Development financing Florian F./Flickr

New-Model Development Finance

China’s establishment of the Asian Infrastructure Investment Bank is the latest sign of a broader move away from the view that aid to developing countries is best provided in the form of massive government-to-government transfers. Ironically, it may be the US, which opposed the AIIB’s creation, that is leading the shift.

WASHINGTON, DC – China’s success in establishing the Asian Infrastructure Investment Bank has been widely regarded as a diplomatic fiasco for the United States. After discouraging all US allies from joining the AIIB, President Barack Obama’s administration watched as Great Britain led a raft of Western European countries, followed by Australia and South Korea, into doing just that.

Worse, the Obama administration found itself in the position of trying to block Chinese efforts to create a regional financial institution after the US itself was unable to deliver on promises to give China and other major emerging economies a greater say in the governance of the International Monetary Fund. The administration had pushed European countries to accept less representation on the IMF Board and increase China’s voting share from 3.65% to 6.07%, only to prove unable to win the support of the US Congress. Once again, Obama found himself stymied abroad because of political paralysis at home.

From a geopolitical perspective, China’s AIIB initiative is a bold and successful gambit in what Ely Ratner, a senior fellow at the Center for a New American Security, describes as “an institutional competition for global governance that has now officially begun.” China will control a majority of the voting shares in the AIIB, initially capitalized at $100 billion. Unless the Western victors of World War II can update the rules and institutions that underpinned the post-war international order, they will find themselves in a world with multiple competing regional orders and even dueling multilateral institutions.

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