China’s Xi Jinping–The World’s Most Powerful Man


October 17, 2017

THE ECONOMIST

China’s Xi Jinping–The World’s Most Powerful Man

Xi Jinping has more clout than Donald Trump. The world should be wary

Do not expect Mr Xi to change China, or the world, for the better

Print edition | Leaders

Oct 14th 2017

One-man rule is ultimately a recipe for instability in China, as it has been in the past—think of Mao and his Cultural Revolution. It is also a recipe for arbitrary behaviour abroad, which is especially worrying at a time when Mr Trump’s America is pulling back and creating a power vacuum. The world does not want an isolationist United States or a dictatorship in China. Alas, it may get both.

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Two Giants of Asia–Xi and Modi–Friends or Foes

AMERICAN Presidents have a habit of describing their Chinese counterparts in terms of awe. A fawning Richard Nixon said to Mao Zedong that the chairman’s writings had “changed the world”. To Jimmy Carter, Deng Xiaoping was a string of flattering adjectives: “smart, tough, intelligent, frank, courageous, personable, self-assured, friendly”. Bill Clinton described China’s then president, Jiang Zemin, as a “visionary” and “a man of extraordinary intellect”. Donald Trump is no less wowed. The Washington Post quotes him as saying that China’s current leader, Xi Jinping, is “probably the most powerful” China has had in a century.

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Mr Trump may be right. And were it not political suicide for an American president to say so, he might plausibly have added: “Xi Jinping is the world’s most powerful leader.” To be sure, China’s economy is still second in size to America’s and its army, though rapidly gaining muscle, pales in comparison. But economic heft and military hardware are not everything. The leader of the free world has a narrow, transactional approach to foreigners and seems unable to enact his agenda at home. The United States is still the world’s most powerful country, but its leader is weaker at home and less effective abroad than any of his recent predecessors, not least because he scorns the values and alliances that underpin American influence.

The President of the world’s largest authoritarian state, by contrast, walks with swagger abroad. His grip on China is tighter than any leader’s since Mao. And whereas Mao’s China was chaotic and miserably poor, Mr Xi’s is a dominant engine of global growth. His clout will soon be on full display. On October 18th China’s ruling Communist Party will convene a five-yearly congress in Beijing (see Briefing). It will be the first one presided over by Mr Xi. Its 2,300 delegates will sing his praises to the skies. More sceptical observers might ask whether Mr Xi will use his extraordinary power for good or ill.

World, take note

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On his numerous foreign tours, Mr Xi presents himself as an apostle of peace and friendship, a voice of reason in a confused and troubled world. Mr Trump’s failings have made this much easier. At Davos in January Mr Xi promised the global elite that he would be a champion of globalisation, free trade and the Paris accord on climate change. Members of his audience were delighted and relieved. At least, they thought, one great power was willing to stand up for what was right, even if Mr Trump (then President-Elect) would not.

Mr Xi’s words are heeded partly because he has the world’s largest stockpile of foreign currency to back them up. His “Belt and Road Initiative” may be puzzlingly named, but its message is clear—hundreds of billions of dollars of Chinese money are to be invested abroad in railways, ports, power stations and other infrastructure that will help vast swathes of the world to prosper. That is the kind of leadership America has not shown since the post-war days of the Marshall Plan in western Europe (which was considerably smaller).

Mr Xi is also projecting what for China is unprecedented military power abroad. This year he opened the country’s first foreign military base, in Djibouti. He has sent the Chinese navy on manoeuvres ever farther afield, including in July on NATO’s doorstep in the Baltic Sea alongside Russia’s fleet. China says it would never invade other countries to impose its will (apart from Taiwan, which it does not consider a country). Its base-building efforts are to support peacekeeping, anti-piracy and humanitarian missions, it says. As for the artificial islands with military-grade runways it is building in the South China Sea, these are purely defensive.

Unlike Vladimir Putin, Russia’s President, Mr Xi is not a global troublemaker who seeks to subvert democracy and destabilise the West. Still, he is too tolerant of troublemaking by his nuke-brandishing ally, North Korea (see Schumpeter). And some of China’s military behaviour alarms its neighbours, not only in South-East Asia but also in India and Japan.

At home, Mr Xi’s instincts are at least as illiberal as those of his Russian counterpart. He believes that even a little political permissiveness could prove not only his own undoing, but that of his regime. The fate of the Soviet Union haunts him, and that insecurity has consequences. He mistrusts not only the enemies his purges have created but also China’s fast-growing, smartphone-wielding middle class, and the shoots of civil society that were sprouting when he took over. He seems determined to tighten control over Chinese society, not least by enhancing the state’s powers of surveillance, and to keep the commanding heights of the economy firmly under the party’s thumb. All this will make China less rich than it should be, and a more stifling place to live. Human-rights abuses have grown worse under Mr Xi, with barely a murmur of complaint from other world leaders.

Liberals once mourned the “ten lost years” of reform under Mr Xi’s predecessor, Hu Jintao. Those ten years have become 15, and may exceed 20. Some optimists argue that we have not yet seen the real Mr Xi—that the congress will help him consolidate his power, and after that he will begin social and economic reforms in earnest, building on his relative success in curbing corruption. If he is a closet pluralist, however, he disguises it well. And alarmingly for those who believe that all leaders have a sell-by date, Mr Xi is thought to be reluctant to step down in 2022, when precedent suggests he should.

Reasons to be fearful

Mr Xi may think that concentrating more or less unchecked power over 1.4bn Chinese in the hands of one man is, to borrow one of his favourite terms, the “new normal” of Chinese politics. But it is not normal; it is dangerous. No one should have that much power. One-man rule is ultimately a recipe for instability in China, as it has been in the past—think of Mao and his Cultural Revolution. It is also a recipe for arbitrary behaviour abroad, which is especially worrying at a time when Mr Trump’s America is pulling back and creating a power vacuum. The world does not want an isolationist United States or a dictatorship in China. Alas, it may get both.

