In June 2015, the creation of the Asian Infrastructure Investment Bank (AIIB) was agreed to by representatives of 50 countries in Beijing, China. The Bank started operating in January 2016 and its first four loans – totaling USD 509 million – were approved for Bangladesh, Indonesia, Pakistan, and Tajikistan. Moreover, a location in Beijing was chosen as the headquarters of this new multilateral banking organization.
started with an initial capital of USD 100 billion. In order to keep things in
perspective, the sum is roughly equivalent to Ecuador’s GDP. So far, it has approved projects related to
hydropower, energy, motorways, tourism, dams, pipelines, and ports, amongst
venture has captured considerable interest. For instance, some economists
foresee the AIIB becoming a formidable competitor of the World Bank and the
International Monetary Fund, entities established within the framework of the
Bretton Woods system during the aftermath of World War Two, and whose
governance has been historically controlled by Atlanticist powers ever since.
In fact, this reality still persists in the early 21st century. However, that
is hardly surprising if one considers that – more often than not –
intergovernmental institutions reflect the interests of their creators.
other hand, the impressive list of full members includes a diverse myriad of
states from Europe, Central Asia, the Middle East, the Asia Pacific region, the
former Soviet Union and even from the Americas. This list includes great
powers, offshore financial centers and, interestingly, NATO members and other
US allies. Hence, the AIIB represents the most ambitious formal multilateral
initiative sponsored by China. Its membership is even wider than that of the
Shanghai Cooperation Organization (SCO), an institution conceived to encourage
a closer strategic, military, and economic collaboration amongst China, Russia,
and four Central Asian republics.
though the AIIB is of course an economic and financial institution, its reach
and nature must also be analyzed from a perspective of grand strategy.
Actually, it can be argued that – well beyond the technical realm of business
and mercantile concerns – the AIIB responds to China’s goal of developing
finance as a tool to advance its interests on the global geopolitical
chessboard. According to this multidimensional interpretation, the AIIB pursues
five parallel objectives:
American Plans to Establish a Political and Commercial «Cordon Sanitaire»
mammoth territorial and demographic proportions of the Asian juggernaut, as
well as the size of its economy – a 2017 GDP of more than 12 trillion dollars,
which makes it the world’s second largest – in combination with its rising
techno-industrial and military power means that China represents a formidable
candidate to become the center of gravity in the Asia-Pacific region and
the US intelligence community is fully aware that, if China continues its
uninterrupted economic ascent, it could evolve into a colossal power whose
magnetic influence becomes its own new agglutinating pole. Therefore, the
containment of China is a natural geopolitical imperative for US foreign policy
and, consequently, it is reasonable to forecast that the United States intends to
use both military and commercial measures to place a cordon sanitaire able to
military realm, Washington intends to encircle China, either indirectly through
US allies in the Asia-Pacific region – Australia, South Korea, Japan and New
Zealand – and directly through the nearby presence of US military facilities,
hardware, and personnel in locations like Afghanistan, South Korea, the
Philippines, Guam, Singapore, Diego Garcia, etc. Likewise, there is the
implicit threat of using US naval expeditionary warfare capabilities to
interrupt the seaborne flow of Chinese exports, as well as to disrupt Chinese
imports of raw materials which are shipped across oceanic waterways.
the mercantile “battlefield,” even though the plan was ultimately abandoned by
the Trump administration, the Americans had pursued the creation of a
multilateral trade bloc – the Trans-Pacific Partnership – that would have
served to keep in check the People’s Republic of China’s international
commercial reach. Otherwise, it was hard
to understand, from a purely economic perspective, the exclusion of the
planet’s second-largest economy from a framework nominally designed to fuel
trade in the Pacific Basin.
one way or another, Beijing needs to resort to pro-active conventional –
military – and unconventional – trade, finance, energy – measures, in order to
halt the progress of both US containment schemes, because they represent an
evident threat to its national interests. Even though one of these plans was
eventually discarded by the U.S., the increasingly confrontational stance
Washington has assumed toward China in the field of trade makes it unwise to
overlook the pertinence of possible countermeasures.
