(Tokyo Shimbun: March 31, 2015 – p. 5)
A wide range of developed and developing countries, except Japan and the U.S., have announced their participation in the China-led Asian Investment Infrastructure Bank. Criticism is growing within the U.S. that Washington is making a diplomatic mistake. Japan, meanwhile, is becoming anxious about losing its influence in Asia.
The U.S.-led postwar international financial order, which has centered on the dollar – the world’s reserve currency – the World Bank and the International Monetary Fund (IMF), may be reaching a historic watershed. Japan is becoming isolated from the rest of Asia at the expense of its inclination toward the U.S. It is obviously in danger of losing its status as an Asian leader to China.
In 2013, Chinese President Xi Jinping proposed setting up the Asian Infrastructure Investment Bank (AIIB) to meet the growing need for funding for infrastructure-building projects, such as the construction of roads and railways. The institute is designed to start out with an initial capitalization of 50 billion dollars, but may increase this to up to 100 billion dollars down the road.
Japan and the U.S. have announced they will forgo making decisions on whether to join the bank by the end of March, the deadline set by China to become founding members. They fear that the China-led initiative may not be designed to examine loan applications rigidly and could approve projects that may lead to environmental destruction.
But their true intentions are different. Washington wants to maintain the existing system, which it has long controlled. Tokyo wants to protect its interests in the Asian Development Bank, which it has built up under the leadership of the U.S.
The AIIB came about as a form of backlash. The members of the G20 countries agreed five years ago to raise China’s quota in the International Monetary Fund as part of efforts to overhaul the institute. But the agreement has yet to be implemented due to opposition raised in the U.S. Congress. It appears that discontent in the U.S.-controlled international financial regime is deepening within emerging economies, prompting them to take part in the Chinese initiative.
Despite Tokyo and Washington’s wariness, South Korea and Australia announced their participation along with such key economies as the U.K., Germany, France and Italy. The Philippines and Vietnam also joined the initiative. They have concluded that the AIIB can serve their national interests even though they are locked in territorial disputes with China.
Demand for infrastructure funds in the brisk Asian market is estimated to come to around 800 billion dollars a year. The ADB can only manage to finance up to some 20 billion dollar a year. It simply cannot satisfy the growing appetite for funding in the region on its own.
The AIIB will be launched regardless of whether or not people like it. Calls for improving the management style will not produce results as long as they are made from outside. If there are concerns, [Japan] should join the initiative and explore ways to address them by working closely with other countries. Coordination with the World Bank and the ADB is also indispensable.
Trapped in its tension with China, Japan may have lost sight of global developments. It should come to terms with the fact that its alignment with the U.S. can no longer provide a safety net.