This article appeared in the Leaders section of the print edition under the headline “The world’s most powerful man”

The Economic Case for China’s One Belt, One Road Initiative


October 14, 2017

The Economic Case for China’s One Belt, One Road Initiative

by Shang-Jin Wei*
https://www.project-syndicate.org/commentary/china-belt-and-road-economic-case-by-shang-jin-wei-2017-10

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In recent years, many of the world’s most influential countries have turned inward, with politicians promising protectionism, immigration restrictions, and even border walls. But, to achieve stronger economic growth and development, the world needs initiatives focused on building bridges – initiatives like China’s Belt and Road.

NEW YORK – Since 2013, China has been pursuing its “Belt and Road” initiative, which aims to develop physical infrastructure and policy linkages connecting more than 60 countries across Asia, Europe, and Africa. Critics worry that China may be so focused on expanding its geopolitical influence, in order to compete with the likes of the United States and Japan, that it may pursue projects that make little economic sense. But, if a few conditions are met, the economic case for the initiative is strong.

As a recent Asian Development Bank report confirms, many Belt and Road countries are in urgent need of large-scale infrastructure investment – precisely the type of investment that China has pledged. Some, such as Bangladesh and Kyrgyzstan, lack reliable electricity supplies, which is impeding the development of their manufacturing sectors and stifling their ability to export. Others, like Indonesia, do not have enough ports for internal economic integration or international trade.

 

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The Belt and Road initiative promises to help countries overcome these constraints, by providing external funding for ports, roads, schools, hospitals, and power plants and grids. In this sense, the initiative could function much like America’s post-1945 Marshall Plan, which is universally lauded for its contribution to the reconstruction and economic recovery of war-ravaged Europe.

Of course, external funding alone is not sufficient for success. Recipient countries must also undertake key reforms that increase policy transparency and predictability, thereby reducing investment risk. Indeed, implementation of complementary reforms will be a key determinant of the economic returns on Belt and Road investments.

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President Xi Jinping’s One Belt, One  Road Initiative  aims to knit together Asia, Europe and Africa through land and maritime corridors that collectively encompass a set of countries representing about 65 percent of the world’s population and one-third of its total economic output. China plans to spend roughly $150 billion a year to advance the initiative through infrastructure projects ranging from railways and roads, to ports and pipelines, to power plants and telecommunications networks.

For China, the Belt and Road investments are economically appealing, particularly when private Chinese firms take the lead in carrying them out. In 2013, when China first proposed the Belt and Road initiative, the country was sitting on $4 trillion in foreign-exchange reserves, which were earning a very low dollar return (less than 1% a year). In terms of China’s own currency, the returns were negative, given the expected appreciation of the renminbi against the US dollar at the time.

In this sense, Belt and Road investments are not particularly costly for China, particularly when their far-reaching potential benefits are taken into account. China’s trade-to-GDP ratio exceeds 40% – substantially higher than that of the US – owing partly to underdeveloped infrastructure and inadequate economic diversification among China’s trading partners. By addressing these weaknesses, China’s Belt and Road investments can lead to a substantial increase in participant countries’ and China’s own trade volumes, benefiting firms and workers substantially.

This is not to suggest that such investments are risk-free for China. The economic returns will depend on the quality of firms’ business decisions. In particular, because efficiency is not the primary consideration, Chinese state-owned enterprises (SOEs) might purse low-return projects. That is why China’s SOE-reform process must be watched carefully. Nonetheless, while the Belt and Road initiative is clearly driven partly by strategic objectives, a cost-benefit analysis shows that the economic case is also very strong – so strong, in fact, that one might ask why China didn’t undertake it sooner.

Even the United States and other countries may reap significant economic returns. A decade after the global financial crisis erupted, recovery remains weak and tentative in much of the world. Bold, large-scale infrastructure investments can provide much-needed short-run stimulus to global aggregate demand. The US, for one, is likely to see a surge in demand for its own exports, including cars, locomotives, planes, and high-end construction equipment, and financial, accounting, educational, and legal services.

In the longer term, the new infrastructure will ease logistical bottlenecks, reducing the costs of production inputs. The result will be higher productivity and faster global growth.

If Belt and Road projects are held to high environmental and social standards, significant progress can also be made on global challenges such as climate change and inequality. The more countries choose to participate in these projects, the better the chance of achieving these standards, and the greater the global social returns will be.

In an era when some of the world’s most influential countries are turning inward, talking about erecting trade barriers and constructing border walls, the world needs initiatives focused on building bridges and roads, both literal and figurative – initiatives like the Belt and Road strategy.

 

The United States Should Join the Asian Infrastructure Investment Bank (AIIB)


September 21, 2017

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Number 397 | September 20, 2017

ANALYSIS

The United States Should Join the Asian Infrastructure Investment Bank (AIIB)

By Niruban Balachandran

The United States has not yet joined Beijing’s Asian Infrastructure Investment Bank (AIIB) as a member state, partially because of the perceived risk of legitimizing or normalizing this new multilateral development bank (MDB) at the expense of the Bretton Woods component of the postwar liberal international order: the World Bank and International Monetary Fund. A related US hesitation is the potential for Beijing to mainstream weaker, watered-down infrastructure quality standards across the East Asia and Pacific region. US policy toward the AIIB also ostensibly seeks to prevent Beijing from increasing its checkbook diplomacy in developing countries. This is understandable, given that Beijing has previously provided conditional aid with eyebrow-raising terms to developing countries, such as aid to Costa Rica and Panama under the condition that they cut off diplomatic relations with Taiwan. However, the AIIB is most likely here to stay, and as a result of Washington’s absence, the United States will have no voice or voting presence in the bank. Such a position hinders Washington’s ability to influence and shape Beijing’s development effectiveness in the region.

 

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The United States has not yet joined Beijing’s Asian Infrastructure Investment Bank (AIIB) as a member state, partially because of the perceived risk of legitimizing or normalizing this new multilateral development bank (MDB) at the expense of the Bretton Woods component of the postwar liberal international order: the World Bank and International Monetary Fund. –Niruban Balachandran

Some Trump administration staff have expressed interest in US membership in the new bank. For example, Trump Advisor James Woolsey wrote last November that the US should have joined AIIB, adding that he hoped its reception to Beijing’s Belt and Road Initiative would be “much warmer”. Even Japan, Washington’s key ally in Asia, has recently hinted at joining AIIB. An absent US does not serve American or regional interests.

