Soft balancing against the US ‘pivot to Asia’: China’s geostrategic rationale for establishing the Asian Infrastructure Investment Bank

ABSTRACT

The existing accounts about the China-led multilateral development bank—the Asian Infrastructure Investment Bank (AIIB)—have focused on the USA’s policy concerns and the economic and commercial reasons for China having established it. Two deeper questions are left unaddressed: Was there any strategic rationale for China to initiate a new multilateral development bank and, if so, how effective is China’s strategy? From a neorealist balance-of-power perspective, this article argues that China has felt threatened by the Obama administration’s rebalance to the Asia-Pacific strategy. In response, China is opting for a soft-balancing policy to carve out a regional security space in Eurasia in order to mitigate the threat coming from its east. China’s material power, premised on the fact that the country is a huge domestic market and flush with cash, has proved irresistible for Asian states, with the exception of Japan, to be enticed away from the USA. On the one hand, this article adds weight to the claim that although the USA remains the pre-eminent military power in the Asia-Pacific, it has fallen into a relative decline in regional economic governance; on the other, China’s soft balancing has its own limitations in forming like-minded partnerships with, and offering security guarantees to, AIIB members. A China-led regional order is yet to have arrived, even with the AIIB.

KEYWORDS:

• Asian Infrastructure Investment Bank (AIIB)
• Eurasia
• One Belt, One Road (OBOR)
• soft balancing
• US hegemony

Acknowledgements

The author is grateful to Andre Broome, Gerald Chan Thomas J. Christensen, Christina L. Davis, Srividya Jandhyala, Pak K. Lee and Vinicius Rodrigues Vieira for their constructive comments on earlier versions of this article. Thanks also go to Anisa Heritage for her insight into Obama’'s ‘pivot to Asia’ policy, and all of the 2016–17 Fung Fellows at Princeton University for their invaluable feedback during our internal workshops. Thanks also go to the Institute of Strategic Studies (ISSI) and the Department of Defence and Strategic Studies at Quaid-i-Azam University (QAU) in Islamabad, Pakistan for generously hosting me during my field work in Islamabad in May 2017. My sincere appreciation and thanks to Muhammad Faisal, Ali Haider, Salma Malik and Ashutosh Misra for their kind assistance in arranging all of my meetings and logistics before and during the time I was in Islamabad. This article was presented at the International Studies Association’s 58th Annual Convention in Baltimore, the Hallsworth Conference on China and the Changing Global Order at the University of Manchester in the UK, and the Princeton-Harvard China and the World Program at the Woodrow Wilson School at Princeton University. All of the presentations were made between February and March 2017. The author would like to thank the participants for their comments and suggestions.

Disclosure statement

No potential conflict of interest was reported by the author.

Notes on contributor

Lai-Ha Chan received her PhD from Griffith University. She is a Senior Lecturer in the Social and Political Sciences program in the School of Communication at the University of Technology Sydney. She was a Fung Global Fellow (2016–2017) at the Princeton Institute for International and Regional Studies, Princeton University, New Jersey, USA. She is the author of China Engages Global Health Governance: Responsible Stakeholder or System-Transformer? (Palgrave Macmillan, 2011) and the co-author, with Gerald Chan and Pak K. Lee, of China Engages Global Governance: A New World Order in the Making? (Routledge, 2012). Other publications have appeared in the Australian Journal of International Affairs (2016), Global Governance (2014), Review of International Studies (2012), PLoS Medicine (2010), Global Public Health (2009), Third World Quarterly (2008) and Contemporary Politics (2008, an award-winning article).

ORCID

Lai-Ha Chan http://orcid.org/0000-0002-3851-8329

Notes

1. The 13 new members are Afghanistan, Armenia, Belgium, Canada, Ethiopia, Fiji, Hong Kong (China), Hungary, Ireland, Peru, the Republic of the Sudan, Timor Leste and Venezuela.

2. ‘Pluri-lateral’ or ‘mini-lateral’ security structures involve three, but sometimes four or five, states meeting and interacting informally to discuss issues related to mutual security threats (see Tow and Envall 2011, 62).

3. Christensen (2016, 315) has argued that the TPP was initially intended to ‘encourage further Chinese economic opening and reform by enticing Beijing to join’ (see also 248–249). However, China perceived it as an exclusion (Ren 2017, 250).

4. The recipients of these 13 projects include Pakistan (two projects, totalling US$400 million), Tajikistan (US$27.5 million), Indonesia (three projects, totalling US$441.5 million), Bangladesh (two projects, totalling US$225 million), Myanmar (US$20 million), Oman (two projects, totalling US$301 million), Azerbaijan (US$600 million) and India (US$160 million) (see Chan and Lee 2017 and the AIIB’s official website at https://www.aiib.org/en/index.html).

