UK’s joining of AIIB marks critical shift in global financial order

By Martin Jacques Source:Global Times Published: 2015-3-25 23:28:04

The UK's decision to become a founding member of the Asian Infrastructure Investment Bank (AIIB) is a major historical event. Until then no Western country, with the exception of New Zealand, had signed up to join, not least because of intense American pressure. So how do we explain Britain's about-turn? 

The UK is certainly not what it was. Along with the other major European nations, its relative strength in the world has declined precipitously, accelerated in the recent period by the Western financial crisis. Today its economy is barely bigger than it was in 2007.

Previously, the US could rely on the UK always being by its side, forever prepared to do its bidding; America's poodle, as it has often been described. But recently little cracks have begun to appear.

The US has been arguing that its European allies should agree to spend not less than 2 percent of their GDP on defense. The UK has refused to commit. Strikingly, it has played virtually no role in the Russia-Ukraine conflict, leaving Germany and France to take the lead. None of these events, however, taken singularly or together, can be compared with, or prepared us for, the UK's seismic decision to ignore American pressure and join the AIIB.

The game-changer is China. There is not a single European country that has not been affected and challenged by China's rise and what attitude to adopt toward it. This has been a constantly moving process: starting with disbelief and skepticism, followed by growing interest and curiosity, and finally arriving at recognition, engagement and enthusiasm.

Britain came to recognize that China was an enormous opportunity; a potential source of much-needed investment and that the yuan was crucial to the future of the City of London. All the old reservations, quibbles, complaints and misgivings were pushed aside as the UK sought to make up for a great deal of lost time.

But even this does not quite explain its willingness to join the AIIB. Britain, furthermore, has hitherto had little presence in East Asia. And, most crucially of all, its godfather, the US, was pushing hard against the AIIB.

In other words, Britain's decision to join went entirely against the grain, an unpredicted and spectacular event, which took everyone by surprise. If Britain wanted to show China and the world how serious it now was about its relationship with China, then this was exactly the way to do it.

As the first major Western country to join, it reaped all the goodwill that went with that as far as the Chinese were concerned; and by doing so in the face of US opposition, it demonstrated its determination and intent.

The ramifications of the UK's decision to join the AIIB go far beyond East Asia, Asia Pacific or Asia. Germany, France and Italy have confirmed they will join, and others, for example Luxembourg and Switzerland, have also made up their minds.

Where once the only Western countries that involved themselves in such Asia-Pacific institutions were, as a rule, the US, Australia and New Zealand, the AIIB is drawing in a growing number of European countries.

A Chinese-inspired and led multilateral institution is fast achieving a global membership, exactly the opposite of what the US wants, a rival not only to the Asia Development Bank, but in some respects the World Bank itself. At the same time, the debate over the AIIB has served to sow major divisions between the US on the one hand and a growing number of European nations on the other.

The longer reform of the IMF and World Bank is delayed, the more their influence and credibility will decline and crumble.

If the US refuses to join Chinese-inspired institutions like the AIIB, the more isolated it will find itself. With each day that passes, it becomes more likely that the old institutional structure will decline and decay, to be increasingly replaced by institutions like the AIIB.

The writer is the author of the global bestseller When China Rules the World: the End of the Western World and the Birth of a New Global Order and a Senior Fellow at Cambridge University.

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