AIIB’s mandate is to provide loans, grants, and technical assistance to build infrastructure such as roads, ports, housing, and bridges for developing countries. To date, AIIB comprises 57 founding member states, a number that will most likely rise to about 70 in the near future. The AIIB’s initial capitalization is $100 billion, with Beijing contributing half of this total. In contrast, the World Bank is governed by 189 member states, and its capitalization is over $252 billion, with the United States contributing about 17% and Japan contributing about 8% of the total; it provides loans and grants in health, education, energy, climate change, and other sectors beyond infrastructure to client countries.

Unfortunately, the voice of the United States in the AIIB is absent. According to an exhaustive February 2017 Congressional Research Service report, “China’s voting share at the AIIB (28%) is over 350% that of the second largest AIIB member nation, India (8%). This is the largest gap between the first and second largest shareholders at any of the MDBs…” In the same vein, while the United States is criticized by other governments for having “too much power” in the World Bank with a capital shareholding of roughly 17 percent, China’s AIIB capital shareholding runs at an enormous 50 percent. Additionally, unlike most other MDBs, the AIIB does not have a resident board of executive directors that have a daily voice in bank processes and decisions.

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The New Boy on the Block

If the Trump administration joins the AIIB, it can help negotiate a higher voting share for the United States, a higher capital shareholding proportion for the United States, and resident board membership for all member states within the new bank. Such outcomes would help alter Beijing’s disproportionate power in AIIB. Although negotiating for more favorable conditions on behalf of Washington and other member states may be more difficult, it will by no means be impossible. While some in Beijing might view US membership in the AIIB as a strategic risk to China’s long-term aspirations for a Sinocentric regional order, it’s worth remembering that including Washington’s voice in key infrastructure projects can advance quality of life for the poor and unblock the free flow of water, goods, and people while drawing upon America’s most innovative infrastructure experts, unmatched global and subnational convening power, and enormous US diplomatic apparatus around the world.

It is understandable that aid and development projects managed by less-experienced donors like the AIIB might run greater risks of displacing indigenous peoples, threatening physical cultural-heritage assets, and constructing dangerous, disaster-prone, and less-than-green infrastructure. In addition, a report by a prominent watchdog group ranked the AIIB the lowest among the MDBs in level of public information transparency, most notably in terms of its lack of access to information procedures and public registry for information requests, as well as its failure to adopt time-bound disclosures of board minutes, draft strategies, and policies. The United States can drive capacity-building in these domains.

If Washington’s objective is to support Beijing’s efforts in development effectiveness and infrastructure quality, then it is imperative for the Trump administration to reverse course, seek to join the AIIB as a member state, and encourage resident board membership for all member states in line with MDB governance best practices. As in the World Bank and other multilateral institutions, it is on this platform that Washington can then negotiate on weighted AIIB voting practices, express its voice in day-to-day decision-making, convene like-minded stakeholders around policy and programmatic issues, build coalitions, and vote on projects that reduce poverty.

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The Go It Alone Man in a Globalised World–America First

The AIIB is only one component of Beijing’s proposed “China-led” regional architecture, which includes the New Development (BRICS) Bank, BRI, the Regional Comprehensive Economic Partnership (RCEP) free trade agreement, the Shanghai Cooperation Organization, the China-ASEAN Interbank Association, the China-Eurasia Economic Cooperation Fund, and other multilateral initiatives. The Trump administration should therefore acknowledge that these new Chinese institutions will probably not be going away anytime soon, and that in many cases, it is best to try to advance American interests from within, or in close partnership with these institutions. For example, in May 2017, the World Bank and AIIB signed a joint Memorandum of Understanding (MOU) that establishes mechanisms for staff sharing, knowledge exchanges, country-level coordination, and other forms of close cooperation.

It is also worth noting that Tokyo’s $200 billion, whole-of-government answer to Beijing’s AIIB and OBOR – the Japan Partnership for Quality Infrastructure (PIQ) – combines the multidisciplinary capacities of the Asian Development Bank (ADB), the Japan International Cooperation Agency (JICA), the Japan Bank of International Cooperation (JBIC), and the Japan Overseas Infrastructure Investment Corporation for Transport and Urban Development (JOIN). As The Straits Times recently reported, “While Japan cannot compete with China in dollars, it has touted its superiority in its capability to build high-quality infrastructure and commitment to train local workers.”

In the same vein, Washington should also seek to further improve the AIIB’s quality-control, governance, accounting, and safeguards by first negotiating to join the new bank’s executive board, then ensuring not only that meticulous M&E practices are utilized, but also that strict environmental and social safeguards are enforced in the field to protect communities, indigenous peoples, and families across every full project cycle.

Lastly, at the bilateral infrastructure aid level, an impartial self-governing body similar to that of the World Bank’s Independent Evaluation Group (IEG) should execute an omnibus, cross-sectoral American infrastructure aid review to refine the subnational service delivery, donor coordination functions, and development effectiveness of USAID, the Millennium Challenge Corporation, the US Overseas Private Investment Corporation (OPIC), the Asia Foundation, and other crucial bilateral instruments of American infrastructure aid to the East Asia and Pacific region. Comparatively efficacious project execution and whole-of-government initiatives such as US-ASEAN Connect will continue to provide powerful insurance against the long-term marginalization of Washington’s bilateral infrastructure-aid instruments.

About the Author

Niruban Balachandran is a recent graduate of Harvard University’s John F. Kennedy School of Government’s Master’s of Public Administration, focusing on international order and strategy, as well as US-Southeast Asian relations.He can be contacted at Niruban_Balachandran@hks17.harvard.edu.