5. Interviews in Islamabad, May 2017.

6. Interviews in Islamabad, May 2017.

7. Interviews in Islamabad, May 2017.

8. For a study of the ‘New Silk Road’, see Kucera (2011).

9. In February 2011, the Chinese State Administration of Foreign Exchange refuted a local media report that the country suffered a financial loss of up to US$450 billion in the investment in Fannie Mae and Freddie Mac, even though it was widely speculated in society that there was a substantial loss in the investment in US dollar assets during the global financial crisis of 2007–8 (Shanghai Daily 2011; Wall Street Journal 2011).

10. See Observatory of Economic Complexity website at http://atlas.media.mit.edu/en/profile/country/aus/.

11. The World Bank announced in 2013 that it would stop financing coal plants, except in rare cases where no feasible alternatives were available. Similarly, the Asian Development Bank only supports coal projects that use high-efficiency and low-emissions technologies (see Marray 2017a).

12. Interestingly, the Australian government has actively promoted the benefits of coal power. According to the Department of Industry, Innovation and Science, if the existing coal-fired power stations were replaced with more efficient ‘ultra-supercritical’ coal-fired power stations, the country could cut its greenhouse emissions by 27 percent. However, the Commonwealth Scientific and Industrial Research Organisation estimates that the new ultra-supercritical black coal would cost AU$3100 to build per kilowatt and, in order to achieve the reduction, it would require 20 gigawatts of new capacity, which would cost more than AU$60 billion, according to Dylan McConnell, a scientist at the University of Melbourne. McConnell points out that if renewable energy was to be used to achieve a 27 percent reduction in emissions, it would require approximately 13–19 gigawatts of renewable energy, costing only AU$24–34 billion—half of the government’s new coal-power plan (see Slezak 2017a, 2017b).

13. The extradition treaty was concluded between China and Australia under the Howard government in 2007, but was awaiting ratification by the Australian legislature. The Australian government pulled a parliamentary vote to ratify it in late March 2017, just days after the Chinese Premier Li Keqiang’s visit to Australia, where he stressed the importance of tackling cross-border crime between the two countries. The failure to ratify the treaty was mainly due to cross-party concerns over inadequate protections for human rights, as well as the non-existence of the rule of law in China. During Li’s visit, the Chinese government detained Chongyi Feng, an Australian permanent resident and a professor at the University of Technology Sydney, in southern China, preventing him from leaving China after his research in the country had concluded (Boreham 2017; Smyth 2017a).

14. Experts outside China have argued that China’s concerns are overstated because the USA has already gained access to the radar systems in Qatar, Taiwan and Japan, which can be used to monitor Chinese missile tests. What China really wants is, rather, to close the door on the possibility of further deployment of more advanced anti-missile systems along the Chinese periphery (Buckley 2017).

15. Economic statecraft can be defined as the use of economic instruments, inducements and/or sanctions to influence the actual and potential behaviour of other international actors (Baldwin 1985, 40–42; Zhang S. G. 2014, 2).

16. China and South Korea concluded a free trade agreement in November 2014, and the agreement came into force in December 2015, not long after South Korea applied to be a founding member of the AIIB. However, the decision to deploy THAAD in July 2016 has put the relations between these two countries on hold. Geopolitics and economics are mixing together. The suspected retaliation also involves mobilisation of the Chinese population to boycott Korean products. For example, 3400 Chinese cruise tourists, who were travelling as part of a reward organised by a Chinese company, arrived in Jeju, South Korea, on 11 March 2017, but refused to disembark, even though 80 buses had been arranged and were waiting to take them to the duty-free shops in Jeju (Linder 2017).

17. Arguing that economic sanctions failed to prevent Pyongyang from proceeding with its nuclear weapons program, Moon calls for a less confrontational approach in dealing with the North. He and his liberal supporters are also loath to let their country be drawn into hegemonic conflicts or wars between major powers (Choe 2017).

18. The Trump administration announced in its budget blueprint in March 2017 that the State Department and United States Agency for International Development’s budget would be reduced by nearly 29 percent, falling from US$36.7 billion to US$25.6 billion (Morello 2017).

19. Rather, the USA’s military bases in Australia will become more crucial for the US navy after the Trump administration ordered an aircraft carrier and other military vessels to move towards the Korean Peninsula in April 2017 (Schmitt 2017). During the presidential campaign, Trump suggested that South Korea should shoulder the financial burden of deploying THAAD. However, it was the USA, under the Trump administration, that covered the costs of the first deployment of the missile shield in February 2017 (Harris and Harding 2017).

20. Turnbull visited New York to meet Trump in early May 2017; this was followed by the visit of US Secretary of Defense Jim Mattis and Secretary of State Rex Tillerson together to Canberra in early June 2017.

Additional information

Funding

This research was conducted while the author was in residence as a 2016/2017 Fung Global Fellow at the Princeton Institute for International and Regional Studies, Princeton University, New Jersey, USA. The author acknowledge the funding support from Princeton University for her field trip in Islamabad, Pakistan in May 2017.