Posted by: John Elliott | March 30, 2015

China demonstrates its power as US allies defect to its investment bank……

….and Beijing makes moves on possible Afghan Taliban peace talks

China is winning, of that there can now be no doubt at a time when most world powers are falling in with its plans, either in kow-tow mode like the UK or with a somewhat more upright stance like India, or somewhere in-between. The weakest-looking country in this scenario is the US, whose super-power status is being challenged rather faster than it expected, causing it  to lose influence over its allies including the usually-eager UK.

The trigger for this assessment is not renewed Chinese aggression in east Asia, the South China Sea or the borders of India, nor is it China’s power plays in established international organisations or financial markets.

Instead it is China’s plans for a new Asia Infrastructure Investment Bank (AIIB), plus its growing interest in becoming involved, maybe rather more precariously, in Afghanistan’s expected peace talks.

Both initiatives demonstrate the diversity of its growing international self-confidence and ambitions under President Xi Jinping, who took office a year ago. The initiatives fill gaps that China has spotted in existing arrangements – Asia’s need for massive infrastructure investment, and the diplomatic vacuum left in Afghanistan at a time when talks with the Taliban seem likely and the US gradually withdraws.

DavidCameron XiJinping Beijing Dec '13Tomorrow, March 31, is the deadline that China has set for countries to apply for founding membership of the new AIIB, and nearly 30 have already done so.

The UK hit the headlines when it said it would join, prompting a US official to issue a rare criticism of a long time friend. “We are wary about a trend toward constant accommodation of China, which is not the best way to engage a rising power,” the un-named official told the Financial Times.

David Cameron, Britain’s (possibly out-going after the May 7 UK general election) prime minister, deserved the kow-towing reprimand because he has constantly followed a pro-China line since Beijing side-lined him as a punishment for meeting the Dalai Lama in London in May 2012. He mended his ways in Beijing’s eyes and met President Xi in the Chinese capital in December 2013 (above) with a posse of other British ministers. In practical terms, Cameron hopes that doing what China wants will increase investment in the UK, though there is little evidence yet of that happening.

The UK was the first of America’s European allies to line up and was followed later by France, Germany and Italy. Others saying they want to become members have included Russia, Denmark, South Korea, the Netherlands, Brazil and Turkey. America’s staunch ally Australia held out till March 29, then caved in.

The US is now having to reassess its position. The only significant ally it has left after losing Australia is Japan, which fears Chinese domination of the bank’s decisions and a lack of attention to environmental protection and controls over fundraising and quality of projects. Japanese businessmen are however lobbying for the country to join and it is forecast in the FT to do so by June. Australia said yesterday that no one country should control the bank.

modi-xi-swing1 - IndianExpressIndia became involved last year when the bank was first mooted, demonstrating prime minister Narendra Modi’s pragmatic approach to dealing with China. When President Xi visited India last September (right), Modi secured pledges of $20bn investment in (unspecified) infrastructure projects over five years.

The AIIB is a potential challenger to the World Bank and Asian Development Bank, over which the US and Japan exert extensive influence. The US and others have resisted reforms in the control of those two banks, and of the International Monetary Fund, so it is scarcely surprising that China is creating an alternative Asian power centre for infrastructural investment.

Meanwhile China’s initiatives in Afghanistan are more tentative. There have been various moves since President Ashraf Ghani took office in Kabul last year and these have included Chinese meetings with Taliban leaders in Beijing as well as Pakistan and Quetta (where the Taliban has an office).

This is somewhat unknown territory for China, which has no track record in international diplomatic mediation, but it fits in with Beijing’s wish to become more established on the world stage. Chinese leaders are also concerned about civil unrest in Muslim-dominated areas of its eastern province of Xinjiang increasing if the situation in Afghanistan worsens.

Both the US, which wants to be rid of its Afghanistan role, and India which would like a larger say in the country, seem content with China’s initiatives. The semi-official line from Delhi is that Afghanistan needs all the help it can get and, if that can usefully come from Beijing, so be it.