 

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Additional Read:

“Who’s Afraid of the AIIB: Why the United States Should Support China’s Asian Infrastructure Investment Bank”

Phillip Y. Lipscy (Stanford University)
Foreign Affairs, May 7 2015

When China first proposed creating the Asian Infrastructure Investment Bank (AIIB) in 2013, it generated considerable anxiety in Washington and many other capitals. Many pundits and policymakers view the AIIB as a bid to undermine or replace the international architecture designed by the United States and its allies since the end of World War II. Although several U.S. allies, including Australia, Germany, and the United Kingdom, have declared their intention to join the AIIB, others, including Japan, have expressed ambivalence. For its part, the United States has made it clear that it will seek to influence the institution from the outside. But it would be a mistake to shun or undermine the AIIB. Rather, it should be welcomed. Both the United States and Japan have far more to gain by joining the AIIB and shaping its future than remaining on the sidelines.

The details remain vague, but the AIIB is meant to be a multilateral development institution that will focus on infrastructure needs in Asia. There is no question that this is a deserving cause. Asia’s large population, rapid growth, and integration with the global economy all generate demand for better infrastructure. A report by the Asian Development Bank (ADB) estimates the region needs about $750 billion annually in infrastructure-related financing. [i] Citing historical underinvestment, McKinsey & Company, a global management consulting firm based in New York City, proclaims a “$1 trillion infrastructure opportunity” [ii] in Asia. Although precise estimates vary from one report to another, the broad point is uncontroversial: Asia needs more infrastructure, and international financing can help.

Why, then, is the AIIB itself controversial? There are essentially two reasons. First, Western governments fear that the AIIB will, in one way or another, undermine existing international aid institutions. U.S. policymakers have publicly expressed concern that the AIIB will undercut social and environmental standards adopted by existing institutions such as the World Bank and International Monetary Fund (IMF). An underlying fear is that the AIIB could eventually overshadow and undermine these institutions, which are based in Washington and seen as closely reflecting U.S. interests. Japanese policymakers have expressed similar reservations.

Second, there is concern about China’s intentions within the broader context of its economic and geopolitical rise. The AIIB signals that China intends to play a larger international role. Will China act like a responsible stakeholder by further integrating itself into the existing world order, or will it focus more on challenging U.S. hegemony by seeking to undermine and replace the post–World War II international architecture? The AIIB seems to indicate that China is interested in the second scenario. After all, why else would China choose to design its own development institution from scratch rather than working through existing institutions?

Yet both sets of concerns are largely misplaced. The AIIB is highly unlikely to undermine existing aid organizations, and the creation of the AIIB conveys very little information about China’s broader international intentions. On balance, the United States and Japan have more to gain from joining the AIIB and shaping its future than seeking to exert influence as bystanders.

INSTITUTION IN-CROWD

China has a unique relationship with post–World War II international organizations. After the Chinese civil war, Chiang Kai-shek’s Taiwan remained the de jure representative of all of China in major international organizations. This was a serious fault line of the early Cold War, triggering the Soviet boycott of the UN Security Council in 1950. However, the United States used the boycott to its advantage, securing UN Security Council authorization for operations against North Korea during the Korean War. The Soviet Union grudgingly returned to the council to aggressively exercise its veto, but the question of Chinese representation remained unresolved.

China exacerbated its international isolation by withdrawing from several international organizations, such as the Universal Postal Union and the World Meteorological Organization, in protest of Taiwan’s membership. As a result, by the 1960s, China had essentially no representation in the postwar institutional architecture. There were a few occasions on which China endorsed proposals that would pose competition with existing institutions. For example, the premier of China, Zhou Enlai, encouraged Indonesia under President Sukarno to challenge the architecture: “In these circumstances,” he said, “another UN, a revolutionary one, may well be set up so that rival dramas may be staged in competition with that body which calls itself the UN but which is under the manipulation of United States imperialism and therefore can only make mischief and do nothing good.” [iii]

China sent the largest delegation and won the most medals at Sukarno’s “Games of the New Emerging Forces,” an athletic competition created to pose direct competition against the Olympics, from which China was excluded. Indonesia also became the only country in the UN’s history to formally withdraw from the organization in 1965, and Sukarno proposed the creation of an alternative institution, the New Emerging Forces Organization (NEFO). The proposal raised concerns among U.S. policymakers, who worried that the initiative might entice developing countries away from the UN. NEFO ultimately went nowhere, though, as Sukarno’s grip over his own country slipped. Indonesia returned to the UN only a year later.

If China’s isolation from the international architecture had continued in subsequent decades, such challenges may have become more serious. However, in a pivotal UN General Assembly vote in 1971, China displaced Taiwan as the sole representative of its country in the UN. Although membership in other organizations came with varying lags, within about a decade, China had completely turned the tables on Taiwan.

China’s history of contestation over representation sets the scene for contemporary debates about the international architecture. For decades after the end of World War II, a major Chinese foreign policy objective was to secure recognition and status in postwar international organizations. Once that status was secured, China’s unique method of entry gave it significant advantages that were denied to many other rising powers. The postwar architecture systematically advantaged the major Allied powers of World War II over countries on the wrong side of the war (Japan and Germany) or countries that were weak or colonized (Brazil and India). In many respects, China avoided these disadvantages: it automatically assumed the formal privileges that had been granted to the Republic of China, most notably permanent membership and veto power in the UN Security Council.

These factors mean that when it comes to major international institutions, China is more of a status quo power than one might expect. Much of the contemporary Chinese foreign policy narrative emphasizes China’s contributions to the Allied victory in World War II against fascism and militarism. [iv] Undermining the architecture is not in China’s interest: it provides material benefits, enhances Chinese legitimacy, and is not obviously biased against China. For sure, Chinese underrepresentation is an important problem in several areas, such as in the voting rights of the IMF and the representation of Chinese nationals among the personnel of major organizations. However, for the most part, China has more to gain from incremental adjustments of the architecture than from a wholesale redesign.