plan to employ its financial strengths to pre-emptively override the
abovementioned constrictions, through the creation of regional bank spearheaded
by China itself, represents a feasible asymmetric choice, which is both clever
and convenient, especially if it generates enough substantial incentives to
seduce even Washington’s traditional allies.
from China’s angle, the AIIB represents a gateway to a closer business
relationship with an attractive market, one which entails deeper strategic
implications. Of course, many states calculated that the prospects of promising
investment flows were attractive enough regardless of what Washington had to
say about it. In other words, the cost-benefit analysis revealed a favorable
Chinese National Power in the Realm of Finance
the world’s second-largest economy in terms of nominal GDP. Its’ GDP – more
than 12 trillion dollars – is only behind that of the US. Interestingly, the
Chinese economy is superior to the sum of Japan plus Germany, the world’s
third- and fourth-largest economies respectively. Furthermore, Beijing’s
foreign currency reserves have reached the stratospheric sum of 3.217 trillion
dollars. China occupies the first position in this ranking, whereas Japan is a
distant second place with 1.267 trillion dollars.
China’s economic and financial power is still not reflected in the main
corresponding intergovernmental frameworks. China’s influence within the
International Monetary Fund (IMF) does not proportionally correlate to the
specific weight of its economy and, apparently, reforms to readjust such
asymmetry have been, in the best-case scenario, notoriously slow, even though
some recent steps have been favorably received in Beijing, such as the
inclusion of the yuan in the basket of currencies used by the IMF.
China does not ignore the strategic implications of the fact that the
multilateral institutions emanated from the Bretton Woods system are the result
of a consensus generated among the main members of the transatlantic alliance,
in the context of the allied victory in World War Two and the subsequent US
leadership of the Western bloc during the Cold War, as exerted in the military,
geopolitical, economic, and financial fields. Hence, from the Chinese
viewpoint, it is not far-fetched to assume that the aforementioned
organizations still privilege the interests of their original creators.
all, the World Bank has always been presided over by Americans, whereas the
International Monetary Fund has invariably been headed by Europeans. The
geography speaks even more eloquently: both the WB and the IMF are
headquartered in Washington D.C.
other hand, there is a precedent that has to be taken into consideration for
this analysis: Dominique Strauss-Kahn, a former IMF Managing Director who,
during his tenure, had promoted a more active role for China within the
activities of the institution, was removed from office in 2011 under unclear
circumstances. This case could not have gone unnoticed for Beijing’s strategic
result, it is reasonable for the People’s Republic of China to place itself as
the cornerstone of a multilateral bank, headquartered in the Chinese capital,
in order to assume a more assertive leadership in the financial realm. Last but
not least, prestige also plays a role in international political economy.
Hence, the AIIB represents a visible sign of China’s rising economic and
financial might; i.e., it denotes its wealth and prosperity. In this context,
it is important to keep in mind Deng Xiaoping’s most famous remarks: “it is
glorious to be rich.”
the Reconstruction of the Silk Road in order to Deepen Trade Links amongst
Eurasia’s Main Economies
mercantile connectedness is not a new phenomenon: Since the time of the Roman
Empire until approximately the 15th century; the so called “Silk Road” was a
commercial corridor which used to link Western Europe to the Pacific Rim,
through the exchange of many products. Back then, trade undertaken by intrepid
merchants fueled financial innovations which facilitated economic activity.
This linkage also stimulated the circulation of religions, cultural ideas, and
technological advances from the Iberian Peninsula to the South China Sea.
the AIIB’s raison d’être is: “… [to] focus on development of infrastructure and
other productive sectors in Asia, including energy and power, transportation
and telecommunications, rural infrastructure and agricultural development,
water supply and sanitation, environmental protection, urban development and
context, the development of trade logistical infrastructure (especially
terrestrial) can be regarded as a catalyst to foster integration between China
and the main economies of regions such as Western Europe, the post-Soviet
space, and the Middle East, in order to diminish the dependence of Chinese
exporters on the US consumer market, through diversification of trade
partnerships. It must be noted that the US absorbs around 19% of Chinese
from a strategic viewpoint, the Chinese project to rekindle the legendary Silk
Road serves Beijing’s national interests by reducing the direct exposure of its
trade flows to American sea power.
