortly, can India afford to have an error of judgement as regards the ‘Belt and Road’ initiative of China in the same way the US did in the case of AIIB? Ignoring US’s ‘concerns’ about ‘accommodating China’, today half of the European Union has joined the AIIB, and many more countries are likely to follow the suit in coming time. However, how do we proceed?
First and foremost, India has been the part of ‘Belt and Road’ initiative by way of signing Bangladesh, China, India, Myanmar – Economic Corridor (BCIM-EC), more importantly the corridor is not only the part of Silk Road Economic Belt but also the 21st Century Maritime Silk Road. India has been going slow on the corridor owing to problems such as insurgency, rebels finding sanctuary in Kachin and Kokang areas of Myanmar where China has a definite strong influence, narco-arm nexus in the region, terrorism and refugees etc. issues. These are harsh realities in the region, where India needs to deliver on social development while tackling these complex issues. However, since the issues proliferate to other BCIM countries, India must adopt a bilateral or multilateral approach. The best way forward would be a BCIM joint security mechanism under the ambit of which one and all issues pertaining to security could be discussed and resolved.
On the other hand, if the ‘Belt and Road ‘initiative serves China’s overcapacity, new technologies like bullet trains and rich cash rightly, it also provides opportunities for developing countries in Asia to overhaul their infrastructure and develop capacities. Moreover, even if the initiative is a counter to ‘US pivot to Asia’, taking sides may prove costly for India from either perspective; therefore, India needs to calibrate its policy keeping its national interests and goals in mind. If the “Belt and Road” plan offers great opportunities for India, the US Silk Road Strategy and Russia’s Eurasian integration strategy is equally attractive; India must have multiple options to take advantage of the different integration projects going on in Asia and Central Asia.
Furthermore, if China has been assertive in the Indian Ocean, so must be India in our immediate and extended neighbourhood. That said, it does not mean that India cannot cooperate with China on Maritime Silk Route. In fact MSR offers immense opportunities for India to develop our infrastructure in coastal areas and build world class facilities with the help of new financial institutions like AIIB, BRICS Development Bank and Silk Road Fund. In this context Prime Minister Modi’s vision of ‘Bharat Mala’ and ‘Sagar Mala’ should be in sync with the ‘Belt and Road’ projects. Not only this, China says that ‘project Mausam’ and ‘spice route’ could also form part of the ‘Belt and Road’ plan.
Finally, irrespective of India on board or not, China will continue to go global. The conclusion of various free trade agreements (FTA) with nations across continents is going on a brisk pace, Australia-China FTA being the latest one. There are concerns about overstretching Chinese capacities and capabilities even within China, however, China has resolved to go ahead with the vision, for China believes that SREB and MSR is going to be important drivers of regional as well as global economic growth, for it encompasses a population of 4.4 billion with a collective GDP of USD 21 trillion, which is seen as an opportunity to transform its pattern of economic development as well as the optimization of its economic structure. If India has welcomed and joined initiatives such as BRICS Development Bank and AIIB, there would be no harm in joining the Belt and Road initiative.
(Prof. B R Deepak is Professor of China Studies at the Centre of Chinese and Southeast Asian Studies, Jawaharlal Nehru University, New Delhi. The views expressed are his own. He could be reached at bdeepak@mail.jnu.ac.in)
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