 

HOW AID WORKS

The AIIB does not alter this basic picture. It is useful to consider some features of contemporary development aid. Development aid is a highly competitive and fragmented policy area. There are at least 28 multilateral international organizations that already specialize in international development akin to the AIIB. [v] In addition, most major economies also engage in bilateral aid through their own aid agencies. These include 29 members of the Development Cooperation Directorate of the Organization for Economic Cooperation and Development and a host of developing countries, including China. To top it off, numerous private foundations and firms participate in development directly or indirectly. On a yearly basis, the ADB and Inter-American Development Bank each disburse the equivalent of about 40 percent of the World Bank’s disbursements. Yearly U.S. bilateral aid is typically on a par with World Bank disbursements.

Aid organizations often work collaboratively, pooling expertise and resources to implement projects. However, competition is also an important feature of contemporary development aid. Donors have numerous channels through which they can give out aid; likewise, potential recipients can receive aid from a wide range of sources. This is particularly true for the rapidly developing countries of Asia, which the AIIB will target.

The competition imposes accountability and places important limits on international aid organizations. A good example is the United Nations Development Program. The UNDP is considered one of the premier international development organizations. It was established in 1966 as a major agency of the United Nations, and it has near-universal membership. However, the agency was created with a decision-making structure that limits the influence of important donor states: following the broader UN principle that each member state should have equal representation, the organization follows a one-country-one-vote rule. Hence, the United States, one of the largest donors to the organization, has the same voting power as Nepal, a major aid recipient.

This means that large donor states feel their interests are not sufficiently reflected in UNDP decision-making. As a consequence, they have effectively shifted their attention elsewhere, depriving the UNDP of resources and forcing the organization to pursue “noncore” arrangements over which it has limited control. The UNDP has faced a chronic shortage of funding: adjusted for inflation, core disbursements by the UNDP peaked in 1981 and have steadily declined to about half those levels.

This type of competition has two implications for the AIIB. First, to remain relevant, aid organizations must be accountable to their stakeholders. If the AIIB is seen as being overly dominated by China, other members will turn their attention elsewhere, depriving the organization of resources, attention, and skilled staff. There is no plausible scenario under which the AIIB could supplant existing organizations such as the World Bank and ADB unless the organization suitably reflects the concerns and interests of the broader international community.

Second, maintaining governance and accountability standards in development aid is already extremely difficult, particularly when dealing with relatively successful developing countries that can pick and choose from a wide range of multilateral, bilateral, and private financing sources. For this reason, the entry of the AIIB as an additional funding source in Asia is unlikely to make a significant difference in social and environmental standards. If China truly seeks to undercut the quality and conditions of existing aid agencies, it can already do so more expediently through bilateral aid and overseas activities of its state-owned enterprises.

INSTITUTIONAL POWER

Many pundits and policymakers see the AIIB in zero-sum terms: if China is successful, the United States and its allies lose. A recent article in the conservative Japanese Sankei newspaper is illustrative, arguing that the AIIB represents China’s attempt to follow Sun-tzu’s teachings to subdue the United States and Japan without engaging in direct combat. [vi] But there is a fundamental problem with this worldview: international institutions are not like military equipment or strategic territory, which makes a country more powerful and potentially threatening.

Multilateral international institutions are fundamentally cooperative arrangements, premised on mutual benefits. On net, the activities of the AIIB are much more likely to bring benefits rather than costs to the United States as well as the broader international community. The most obvious of these is the positive spillover of economic development. China itself is testament to the importance of infrastructure investment for growth. Better infrastructure in Asia will mean more economic activity and business opportunities not only for Chinese firms but also for American, European, and Japanese firms. For sure, some infrastructure can be designed to bring disproportionate benefits to specific countries: for example, roads and pipelines that direct traffic toward China. However, in an age of interconnected markets and global supply chains, it is practically impossible to limit positive spillover effects to a single country.

Multilateralism will also make it more difficult for China to overtly manipulate projects funded by the AIIB. An important reason the United States established multilateral institutions after the end of World War II was to reassure its allies that their voices would be heard and that the United States would not seek unilateral domination. Multilateralism not only enhances but also constrains the ability of powerful states to get what they want. For all the shortcomings of U.S. foreign policymaking since the end of World War II, its emphasis on multilateralism has been a resounding success.

Take trade. Before the 1930s, U.S. trade policy oscillated between openness and closure depending on which political party controlled Congress. The contemporary trade architecture, initially based on the General Agreement on Tariffs and Trade and more recently the World Trade Organization and a host of regional arrangements, prevents such dramatic swings. It also surely benefits U.S. economic interests by maintaining the free flow of international commerce.

The same logic applies to the AIIB. The AIIB will likely give China some important advantages akin to what the United States and Japan enjoy, respectively, in the World Bank and ADB. However, China will also be constrained by other members of the institution. The structural advantages that China enjoys in the AIIB will be beneficial only insofar as other members take the institution seriously and provide funding, skilled staff, and coordination. If the institution is perceived as being unfair or nontransparent, it will become nothing more than a shell organization through which China disburses bilateral foreign aid.

To put it differently, China has a basic choice. It can create an AIIB that is mutually beneficial, reflects the broader concerns of its members, and perhaps modestly overrepresents Chinese interests. If, instead, China seeks to dominate the AIIB, the institution will shrivel into irrelevance. In the former case, U.S. membership in the AIIB will provide an opportunity to influence and shape the trajectory of an institution that will make a meaningful contribution to economic development in Asia. In the latter case, there is no meaningful threat to U.S. interests anyway.

COOPERATIVE CONFLICT

Realist international relations scholars have predicted that China and the United States face inevitable conflict based on the idea that power transitions create turbulence as rising powers seek to assert their newfound authority and status quo powers resist. An optimistic alternative, based on the liberal tradition, predicts a more benign outcome, in which the pacifying effects of economic interdependence, international institutions and norms, and, perhaps one day, democracy will push Beijing and Washington toward cooperation rather than conflict.

Between these two extremes is a third possibility that ought to be taken more seriously: the renegotiation of the world order. To some degree, contestation over international institutions replicates the functions performed by military clashes in prior eras. It shapes geopolitical and economic outcomes, provides markers for relative status among states, and integrates states into groupings that share common values and purposes.