a deeper pan-Eurasian mercantile interconnection would enable the convergence
of geopolitics, economic, financial, and energy interests across the Eurasian
landmass. The materialization of these plans would necessarily require the
collaboration of the Russian Federation, based on its crucial geographic
position at the heartland that connects Europe with Asia, and also on Moscow’s
role as a growing diplomatic ally, energy supplier, provider of military
hardware, and trade partner of China.
there is ample evidence of Beijing’s mercantile penetration into Eurasia’s
commercial railroad which links Madrid, the Spanish capital, with the Chinese
town of Yiwu is already operational since December 2015. In fact, it is an
enlargement of the Yu´XinÓu railroad, which connects the Chinese city of
Chongqing with the German city of Duisburg, both of which are important
Chinese are building a massive industrial park in Belarus (the “Great Stone”
project), which will also harbor commercial logistics infrastructure, a
financial center, business platforms, research and development facilities, as
well as residential units.
2015, China and Israel signed an agreement intended to increase, by a margin of
500 million dollars, the line of credit to fund Israeli exports to the Chinese
market. Beijing and Jerusalem are also currently negotiating a free trade
agreement. The fact that Chinese companies will manage Israeli ports – namely
Haifa, Ashdod and Eilat – is also noteworthy.
and Moscow have reached a consensus about the supply of Russian natural gas to
China through two pipelines, called “Altai” and the “Power of Siberia.”
of the above, it is accurate to hold that the AIIB could bankroll profitable
business projects that ultimately respond to Beijing’s geopolitical interests.
Thus, the synergy between the AIIB and the New Silk Road project has been
described as an ambitious plan that represents the Chinese equivalent of the
the US Global Alliance System
is using the bait of economic incentives in order to fragment the US global
system of alliances. After all, the handsome profits associated with investment
in infrastructure projects in an increasingly dynamic region in terms of
economic growth are tempting to say the least.
important to note that the United Kingdom was the first European country to
have joined the AIIB as a prospective founding member, followed by Germany,
France and Italy – all of them NATO members – which revealed the scant
importance those governments attached to the need of crafting a common
transatlantic position previously negotiated with Washington, in order to
define a unified course of action towards this Chinese project, knowing that
the rise of Chinese power in Asia and elsewhere is a major concern for US
as was to be expected, the United States unsuccessfully attempted to prevent
its allies from joining the AIIB, questioning its governance and invoking an
alleged concern about environmental and human rights matters.
from a geopolitical perspective, it is feasible to envisage the AIIB as a tool
designed by China not only to increase its influence through support for
economic growth, but also as part of a plan orchestrated to encourage both
allies and rivals of US power to maneuver into a “strategic rebalancing,” to
simultaneously move away from Washington and into Beijing’s embracing arms.
though the list of traditional US allies who have decided to join the AIIB is
telling, the case of Great Britain is especially remarkable, because of the
common denominators in terms of cultural heritage, language, history as well as
the close military, intelligence, and geopolitical collaboration between the
two most prominent members of the Anglosphere. Moreover, it is also outstanding
because the City, located in downtown London, is one of the world’s largest and
most prestigious financial nerve centers. In some respects – like currency
trade – it is even more important than Wall Street.
aforementioned reflects that joining the bank entails deep strategic
ramifications that go well beyond the fields of trade, business, and finance,
and, of course, it is likely that was precisely the intent of the AIIB’s
Chinese architects from the very beginning: they wanted to redraw a balance of
power more favorable for Beijing’s geopolitical interests.
up a Platform whose Contribution will be Instrumental in Challenging the US
Dollar’s Monetary Hegemony
to the Society for Worldwide Interbank Financial Telecommunication, by February
2019, the Chinese yuan had become, based on value of domestic and international
payments, the fifth most widely used currency for global transactions (reaching
a proportion of 2.15% of the total), behind the dollar, the euro, the pound
sterling and the Japanese yen. This would indicate that it has already
surpassed traditionally strong currencies like the Canadian and Australian
available evidence supports the progressive expansion of the Chinese currency’s
financial Lebensraum. In this context, the following developments must be taken
emission of bonds by the UK Royal Treasury denominated in yuan, which started
being traded back in October 2014.
signing, in January 2015, of an agreement between the Central Banks of China and
Switzerland, for the establishment of a financial platform in Zurich to carry
out financial operations denominated in renminbi.