This does not mean that India will trust initiatives that China takes, any more than it trusts it to make much progress in talks on its border dispute (there was little movement when the two sides met in Delhi last week).

India has in the past often bowed to Beijing’s wishes, but under Modi it is being more robust, strengthening its defence installations and infrastructure on the mountainous border and speaking out when necessary, while welcoming Xi Jinping last year and trying to boost economic co-operation.

The lesson that India has learned, but does not always apply, is that China respects toughness that is soundly based. Where it detects weakness, based for example on economic self-interest (as with the UK), it responds toughly and expects more favourable treatment.

“India is probably one of the last countries to accommodate China on anything – and at the end of the day, they work very well together,” a Mexican diplomat told The Guardian .

Many of those who have flocked to the AIIB also do not trust China to influence the bank along ethical lines – any more than the US has in the World Bank. Martin Wolf, the Financial Times leading economic commentator and a one-time World Bank employee, put this rather neatly in a recent column, when he wrote:

“Jack Lew, US Treasury secretary, has voiced American concerns that the Asian bank would not live up to the ‘highest global standards’ for governance or lending. As a former staff member of the World Bank, I must smile. Mr Lew might like to study the Bank’s role in funding Mobutu Sese Seko of Zaire, one horrifying example among many”.

‘This is a fallen world’

“It would be good if China’s lender were as pure as the driven snow. But this is a fallen world,” said Wolf. He approved of all the countries joining the AIIB because it “would be better with a broad membership than without it”.

Wolf’s “fallen world” presumably referred to corruption and other declining ethical standards that are widespread internationally, and not to a world increasingly influenced by China.

The lesson however of China’s AIIB and Afghanistan moves is that the world – and especially the US – needs to be ready for President Xi’s next initiatives, whatever they may be. He clearly intends to use his time in office to spread his country’s power and influence, weakening those who stand in his way, as the US has been weakened over the AIIB.


  1. Thanks for your comment. I will add reading your book “IMPLOSION: India’s Tryst with Reality” into my to-do list.

    that’s good, thanks Tashi! – je

  2. Your portrayal of India as a gentle giant trying to accommodate China is not supported by past evidence. In fact India is a hegemon in its own right and that is the reason its relation with all its neighbors is at best tense and at worse hostile. The border war between India and China left a deep scar to this day in India not because innocent India was bullied by Communist China as the Indian government would have its citizen believe, but because this is the only war it wages against its neighbors and lost. Please check out these links.

    1947 Annexation of Kashmir
    1949 Annexation of Manipur
    1949 Annexation of Tripura
    1951 Annexation of South Tibet:
    1961 Annexation of Goa:
    1962 Annexation of Kalapani, Nepal:
    1962 Aggression against China:
    1971 Annexation of Turtuk, Pakistan:
    1972 Annexation of Tin Bigha, Bangladesh
    1975 Annexation of Sikkim:
    1983 (Aborted) Attempted invasion of Mauritius
    1990 (Failed) Attempted annexation of Bhutan:

    Nowhere do I suggest in this blog piece that India is a “gentle giant” trying to accommodate China and of course I agree that many of the problems come from the 1962 defeat – and indeed argue the point at length in my book IMPLOSION: India’s Tryst with Reality . But I’m glad that Tashi’s mis-interpretation of what I wrote led him to produce this intriguing list of no doubt impartial links JE

  3. John – This move had to come. The ADB, under its Japanese rulers has just not been the catalyst leader required to advance the great infrastructure connect across Asia. I wonder if this would have happened if the President of the ADB could have been Chinese. I agree entirely that the more countries that can bring to the party as founding members their expertise in governance, procedures, probity and transparent financing techniques the better it will be for all. The UK and has an important role to play. India should try and ensure that its brightest and best also secure important positions in the new creation.

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