Japan’s emergence in the late twentieth century is illustrative. Scholarly work in the early 1990s predicted confrontation between Japan and the United States as the former emerged as a major economic power. The political scientist Kenneth Waltz, for example, forecasted that Japan would increase its military capabilities and perhaps acquire nuclear weapons as it reemerged as a great power and reasserted its authority. [vii] Others worried that tensions between the United States and Japan could intensify as the latter sought to reestablish its predominant position in the East Asian region. [viii]

For the most part, Japan instead maintained close ties with the United States and focused its diplomatic attention on international institutions as venues for promoting its newfound status and policy prescriptions for the international order. A crucial battleground for competing Japanese and American visions has been international economic institutions. In the World Bank and IMF, Japan sought to achieve greater voting rights and recognition for its economic approach, which has emphasized greater state intervention and a focus on basic infrastructure. Japan also sought to create regional institutions through which it could exercise influence, such as the ADB and the failed Asian Monetary Fund.

Of course, China differs from Japan in many respects, but its proposal for the AIIB is best seen in this light. The AIIB would give China somewhat greater material and ideological influence over multilateral development lending than it currently enjoys. Perhaps equally important, the AIIB can be interpreted as a marker of status and prestige. One could argue that a multilateral development bank is one of the bells and whistles that comes with contemporary great power status: the United States has the World Bank, Japan has the ADB, and the EU has the European Bank for Reconstruction and Development. China will have the AIIB.

The upshot is that the influence and prestige of contemporary international institutions give countries a new avenue through which to gently contest the contours of the world order. There is less of a need to resort to coercion or military conflict. The heart of the matter is this: Does the United States prefer a world in which China seeks to establish its influence and international prestige by building multilateral development banks or one in which it seeks to do so by building aircraft carriers? Pushing back against the former sends the troubling message that the United States is concerned about not just the means but the ends of China’s rise. The AIIB provides an opportunity to acknowledge and applaud China’s emergence as a builder of multilateral institutions and a contributor to global public goods. The institution may very well give China more influence over development in Asia, but it will be a more transparent and accountable way of exerting influence than through bilateral economic or military pressure. The AIIB may or may not ultimately succeed, but it poses very little risk to U.S. and Japanese interests, since it enters a crowded, competitive field of multilateral development agencies. The United States thus has every incentive to encourage, not discourage, Chinese foreign policy initiatives such as the AIIB.

This article was originally published by Foreign Affairs, and has been reproduced here with permission. The article is also accessible on the Foreign Affairs website.

[i] Asian Development Bank and Asian Development Bank Institute, 2009, “Infrastructure for a Seamless Asia,” Manila and Tokyo: Asian Development Bank and Asian Development Bank Institute.

[ii] Naveen Tahilyani, Toshan Tamhane, and Jessica Tan, 2011, “Asia’s $1 trillion infrastructure opportunity,” McKinsey & Company Insights and Publications.

[iii] Kent, Ann. 2007. Beyond Compliance: China, International Organizations, and Global Security. Stanford: Stanford University Press, 45.

[iv] E.g. see http://www.chinaconsulatechicago.org/eng/fyrth/t1072338.htm

[v] See Phillip Y. Lipscy, 2015, “Explaining Institutional Change: Policy Areas, Outside Options, and the Bretton Woods Institutions,” American Journal of Political Science, 59 (2): 341-356, DOI: 10.1111/ajps.12130

[vi] http://www.sankei.com/world/news/150331/wor1503310067-n1.html

[vii] Kenneth Waltz, 1993, “The Emerging Structure of International Politics,” International Security 18(2), 56, 65.

[viii] Miles Kahler and Jeffrey Frankel, 1992, “Introduction,” in Regionalism and Rivalry: Japan and the United States in Pacific Asia, edited by Miles Kahler and Jeffrey Frankel. Chicago: University of Chicago Press, 8.

KayJay on ASEAN beyond 50


August 17, 2017

KayJay on ASEAN beyond 50

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As ASEAN celebrates its Golden Jubilee, it is opportune for us to take a step back and ask our people what they want of the regional bloc in the next 50 years before striving forward together as one community.

THERE has never been a better time to examine ASEAN as a regional bloc, how far we have come and where we are heading next. It has been exactly 50 years since ASEAN was formed and since then, this regional bloc has never been stronger and more prominent in the global stage.

Malaysia will always be a pro-active member of ASEAN and other multilateral organisations. Our success story as a nation has been predicated upon the stability provided by a multilateral framework. Malaysia as a country is one that reaches beyond its potential and one that has always set its sight on the distant future. For that reason, we must be integrated into a region that is greater than the sum of its parts.

The past is prologue while the future is ours to shape. While taking lessons from the past, we must continue the work of building the future.

Immediately after the 1969 riots, Malaysia embarked on the New Economic Policy, which was to be a new deal for Malaysia in eradicating poverty and rebalancing the economic distribution in the country. Thirty years later, that was followed by Vision 2020, which would leapfrog Malaysia to a country that is modern and developed.

As we are nearing 2020, it became imperative for us to ask ourselves “what’s next?”. The world in 2050 will be much different from the world today – what will guide us to face this future?

This is I have been tasked to reach as many youths as possible to get their aspirations of what they want to see the nation be in the future, to be recorded in a massive plan called the National Transformation 2050 (TN50).

TN50 is an initiative to plan for the future of Malaysia in the period between 2020 and 2050. From the vision of becoming a developed nation, we should strive to be among the top countries in economic development, citizen well-being and innovation.

For this, I’ve spent the first six months of 2017 traveling through all corners of Malaysia, reaching out to more than one million youths and what they aspire for. Most of them coalesce around wanting a future that is fair, sustainable, competitive, united and happy.

What that means is we want a future that goes beyond the old measurement of GDP growth as an indicator of success to one that looks at well-being more comprehensively. One that looks into wealth and income inequality, healthcare, access to quality education, environmental protection, a good standard of living, integrated public transport, sporting achievement, civic consciousness and greater investments into scientific research, among many others.

