Taming the Dragon? Europe and the AIIB

28 février 2018

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European states’ willingness to be represented within the Asian Infrastructure Investment Bank (AIIB) is unquestionable. Most of the non-regional and four of the prospective members of the AIIB are part of the EU. Should Europe use its combined voting power to influence the Bank’s agenda and practices? Shaping standards and advancing geopolitical interests through the Bank would be in Europe’s interest, but decision-makers must be aware of certain limitations.

 

The EU within the AIIB

Despite initial Western concerns, the Asian Infrastructure Investment Bank (AIIB) is not an instrument of Chinese interests. Operational since January 2016, it follows the policies and standards of traditional multilateral development banks (MDBs) such as the World Bank or the Asian Development Bank (ADB).[1] The AIIB carries out the vast majority of its projects jointly with them. It also pledged to be “lean, clean and green,” a claim which the Bank’s president Jin Liqun recently reinforced further by adding that the AIIB would have “an important role to play as a facilitator and supporter of the Paris Agreement”.[2]

As of today, 15 EU member states are involved in the Bank, and another four – namely Belgium, Cyprus, Greece and Romania – have received prospective member status. Though their accession will not considerably boost the combined influence of EU countries due to the cap on non-regional members’ aggregate voting power[3], EU member states already possess around 21 percent of total votes (the combined aggregate voting power of all non-regional members amounts to 24.15 percent).[4] As substantive decisions such as increasing the capital stock or electing the president require 75 percent of all votes, the EU have a de facto veto power on key issues, if member states are willing to cooperate.

Fortunately, there are platforms that can facilitate cooperation. For example, as a unique practice in international financial institutions, EU member states are organized within the AIIB into two constituencies: one that consists only of eurozone members and another that involves non-Eurozone EU members and other European countries.[5]

In the wake of the Brexit vote and the EU’s struggle over the migration crisis, increased coordination is vital to demonstrate to China that the EU can act as a cohesive unit. Given that the UK holds the third biggest share among European members with 3 percent, EU member states should continue synchronizing their decisions with the British government after the UK’s departure.

Europe-wide cooperation is also imaginable if EU member states establish close coordination with other European countries outside the EU, as they do in the ADB[6]. Working together with Norway, Switzerland and Iceland (together 1.9 percent) would increase the EU’s combined voting power to around 23 percent. Potentially, but as a less likely scenario, cooperation with Turkey (2.59 percent) would propel it above 25 percent.

 

Shaping future decisions

On a geopolitical level, European countries should aim for two goals, both related to China’s One Belt One Road (OBOR) initiative. First, using their voting power, they should prioritize OBOR projects that aim to link China and Asia to Europe. Second, they should make sure that these transport routes and corridors do not cross Russia, to eliminate the emergence of new Russian leverage over the EU.[7]

As an important limitation, European countries should not expect to gain any considerable influence over OBOR projects. The AIIB is only one financial tool underpinning OBOR: a so-called Silk Road Fund was set up and other MDBs as well as Chinese banks are also providing financial support to the project.

Leveraging its role as a normative power, the EU should use its vote share to shape the standards and norms that govern the AIIB. This would be particularly important for the institution’s environmental portfolio. Despite its promise of being “lean, clean and green”, the Bank’s new energy strategy[8] still does not completely rule out projects involving coal-fired power plants, for example.

Europe could make sure that president Jin Liqun’s promise of increasing support for the Paris Agreement will be delivered on. It could also propose that the Bank’s Environmental and Social Framework (ESF) prohibit the possibility of financing coal or fossil fuel projects. Promoting a more thorough shift to green projects would be promising for European capital as well, since EU member states possess a large number of competitive companies in the green sector.[9]

However, Europe must not forget the framework within which it can maneuver. The EU might have been able to influence the ADB’s agenda to put emphasis on governance and education projects. But China proposed the establishment of the AIIB explicitly to fill the acute infrastructure investment gap in Asia. For now, a strong emphasis on “hard” infrastructure projects appears to be carved in stone[10].

