World Views: China’s shift to ‘soft power’ brings backers to investment bank

The Chinese government can scarcely believe its own luck. Heaping Asian insult upon Capitol Hill injury, last week Benjamin Netanyahu committed Israel to join Beijing’s new Asian Infrastructure Investment Bank.
While there is no love lost between the Israeli prime minister and US president Barack Obama, who was embarrassed by Mr Netanyahu’s congressional address on March 3, Beijing could not have expected to attract such a longstanding US ally when it first conceived of the institution.
What began as a seemingly quixotic defection to the AIIB by the UK – the first US partner to turn a deaf ear to American protestations about the bank – has turned into an unalloyed strategic triumph for Beijing.
More than 50 countries, including traditional US military allies such as Australia and South Korea, have signed up. Only Japan has – so far – stood by Washington’s side, echoing the Obama administration’s concerns about governance and transparency standards at the new bank.
Beijing’s success is not just luck, but the fruit of a smart policy adjustment. From its declaration of an air defence identification zone over the East China Sea in November 2013 to its deployment of an oil rig near Vietnam last May, China’s assertion of “hard power” seemed to be putting it on a collision course with almost all its regional neighbours.
In private, Chinese foreign policy experts acknowledge the violent protests that erupted across Vietnam after the over-reach in the South China Sea provided a wake-up call. With the annual Asia Pacific Economic Co-operation summit scheduled to be held in Beijing just six months later, the Chinese government ditched hard-power projection in favour of soft-power persuasion.
At Apec, the Chinese government backed down from a looming confrontation with Japan over the contested Senkaku or Diaoyu islands; signed unexpected environmental and military accords with the US; and unveiled a USD40bn fund to support an infrastructure-focused “New Silk Road” linking Asia to Europe. The AIIB will contribute at least another $100bn to this initiative in which Beijing intends to assume the role once held by Venetian bankers along the old Silk Road.
China’s strategic volte face has benefited from an almost comic series of missteps by its great geopolitical rival. US congressional reluctance to sign off on reforms giving China and other developing nations a greater role at the World Bank and International Monetary Fund has been compounded by the Obama administration’s inability to, as they like to say on Capitol Hill, “count the votes” on the AIIB.
It is one thing to oppose an institution behind the scenes and fail quietly; it is quite another to do so brazenly. Worse for Mr Obama, his standing in the Asia-Pacific region will deteriorate even further if he cannot secure “fast-track” authority to seal the deal on the Trans-Pacific Partnership trade talks, which pointedly exclude China.
Should TPP fail, then the economic component of the US president’s “pivot” towards Asia will – to Beijing’s surprise and delight – have completely unravelled. But President Xi Jinping cannot celebrate just yet. While 2015 may have begun as an annus mirabilis, an evolving diplomatic mess in Sri Lanka is a reminder of how quickly the momentum can change. China’s crisis in Colombo is largely of its own making, having bankrolled some $5bn-worth of projects on the assumption that Mr Xi’s erstwhile ally there, Mahinda Rajapaksa, had a firm a grip on power.
Mr Rajapaksa’s shock election defeat in January has exposed China’s Sri Lankan infrastructure investments – and related lending packages – to unwelcome scrutiny from the new government in Colombo. If proven, the accusations there of a lack of transparency and worse will perfectly illustrate Washington and Tokyo’s fears of potential governance lapses at the AIIB.
Beijing’s challenge now is to ensure the mistakes in Sri Lanka are not repeated under the auspices of its new bank. Tom Mitchell, The Financial Times, MDT/FT Exclusive