Japan may decide soon to join China-led Asian Infrastructure Investment Bank

Asian Infrastructure Investment Bank in Beijing. File 2016. (AP) For a new financial institution, no asset can be more valuable than prudence and professionalism, just as the Asian Infrastructure Investment Bank is trying to showcase. AIIB's choice of its first batch of investment projects represented an intention to work together with, rather than to challenge, the world's existing system of multilateral development banks. AIIB's announcement of a cofinancing project with the Asian Development Bank, a motorway in Pakistan, at first sight might offer perfect vindication of the long-held suspicion that the China-led multilateral development bank is serving as a convenient instrument for Beijing's diplomatic priorities and its "One Belt, One Road" initiative: Pakistan is a strong ally of China and the two sides are implementing a $46 billion "economic corridor" vision. However, a closer look suggests otherwise. The Pakistan project is just one of a series of projects expected to be cofinanced by AIIB and ADB. As ADB President Takehiko Nakao said, it pops up among a flurry of projects "by chance".

Japan may be more ready than ever to join the new China-led Asian Infrastructure Investment Bank (AIIB) and, according to a senior official of Japan’s ruling party, must make a decision soon.

“The key would be how quickly Japan can decide to participate,” Toshihiro Nikai, secretary-general of the Liberal Democratic Party, told reporters on Monday, according to Reuters.

Nikai, known for his pro-China stance, made the statements after a two-day summit in Beijing on China’s new Belt and Road initiative to build an infrastructure network that connects roughly 60 countries across Asia, Europe, and even Oceania and East Africa.

The new infrastructure bank fits into that Chinese vision of “interconnectivity and economic development in the region through advancements in infrastructure and other productive sectors,” described on the AIIB website. It’s a vision that is strikingly divergent from the wave of protectionism sweeping the West.

But at the same time, it’s China’s solution to long-time frustrations with other multilateral development banks for stretching too thin and not focusing enough on infrastructure and growth.

Currently boasting a robust membership of 77 countries, the bank is largely seen as a rival to the U.S.-led World Bank or the Japan and U.S.-dominated Asian Development Bank in Manila. Following former U.S. President Barack Obama’s lead, Japan withheld membership to become the only two Group of Seven (G7) countries that have yet to join.

However, shifts in U.S. relations in the region under President Donald Trump may be forcing Japan to reconsider soon, despite its own bilateral tensions with China.

“At the very least, the U.S. very visibly not joining gave the Japanese some breathing room to hold back,”  Scott Morris, a senior fellow at the Center for Global Development, told Humanosphere.

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“But what’s striking now is, as a clear reaction to what’s going on in Washington – a sense of a White House in disarray, a lack of strong engagement in Asia, the very early rejection of the Trans-Pacific Partnership – I suspect the Japanese increasingly feel like they don’t have the ability to hide behind the shadow of the U.S.,” Morris said. “They really have to make a judgement about moving forward, so we’re now seeing some positive signals.”

Additionally, Japan may be worried about its lack of participation as it has already watched 77 countries eagerly sign on to the AIIB. Comparatively, the the Asian Development Bank has 67 members. For that, Japan and the U.S. may have themselves to blame.

For a new member to join the Asian Development Bank, existing members, in particular Japan and the U.S., would have to give up a bit of their shareholder power – something neither country has really wanted to do. But with the creation of a new institution, each member has at least the chance to gain a larger share as China quickly welcomes them in and sorts out the shares later.

Of course, joining the AIIB is also an easy way for members to demonstrate a positive relationship with China. But the AIIB’s commitment to focus on infrastructure has appealed to many countries as well.

“In that respect, the AIIB does reflect China’s approach bilaterally,” Morris said. “For the most part, they are not a traditional aid provider. Their approach to assistance doesn’t look like the U.S. foreign assistance. It is very infrastructure focused and more focused on commercial terms.”

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However, for the development community that approach on its own is concerning.

“It’s important particularly for U.S. actors to recognize the value of what the U.S. actually does in the world in the name of foreign assistance,” Morris said.

The U.S. has contributed dramatic gains in development by being the leader in areas such as global health, particularly for women and children, disease eradication and humanitarian relief.

“If somehow the China model were to be viewed as the new gold-standard that every country should adopt, it would represent a huge step backward in really key aspects of what we’re striving for in development,” Morris said.

Whether the AIIB continues to be strictly an infrastructure bank in the long term remains to be seen, “but the good news from the perspective of the developing countries is they now have access to both of these models, and that’s broadly for the better,” Morris added.

Japanese President Shinzo Abe has also voiced concerns about the AIIB’s governance standards. However, according to Morris, China’s embrace of the multilateral approach does demonstrate progress for the Chinese in terms of transparency and strong standards around business procurement, social and environmental standards.

“This does mark a step forward in China’s approach and ought to be valued by the international community.”

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Joanne Lu

Joanne Lu is a South Carolina-based writer and editor dedicated to global development, poverty alleviation and social justice. After a year in Rwanda, she now covers the Asia-Pacific and economics. Find her on Twitter @joannelu or email joanne@humanosphere.com.