AIIB: China outsmarts US diplomacy on Asia bank - New York Times

http://www.theage.com.au/comment/aiib-china-outsmarts-us-diplomacy-on-asia-bank-20150330-1maoq7.html

March 31, 2015

• Hugh White

Canberra's U-turn on the Asia bank suggests Australian politicians finally accept that a new era has dawned in our region's politics.

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China's new Asia Infrastructure Investment Bank (AIIB) is a very big deal for Asia's economic future, but the way its establishment has played out makes it an even bigger deal for Asia's changing political and strategic order. And Canberra's announcement last weekend that Australia will join the AIIB despite the objections of the United States may come to be seen as marking a  historic shift in Australian foreign policy.

For the first time, Australia has unambiguously defied Washington by acknowledging China's claims to a major regional leadership role. The government might not admit it, but they quietly crossed a Rubicon on Sunday.

It is quite clear that Obama argued against the AIIB precisely because it would strengthen China's leadership in Asia, and hence erode the US's. He expected loyal allies like Tony Abbott to fall in line. 

We can see why the AIIB is so significant by looking both at why China has set it up, and why the United States has opposed it. China's motives are partly economic, and the logic for this is clear. To reach its economic potential Asia needs to invest about $1 trillion each year over the next decade on infrastructure of all kinds.

China's President Xi Jinping (4th from the right) and guests at the Asian Infrastructure Investment Bank (AIIB) launch ceremony at the Great Hall of the People in Beijing last October. Photo: Reuters

Existing outfits like the World Bank and the Asian Development Bank have neither the money nor the expertise to begin to meet this challenge. China alone has the money needed to get things moving and the expertise, built up through its extraordinary achievements in developing its own infrastructure over the past decade. No country in history has ever built so much, so quickly.

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that is only half the story. China understands that leading this kind of effort will deliver huge strategic benefits as well, not just consolidating China's position as Asia's economic hub but also building its credentials as the region's political leader too. No one watching its foreign policy over the past decade could doubt how important that goal has become to Beijing.

This is exactly what worries Washington. People there know better than anyone how much the US's leading role in the World Bank and IMF has served US political and strategic interests since World War II. They know that the AIIB can help China contest US primacy in Asia and take a bigger share of regional leadership for itself, and that is precisely what Washington wants to avoid. That is what President Obama's "Pivot to Asia" is all about.

Six months ago, when China first asked Australia and other countries to join the AIIB, President Obama hit the phones, asking them to say "no". In public US officials said it was simply concerned about some technical questions about the way the AIIB would be run. Privately, however, it is quite clear that Obama argued against the AIIB precisely because it would strengthen China's leadership in Asia, and hence erode the US's. He expected loyal allies like Tony Abbott to fall in line.

At first, that is exactly what Abbott did. After speaking to Obama, he apparently reversed a prior cabinet decision and announced that Australia would not join - despite the very clear economic arguments in favour. Now, just a few months later, he has changed his mind. What happened to cause this shift?

One powerful factor has been the collapse of good will between the Obama administration and the Abbott government.  Despite the fulsome rhetoric, relations between Washington and Canberra have been quietly cooling for some time, but they went into the deep freeze after Obama used a major speech in Brisbane last November during the G20 to attack the Abbott government over climate change. Not surprisingly, Abbott took this very personally.

beyond the personal and political atmospherics, there has been a much more important shift under way. Ever since Obama first announced it in a speech to our Parliament in 2011, Australian governments of both parties have accepted the underlying premise of his Pivot to Asia. This was that the US could remain the uncontested leader of Asia, and make no concessions to China's ambitions to play a bigger regional role, even as China's economy overtook America's to become the largest in the world, and its diplomatic and military heft grew too as a result.

This was always an absurd illusion. Much as we might wish that US leadership could last forever, it simply defies the laws of strategic gravity that Asia's economic order could change so radically while leaving its political order unaffected. As China's wealth and power grow, its leadership role in Asia is going to grow too. Only when the rest of us recognise this essential fact can we start to work out how best to respond to it.

Over the past couple of weeks, countries around the region and beyond, including close US allies like Britain, South Korea and Australia, have rejected America's concerns and agreed to join the AIIB, knowing full well what that means for Asia's political order. In a fit of anger a senior US official criticised Britain for "accommodating" China's ambitions, and no doubt they are equally dismayed by Canberra's decision.

And no wonder: this is a massive diplomatic defeat for Washington, as so many of its friends reject the logic underlying US policy in Asia, and embrace a future in which China is increasingly acknowledged and accepted as a regional leader in its own right.

America's mistake has been to assume that the appeal of China's economic opportunities would be outweighed by fears of how China would behave as a regional leader, so that countries like Australia would resist the opportunities offered by the AIIB in favour of supporting the US's refusal to make its own accommodation with China. Hopefully they now know better.

Australia's mistake, under recent governments both Labor and Coalition, has been to assume that Washington knew what it was doing and had a credible strategy to respond to China's rise. Hopefully they now know better as well. The lesson of all this is that Washington needs to think anew about its response to China's rise, and we in Australia need to start thinking for ourselves about it, and stop looking to Washington for answers.

Of course this is not about acquiescing in a Chinese bid to dominate Asia over coming decades. It is about recognising that as wealth and power shifts in Asia, the region needs to build a new order that is dominated neither by the US nor by China, but in which leadership is shared between them. Australia needs to contribute to that process, doing whatever we can to ensure it works out in our interest. Sunday's announcement was a vital first step.    

Hugh White is an Age columnist and professor of strategic studies at the Strategic and Defence Studies Centre, ANU.