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With shared dreams come shared responsibility – and nothing binds a society better than having a common weight on their shoulders. Similarly, as ASEAN heads towards 2050, it is opportune for us to take a step back, ask our people what they want of ASEAN in 2050 and then strive forward together as one community.

The challenge of automation and robots, the need for a differently-skilled and adaptive workforce, the breakdown of societal fabric into smaller family units, the shifting powerhouses in global trade and many other challenges await us in the near horizon.

Though individual countries are looking at these in their own way, there are many areas we can embrace together, leveraging on individual strength to compensate for individual weaknesses, so ASEAN can future proof the region and truly become a global powerhouse in the next 33 years.

What would we like ASEAN to be in the next decade, or five decades? The current generation entrusted with the responsibility to shape the future of ASEAN would like to see an ASEAN that will be able to realise all of its potential. An association consisting of 10 sovereign high-income nations fully developed with prosperity for all. It is indeed a tall objective, but not an impossible one, for ASEAN is a work perpetually in progress passing from one generation to the next, a sacred trust to be upheld.

I am an optimist on the future of ASEAN and I am a firm believer in its role as the catalyst for peace and prosperity in this region. Our fate in ASEAN has been pre-determined by our geography. As the saying goes, we can choose our friends but we cannot choose our neighbours.

The success of one nation in the region will have a positive bearing on all, while the failure of any will have a calamitous effect on all. ASEAN’s future is in its togetherness. We can either leverage on our collective strengths to soar together towards greater heights or go separately to face a more dangerous and challenging world.

Economically, we must continue to build upon the ASEAN Economic Community. More integration is needed, not less. By all means draw lessons from Brexit but the right ones not the wrong ones. We must be serious to further bring down barriers to trade both tariff and non-tariff.

We must work to better integrate our economy and welcome investments, ease the process of doing business, and protect intellectual property while better leveraging our various competitive advantages. Healthy competition coupled with pragmatic cooperation must be the way forward.

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ASEAN leaders must focus on good governance, fight corruption, end crony capitalism and work for peace, stability and development with equity. Make ASEAN relevant to the lives of Southeast Asians. That means more action and less talk.–Din Merican

We must work to make ASEAN more relevant to the needs of members and the challenges that they are facing, be it political, security or economic. ASEAN will continue to thrive, despite its many challenges, if every member perseveres to make it a national priority; for the national interest of each member could only be advanced effectively through ASEAN collectively.

The first 50 years is coming to an end, so let us now turn the work at hand to the next 50 years dedicating it to the future generation. Let us continue to build on the dreams of the founding fathers of ASEAN who started a journey so improbable that they themselves in their wildest imaginations never could have thought how successful it would eventually be.

That 50 years later, we are marveling at their collective wisdom in every capital of a united ASEAN is the most fitting tribute of all to this greatest and most enduring of endeavours.–by Khairy Jamaluddin

Khairy Jamaluddin is the Youth and Sports Minister. The views expressed here are entirely the writer’s own.

Manila’s pivot to pragmatism on the South China Sea


August 14, 2017

Manila’s pivot to pragmatism on the South China Sea

by EAF Editorial Board

http://www.eastasiaforum.org

The Philippines is at the frontline of China’s entry into a strategic theatre in Asia that has been dominated by the United States since World War II. Its experience of China’s rise is a sometimes fraught daily reality.

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In disputed South China Sea territory, episodes like the standoffs between military personnel on remote reefs, tiffs over fishing rights, and brinkmanship over ‘red lines’ like the Scarborough Shoal are a reminder of the importance of the waters to the west of the Philippine archipelago.

The Philippines’ handling of China’s rise holds lessons for other countries sandwiched between Beijing’s provocation and US pressures.

For one thing, the Philippines might offer lessons in how to ‘compartmentalise’ different aspects of the relationship with China, as Aileen Baviera suggests in this week’s lead article. Despite immense tensions inherited from the Aquino administration, the government of Rodrigo Duterte has forged a path that might allow his country to benefit from economic engagement with China, while continuing to speak up on issues of national security and integrity.

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First and foremost is Manila’s acknowledgement that, like it or not, the strategic status quo in the South China Sea has changed — and its own policy must reflect the new reality. The Aquino government’s commitment to using the instruments of international law was laudable. And Aquino’s stance may have gained some ground in the face of hard power realities. But in the face of Chinese determination, and inconsistent US policy, Duterte has taken a different approach.

‘Duterte’, writes Baviera, ‘has downplayed maritime disputes in favour of pursuing close economic and political ties with China’. The President, tired of megaphone diplomacy’s interfering with his goal of maximising the economic benefits of the China relationship, has agreed to leave the territorial disputes at a stalemate while he develops the bilateral economic relationship.

Such pragmatism has come from a curious, and indeed unlikely, source in Duterte. He is a strongman populist who is eroding Philippine institutions, favours brutal solutions to domestic social problems, and, on the surface, possesses an unsophisticated understanding of international affairs. Part of his rapport with China is presumed to stem from a shared disdain for Western preoccupations with human rights.

But Duterte’s preoccupation with policy ends — and disregard for the niceties of the means — may end up serving the Philippines well when it comes to the China relationship.

A mutually acceptable resolution of South China Sea disputes looks likely to entail a boost in Chinese aid and infrastructure investment, which the Philippine economy could use to maintain its healthy growth momentum. As Baviera notes, ‘China now sees the Philippines as a welcome partner in its Asian Infrastructure Investment Bank and the Belt and Road Initiative’. China has responded appreciatively, desisting from further provocations such as beginning construction activities on the disputed Scarborough Shoal.

The pivot to pragmatism from Manila has also had positive spillovers for ASEAN, a central player in any sustainable settlement between China and regional states over the South China Sea. Instead of undermining regional resolve on territorial issues, ‘Duterte’s China policy shift also reduces disagreement within ASEAN over the handling of the disputes’, and ‘forces some of the other stakeholders who were formerly free-riding on Philippine efforts to do more on the issue, thus easing pressure on the Philippines’.

This dynamic makes the formation of a common ASEAN position more likely: polarisation and provocation on the part of one aggrieved member state can spell doom for ASEAN’s ability to work towards consensus and retain its relevance on South China Sea disputes.

