The Asian Infrastructure Investment Bank (AIIB) is the latest salvo by China to bump the United States off its pedestal as the world’s preeminent economy.
The AIIB is a multi-country development bank that will provide financing for infrastructure projects in Asia. China came up with the idea because of their frustration with the governance structures of existing international institutions like the Asian Development Bank, International Monetary Fund (IMF) and the World Bank.
Their view is that these institutions’ governance locks in dominance by the West, especially the United States and Europe. The only Asian leadership is U.S.-influenced Japan. Further, they believe that this governance was institutionalized when those countries were economic leaders but does not recognize that times have changed. Now it is Eastern countries, particularly India and especially China, as well as the Pacific Rim, that will be the dominant economic powerhouses.
Frustrated at the slow pace of reform, China has taken the initiative to expedite its plans to develop alternate institutions like the AIIB to hasten the rise of Asia and China’s leadership in this new world order. But this is not a single instance.
China helped found BRICS, an association of Brazil, Russia, India, China and South Africa. These major emerging economies are cooperating in areas like business, politics and culture.
Their intent is to be a competitor to the IMF and World Bank.
China also started the Shanghai Gold Exchange to compete with other global trading centers for gold and to have greater influence over gold prices.
More recently, China made a formal request of the IMF to include China’s yuan in its special drawing rights (SDR) basket. China has prepared for this moment by establishing foreign exchange agreements with major banks in many of the world’s financial centers during the last few years. If included, China would be the fifth reserve currency, after the U.S. dollar, English pound, Japanese yen and the euro.
These actions are not coincidental. They are part of a long-term plan by China to expedite their succeeding the United States as the world’s preeminent economy. While the West struggles through short-term crises like economic recovery from the Great Recession and has no strategy for the future, the Chinese are masters at thinking about the long term. You can safely bet that they have a plan and are patient to implement it over several generations.
But declining U.S. influence under the Obama administration has created an environment ripe for China to become more aggressive and our allies to hedge their bets. For example, AIIB’s initial membership was exclusively Asian countries but recently, the United Kingdom decided to lend money to AIIB against warnings from the United States. France, Germany and Italy will soon follow suit.
It does not take Sherlock Holmes to deduce the game is afoot. This should be a wake-up call for the president and our leaders to stop bickering about the small things and start solving our big problems before it is too late.
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