January 2015 onwards, Gazprom Neft, the Russian Federation’s third-largest oil
producer, has priced in yuan its oil sales contacts with China, which are being
supplied through the Eastern Siberia – Pacific Ocean oil pipeline.
December 2015, the IMF’s Executive Board decided to include the Chinese
currency in the Special Drawing Rights (SDR) basket, whose value since 1999 had
been based on the US dollar, the euro, the Japanese yen, and the British pound.
This decision was officially explained as a result of the renminbi’s status as
a “freely usable” currency, in other words, one whose importance is
considerable for both international trade and global finance.
launch, in April 2016, of a benchmark for the exchange of gold, which is
denominated exclusively in yuan and operated by the Shanghai Gold Exchange.
Participants include mining, banking, and jewelry companies.
these are telling signs of the growing internationalization of the Chinese
yuan, its evolutionary trajectory still has a long way to go in order to reach
a dominant position amongst the main reserve currencies. One of those crucial
steps will be its full convertibility. In other words, it still lacks a
critical mass to challenge the US dollar, but its international competitiveness
and attractiveness are becoming stronger.
the largest Chinese investment bank, China International Capital Corp. (CICC)
had forecasted the renminbi’s convertibility by the end of 2015. However, faced
with recent significant financial turmoil, the ruling Chinese Communist Party
is reportedly planning to achieve the full convertibility of the yuan by 2020.
the IMF now regards the yuan as a reserve currency. Its corresponding
proportion –1.79% of the world’s composition of official allocated foreign
exchange reserves – is still modest, but it’s likely to grow over the
the increasing projection of the Chinese renminbi must be analyzed in terms of
high strategy, especially considering that the use of financial tools as
weapons of war as well as their destructive potential and the degree of secrecy
with which financial warfare can be carried out, have been seriously studied by
the Chinese military since, at least, 1999 as a form of “semi-warfare”,
“quasi-warfare” or “sub-warfare”, i.e. an atypical conduit for offensive power
projection that intends to strike enemy countries and defeat them by unleashing
incapacitating havoc rather than through classical direct kinetic attacks.
even though the Chinese yuan still does not look like a direct challenger of
the US dollar, Beijing knows its huge foreign currency reserves enables it to
threaten the dollar’s current hegemonic position.
it is important to highlight the prospective rise of a geo-financial alliance
between Beijing and Moscow, which could seek the establishment of a financial
order parallel to the US dollar’s monetary hegemony, in order to counter the
power wielded by the US through its control of the global financial order.
the official Chinese news agency, Xinhua, pointed out that “designing financing
tools that are complementary to the current international financial system,
China has no intention of knocking over the chessboard, but rather is trying to
help shape a more diverse world playing board [… So, in principle,] China
welcomes cooperation from every corner of the world to achieve shared
prosperity based on common interest, but will go ahead anyway when it believes
it is in the right.”
it is imperative to bear in mind the importance of the yuan in order to assess
the AIIB’s future evolution, considering that the Chinese have been seemingly
promoting a role for the renminbi in the loans to be granted by the AIIB.
According to some media reports, Chinese think tanks believe one of the goals
should be to challenge the greenback’s dominant position in global finance.
of the AIIB reveals that great powers are increasingly resorting to the realm
of finance, not just to enhance their economic wealth, but also as part of an
ambitious quest to find vectors that can help them advance their national
geopolitical interests and to simultaneously undermine those of their rivals.
it is clear that strategic maneuvers that combine geopolitical and financial
elements –including of course the instrumental employment of multilateral
banking institutions– are here to stay as tools for power projection in an
unconventional and increasingly complex operational theatre in which
incompatible interests clash.
the international financial system is doomed to become an increasingly
confrontational arena in terms of high strategy, so an intensification of moves
and countermoves is more than reasonably foreseeable in this peculiar
chessboard. Needless to say, this goes well beyond the traditional parameters
of economic competition.
context, the instrumental control of institutional frameworks that play a
prominent role in international financial governance will be an increasingly
critical factor whose strategic importance might reshape the global balance of
power in the 21st century. Perhaps not surprisingly, high finance and
geopolitical grand strategy are converging more than ever before.