As soon as Britain took the world aback by joining the China-led Asian Infrastructure Investment Bank (AIIB) as a founding shareholder on March 12, France, Germany, Italy, Luxemburg, and Switzerland quickly followed suit. Australia and South Korea are expected to also apply by March 31 as of this writing in order to qualify for the same status in the bank China hopes to formally establish by the end of 2015.

　　　　　In its March 23 edition, the People’s Daily, a Chinese Communist Party organ, described the situation as the Western economic system, led by the G7 nations, displaying cracks. The Global Times, an English language affiliate of the People’s Daily, declared China’s victory in its March 18 editorial, asserting that China’s cooperative efforts to seek “harmony among friendly nations” got the better of America’s “confrontational posture”
toward Beijing.

　　　　　The US is said to have tried hard to discourage its European allies from joining the AIIB. However, Britain, which has maintained a “special relationship” with the US as its most faithful friend, rebuffed the request and took the lead in becoming the first European member, much to Washington’s chagrin. London’s decision shows that the US-British alliance, a solid bilateral bond that underpinned the global geopolitics of the 20th century, has decisively changed. It also means that a serious chasm has developed within the G7 and NATO (North Atlantic Treaty Organization) member nations, as the People’s Daily aptly observed.

　　　　　Tadae Takukbo, Deputy Director of the Japan Institute for National Fundamentals (JINF), a private Tokyo think tank I head, explains:

　　　　　“Throughout the 20th century, the US and Britain worked closely together as inseparable allies. But now their relationship has fallen into a crisis, plunging the world into a new and difficult phase. Thanks to the globalization of China’s economy and finances, the US had expected China to move towards democratization, which the US hoped would gradually reduce the differences in the social and political systems between the two nations. However, China’s one-party dictatorship has remained unchanged, and, contrary to American expectations, an unwelcome situation has been created in which the US has increasingly been challenged by a stronger China in the political, diplomatic, military, and financial arenas.

　　　　　Now boasting foreign exchange reserves to the tune of some US$4 trillion, China has used its abundant foreign currency to buy US government bonds, while also injecting capital into virtually every other corner of the globe. Kevin Rafferty, former managing editor of the World Bank in Washington, stresses the weight of the Chinese money, quoting the chairman of the US Export-Import Bank as noting that, in the last two years alone, Chinese lending has totaled US$670 billion—against US$590 billion by his bank in the 80 years of its history.

US Foreign Policy: Adventurous and Irresponsible

　　　　　With its seemingly limitless funding ability, China has vigorously lobbied for important positions within leading international financial institutions, such as the World Bank and the International Monetary Fund (IMF)—both of which are led by the US and European nations—and the Asia Development Bank, led by Japan. In 2010, after years of negotiations, a decision was made to give China a 6.39% share in the IMF, way below the US (17.41%) and lower than Japan (6.46%). But the US Congress has refused to approve the plan, keeping China’s share still at 4%―despite the fact that its share of the global economy reached 16.5% on a purchasing power basis, or 13.3% expressed in market foreign exchange rates.

　　　　　In an article entitled China’s Place in the New World Economic Order, dated March 19, Bloomberg View harshly criticized American rejection of China, noting: “…the region has huge infrastructure needs―up to $800 billion worth every year…American opposition to any new source of financing looks churlish and hypocritical.” Bloomberg came to the defense of China by further noting: “The whole point of working through a multilateral organization is for China to gain global legitimacy for its largess.”

　　　　　Paris-based American journalist William Pfaff also is severely critical of the US, asserting that the problems in the Middle East—including the new jihadism, the newly proclaimed Islamic State, tension with Iran, and trouble in Israel-Palestine relations—are “all widely attributed in Europe to American irresponsibility and adventurism.” Pfaff observes: “The time has perhaps come for Washington to consider that Europe might declare its independence. The idea can be heard on the continent.”

　　　　　Since World War I, the US and Britain have fought as close allies, often trying fiercely to outmaneuver each other. Except during the Vietnam war, Britain has always sided with and fought with the US. It is pointless for the US, shocked by Britain’s joining the AIIB, to take London to task for its “constant accommodation of China,” particularly in light of Europe’s apparent readiness to “declare independence.”

　　　　　Europe’s drift away from the US will bring about significant changes within the Breton Woods system, casting a dark shadow over the power of the US. All of the financial institutions set up under Breton Woods following World War II—the World Bank, the IMF, and the Asian Development Bank—will be affected. Europe obviously regards the new turn of events not as a threat but as an opportunity to work towards mutual prosperity.

　　　　　The New York Times had this to say about the situation revolving around the AIIB: “In significant ways, this is a problem of America’s own making. The United States has urged China to exercise more leadership, but the top posts at the International Monetary Fund, the World Bank and the Asian Development Bank have been restricted to Europeans, Americans and the Japanese. Congress bears considerable blame for refusing to pass legislation to shift voting power more fairly among I.M.F. member states, including China…President Obama has also mishandled the issue…”

China’s Strategic Hegemony

　　　　　Meanwhile, the Wall Street Journal (WSJ) reported on March 22 that the Obama administration is proposing that the AIIB “work in a partnership with Washington-backed development institutions, such as the World Bank,” noting that Beijing is open to “collaborating with the existing institutions.” With the planned co-financing, explained the daily, the Obama administration hopes to prevent the new bank from predominantly subsidizing Chinese corporate interests overseas or using its financing to develop “deep-water ports in strategic harbors that could accommodate China’s growing navy.”

　　　　　The structural reality of the AIIB—that China will have the last say on which projects to pick as it will have assumed the largest percentage of the initial capital—cannot be resolved no matter which nations choose to join it, unless the capital contribution ratio is adjusted and transparent lending standards are established. The WSJ report should rightly be seen as reflecting a growing sense of unease on the part of the Obama administration.

　　　　　China’s real intent becomes clear when one considers the AIIB in tandem with the US$40 billion Silk Road Fund set up by Beijing last November, and the new concept for Asian security proposed by President Xi Jinping in Shanghai last May. Xi called for Asian security that excludes the US. I believe Professor Brahma Chellaney of India’s Strategic Studies Center for Policy Research in New Delhi was right on target when he pointed out that China’s goal is not collaboration or co-prosperity with its neighbors but establishment of a strategic hegemony of its own.

　　　　　The role Japan can and must play at this juncture becomes all the more crucial. As America’s vital Pacific ally in terms of technology and financial strength, It is time for Japan to make a visible global contribution to make up for what the US, under the Obama administration, is failing to deliver After all, the world puts great trust in Japan in these areas. The Japanese method of extending loans and cooperation differs widely from China’s, as has already been amply proven.

　　　　　In order to continue contributing to the steady development of the world while coping with the egregious acts of territorial expansion that China tenaciously keeps up under the cloak of its “soft power” financial approach, Japan must resolutely enhance its military strength and strive to further strengthen its alliance with the US.
(End)

(Translated from “Renaissance Japan” Column no. 649 in the April 2, 2015 issue of The Weekly Shincho)