Signs of ASEAN consensus appeared in May, when the ASEAN states and China agreed on a framework for a Code of Conduct on the South China Sea. Though the Code of Conduct is not yet a done deal, the more a durable solution to conflict in the South China Sea has credibility as a product of a multilateral Southeast Asian consensus, the better.

But, as Baviera concludes, the key ingredient is whether China will reward a more nuanced Philippines position with accommodations of its own. The opportunity for de-escalation of tensions, allowing for a sustainable resolution to the South China Sea issue and enhanced trust among Southeast Asians, is Beijing’s for the taking.

The EAF Editorial Board is comprised of Peter Drysdale, Shiro Armstrong, Ben Ascione, Amy King, Liam Gammon, Jillian Mowbray-Tsutsumi and Ben Hillman, and is located in the Crawford School of Public Policy in the ANU College of Asia and the Pacific.

 

New World Order is leaving the US behind


August 13, 2017

New World Order is leaving the US behind

James Gibney, Bloomberg View

  • Pointing the way: German Chancellor Angela Merkel

 

Of all the global consequences of US President Donald Trump’s first half-year, surely one of the most surprising is the rise in multilateral diplomacy.

After all, this is the guy who came into office pledging to put America First. He downgraded the security guarantees of the North Atlantic Treaty Organisation to a definite maybe — and only if its members ponied up more defence dollars.

The Iran nuclear pact was “the worst deal ever”, and the Paris accord on climate change wasn’t much better. The Trans-Pacific Partnership was dead on arrival. Japan and South Korea’s freeriding days were over. The North American Free Trade Agreement was toast. The US would ignore the rules of the World Trade Organisation.

And from its proposed cuts in foreign aid and United Nations peacekeeping to the empty offices and embassies of the State Department, the Trump administration has made clear how little it thinks of soft power and diplomacy.

But a funny thing happened on the way to the disintegration of the international liberal order. It’s started to reconstitute itself — only not with the US at its centre. Unfortunately, that has less to do with a realisation among our allies and partners that the burden must be more equitably shared than with the increasing recognition that Trump is not, as some US diplomats liked to say about Third World dictators during the Cold War, “someone we can do business with”.

That sentiment found its most trenchant expression in German Chancellor Angela Merkel’s declaration, following Trump’s May trip to Europe, that the continent “must really take our fate into our own hands”. The net result of the Trump administration’s antipathy to free trade and co-operation on climate change and refugee resettlement was a united front against the US at both the Group of Seven and Group of 20 meetings.

Jilted by the US, the other 11 members of the Trans-Pacific Partnership are moving ahead on their own. Canada and Mexico are working together more closely than ever to save NAFTA. Asian nations are hedging their bets between the US and China. Trump’s tough talk on Mexico has prompted it to reach out to its hemispheric rival Brazil on defence co-operation.

Serious differences among allies are nothing new. During the Ronald Reagan administration, for instance, hardline US attitudes towards a planned gas pipeline from the Soviet Union to Europe caused a transatlantic breach that strained even the “special relationship” with the UK. And the call for fairer burden-sharing by American treaty allies — the “free riders” — is also as old as the alliances themselves, even if Trump turned the volume up to 11.

Yet as destabilising as Trump’s transactional mindset — we’ll protect you if you pay us — has been, his temperament has been even more destructive. In Latin America, his brash bullying plays to the worst caricature of Yankee behaviour. No wonder the foreign ministers of 12 nations in the Americas who pledged this week in Peru not to recognise Venezuela’s new constituent assembly — a remarkable regional diplomatic achievement — chose to keep the US mostly out of it.

Then there is Trump’s uncoordinated impulsiveness. His “fire and fury” outburst towards North Korea upended earlier efforts by Secretary of State Rex Tillerson and Secretary of Defence James Mattis to reassure South Korea and Japan that the US was not about to put them in danger.

Tillerson has seen Trump repeatedly sandbag his efforts to broker a rapprochement among the US’s fractious Gulf allies. And transcripts of Trump’s phone conversations with Australia’s Malcolm Turnbull and Mexico’s Enrique Peña Nieto suggest that both men could be forgiven for thinking they were dealing with Homer Simpson, not the Leader of the Free World.

Image result for Goodbye AmericaAmerica’s Sell-by date came with Donald J. Trump–The White House and State Department are talking at cross purposes

 

Every hegemon has a sell-by date, and the US is no exception. Even during the halcyon days of the 1990s — remember when the US was being called a “hyperpower”? — President Bill Clinton’s administration was focused on creating institutions and a rules-based international order that it hoped would constrain China’s economic and strategic rise and extend the half-life of US supremacy. For a variety of reasons, that didn’t work out so well.

In that and other respects, the willingness of other democracies to step up on the world’s non-zero-sum challenges is welcome. Moreover, whether in matters of security or trade, Trump’s strong preference for bilateral deals that allow the US to make the most of its leverage could yield clear benefits.

If he and Chinese President Xi Jinping achieve a compact that balances their respective interests, so much the better. That approach could apply to US relations with Japan, the UK, and other US allies and partners. Strong bilateral agreements, after all, can provide a basis for stronger multilateral ones in years to come.

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Obama understood the importance of Asia and Xi’s China

But even bilateral agreements require a degree of discipline and co-ordination that Trump has yet to display. For now, Trump’s reflexive trashing of President Barack Obama’s policy choices without offering any coherent alternatives has left the US on awkward ground. It’s one thing for other countries to fill a diplomatic vacuum created by a gradual US withdrawal; it’s another for them to do so in the wake of a scorched-earth retreat. If and when the US recovers its strategic senses, it might find itself reduced to occupying a much less attractive seat at the multilateral table.

•James Gibney writes editorials on international affairs for Bloomberg View. He was features editor at the Atlantic, deputy editor at the New York Times op-ed page and executive editor at Foreign Policy magazine. He was a foreign service officer and a speechwriter for Secretary of State Warren Christopher, National Security Adviser Anthony Lake and president Bill Clinton