In addition, the EU should not push for a shift towards European investments. In compliance with China’s OBOR-vision, investments in Europe would not focus on core member states but on Europe’s periphery (East-Central and Southern Europe). New financing for infrastructure projects from a Chinese-led bank could come with a measure of political influence, and could also further strengthen ties between China and the European periphery. This is a development that EU institutions and a number of Western member states have already denounced, noting that Central Eastern Europe’s rapprochement with China might undermine certain states’ relations with EU institutions[11].

Bearing in mind all of these limitations, the EU can still make better use of its presence. In sum, it should foster cooperation with other AIIB member states within Europe and focus on reaching common ground with the UK. Instead of attempting to significantly modify the agenda or the geographical scope of the Bank, the EU should push for a greener AIIB that does not finance coal projects. Doing so could in turn benefit European capital. Finally, OBOR projects such as the construction of  Europe–China routes should be supported on the condition that they not go through Russia.

 

References

Picture by grooble.

[1] Hanlon J. Robert, „Thinking about the Asian Infrastructure Investment Bank: Can a China-Led Development Bank Improve Sustainability in Asia?”, Asia & the Pacific policy studies 3 (2017): 541–554.

[2] Jin Liqun, “Opening Address Meeting of the AIIB Board of Governors”, Asian Infrastructure Investment Bank, 2017, accessed December 8, 2017, https://www.aiib.org/en/news-events/news/2017/20170616_002.html.

[3] Ujvari Balazs, “The European Union and the China-led Transformation of Global Economic Governance”, Egmont Paper 85 (2016): 1–36.

[4] All voting share related data come from: https://www.aiib.org/en/about-aiib/governance/members-of-bank/index.html, accessed December 8, 2017.

[5] Fleur Huijskens – Richard Tucsanyi – Balazs Ujvari, “How Europe can Use the AIIB to Influence China”, MERICS Blog, 2017, accessed December 8, 2017, https://blog.merics.org/en/blog-post/2017/08/10/how-europe-can-use-the-aiib-to-influence-china/.

[6] Ujvari Balazs, “The European Union and the China-led Transformation of Global Economic Governance”, Egmont Paper 85 (2016): 1–36.

[7] Fleur Huijskens – Richard Tucsanyi – Balazs Ujvarif, “How Europe can Use the AIIB to Influence China”, MERICS Blog, 2017, accessed December 8, 2017, https://blog.merics.org/en/blog-post/2017/08/10/how-europe-can-use-the-aiib-to-influence-china/

[8] Asian Infrastructure Investment Bank, „Energy Sector Strategy: Sustainable Energy for Asia”, 2017, accessed 8 December, 2017, https://www.aiib.org/en/policies-strategies/strategies/sustainable-energy-asia/.content/index/_download/aiib-energy-sector-Strategy-2017.pdf.

[9] Ujvari Balazs, “The European Union and the China-led Transformation of Global Economic Governance”, Egmont Paper 85 (2016): 34.

[10] Ujvari Balazs, “The European Union and the China-led Transformation of Global Economic Governance”, Egmont Paper 85 (2016): 33.

[11] Stanzel Angela, „China’s investment in influence: the future of 16+1 cooperation”, European Council on Foreign Relations, China Analysis, 2016, accessed December 8, 2017, http://www.ecfr.eu/publications/summary/chinas_investment_in_influence_the_future_of_161_cooperation7204.

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Balázs Kiss

Balázs is currently pursuing a master's degree in International Public Management at Sciences Po, specialising in Emerging Economies as well as China and East Asia. During his BA years, he studied International Relations with a special emphasis on European integration. His interests lie in foreign policy analysis, new Chinese-led initiatives, the rise of populist movements in the EU, and relations between China and East-Central Europe. He is a member of The Policy Corner's team project at Sciences Po Paris (2017-2018).