Can Europe Shape the Peaceful Rise of China? Working through the AIIB

The old adage was that the future of Asia would be Europe’s past, yet Europe’s role in the region’s future has often been given little consideration. The rise of China and its implications for East Asia is usually seen within the U.S.-China dynamic and often through the lens of military or economic issues. The recent launch of the Asian Infrastructure Investment Bank (AIIB) and Europe’s involvement signals a chance for Europe to play a more active role. This Beijing-initiated development bank does though bring it into conflict with the current financial architecture. As such, the United States was very much in opposition to the AIIB since its inception and was rather unhappy when Britain at first, and then other European countries subsequently joined. It has even raised the question in some circles as to whether the Washington Consensus, once the dominant model for economic development, has died. As Luxembourg’s Finance Minister Pierre Gramegna stated on his Twitter account from the opening event of the AIIB on January 17 2016, “The emergence of the #AIIB is evidence of global rebalancing.”

There are two important questions in this regard, is China seeking to reshape the current international financial order? And why has it allowed European countries to partake in the AIIB despite initial opposition to countries from outside the region participating?

As the Obama administration got into gear, Aaron Friedberg viewed that “China and America are locked in a multifaceted competition to determine which will be the preponderant power in East Asia.”[1] Seen from such a lens, efforts by China to create the AIIB can be seen as a challenge to U.S. hegemony in the region. Yet, the absence of true balancing against the United States, particularly in East Asia, has also been noted. After all, countries in the region are not all ganging up on the United States nor have they discarded economic development for the time being as their main priority, including China. This absence of true hard balancing has been a source of much debate within international relations theory leading to the emergence of the concept of soft balancing as a way to explain this current trend.

One of the main proponents, T.V. Paul, sees soft balancing occurring under three conditions: the leading hegemon’s power is of concern but not a direct challenge to the sovereignty of second-tier powers, the dominant state is a major provider of public goods, and the dominant state cannot retaliate because the balancing efforts by second-tier powers does not constitute a direct challenge to its position.[2] In terms of how soft balancing functions, Robert A. Pape outlines four steps that second-tier powers can utilize. These include territorial denial, entangling diplomacy, economic strengthening, and signalling resolve to balance. The AIIB would certainly fall somewhere between the last two steps.[3]

To understand the motivation behind the AIIB as a form of soft balancing, it should be seen within the context of U.S.-China relations and to some extent Sino-Japanese relations. Under the Obama administration, the United States launched its “pivot” to Asia in 2009. Seeking to divert its single focus on the Middle East by renewing its attention and diverting resources toward the Asia-Pacific region, which the administration saw as crucial for the future. This was naturally opposed to by Beijing whose leadership viewed it as a thinly-veiled effort to contain its country’s economic rise. Policies associated with the “pivot” have included the Trans-Pacific Partnership, strengthening U.S. military forces in the region, and enforcing freedom of navigation in the disputed waters of the South China Sea. Each of these actions has been interpreted negatively in Beijing, particularly in the South China Sea though not to the extent that its national sovereignty is in peril danger. The Obama administration has been careful to avoid trampling on China’s “core values” and it should be noted that the South China Sea is not one of them.

At the same time, ties between China and Japan have reached an all-time low in recent years owing to disputes over the Senkaku/Diaoyu Islands and history issues. As the Asia Development Bank is mostly dominated by Japan and the United States, the AIIB can be viewed as a rival challenging its operations in the region.

Taking into account T.V. Paul’s list of motivations for second-tier states to utilize soft balancing, the U.S. pivot and associated policies could be viewed as an indirect challenge to China. Thus, if we accept that China is at a stage where it is not yet capable to challenge the U.S. primacy in the world and it is not threatened directly by the United States, then it is unlikely to undertake traditional balancing measures either through establishing military alliances (external balancing) or with massive armaments (internal balancing).[4] Absence of hard balancing, soft balancing emerges as the method in which China expresses its disapproval or dissatisfaction without directly challenging the established order.

To take soft balancing further, it can be seen as a short-term measure to express frustrations with the current international framework and hedge for the future. For example, the Shanghai Cooperation Organization, cited as an example of soft balancing by T.V. Paul, was formalized in 2001 in response to the U.S. intervention in the Kosovo Crisis of 1999. Yet it has never materialized into a counter-bloc to the United States or NATO as it has never gone beyond hosting annual conferences and conducting joint counter-terrorism exercises.

Of course there are limitations to this assessment and not everyone agrees with the concept of soft balancing, Stephen G. Brooks and William C. Wohlforth have challenged its assumptions and interpretations as too much rooted in the past.[5] While scholars like John Mearsheimer look to the future and see China’s economic rise as eventually translating into its desire to establish a regional hegemony and drive the United States out of East Asia. In this respect, the AIIB would be the first step in such a drive, which would naturally raise questions on Europe’s participation.

Soft balancing may provide an explanation for China’s motivation in establishing the AIIB, but it does not explain why European countries are participating. After all, the European powers who joined the AIIB are not motivated to balance against the United States in the same way that China is. Rather it is a sign that they are now having to recognize the role of China as a vital player in the global economy. This is in actual fact the reality that has emerged since the 2008 financial crisis in which the established economic powers have begun to listen to the emerging economies on global issues. The G-20 is a clear example of this trend and the AIIB is further solidification of it. At the same time, by playing an active role, European countries can hedge against any negative consequences from China through the AIIB. For example, there were concerns about China dominating the voting share, however with an increasing number of countries joining, its dominant share decreases.

Still, the participation of European countries in the AIIB is quite remarkable given that from its onset, China was opposed to the membership of countries from outside the region. How did this policy change? It is simply an issue of mandate and credibility that is of concern for any country establishing an international organization. The challenge in China’s case was in establishing a purpose and mandate for the AIIB. In some respects this difficulty reflects its emerging role in international politics and the internal debates in Beijing on this topic for which there is still no clear answer. As the two main countries in the region Japan and the United States outright refused to join from the beginning, China had to turn to major countries from outside of the region to provide it with a stronger international mandate. And with the involvement of European countries in the AIIB, it will help support Xi Jinping’s other pet project, the One Road, One Track that aims to link up countries across Eurasia by land and sea, all the way up to the periphery of the Europe Union.

Europe’s past does not necessarily have to be Asia’s future. Even if Europe was economically interconnected before each of the two world wars, the Asia region today is still very different and will continue to change in the future. We can expect that the future international order will be established on a more complex framework beyond the traditional political and economic interactions. Technology and the environment are also becoming major issues of exchange and integration. Furthermore, power is increasingly diffusing from states to non-state actors and even multilateral organizations, challenging the notion that the nation-state is the only player in international relations.

Whether a form of soft balancing or not, the AIIB is only at the beginning. Unlike the Shanghai Cooperation Organization, its future can be shaped and modelled with Europe playing a role. There may be questions as to whether Europe can play a meaningful part vis-à-vis China’s power, but it is clear that Beijing has invited Europe to be involved in a meaningful way.

Using this outlook, Europe’s role in the AIIB can help facilitate the peaceful rise of China by listening to its interests and adapting this to the current international political environment. Europe has a lot to offer and there are several ways in which it can operate in the AIIB and Asia as a whole.

Share Europe’s Multilateral Experience: With decades of experience, Europe has an impressive CV. It brings with it a wealth of multilateral institutional knowledge that would be valuable to running the AIIB. This will be crucial if this new regional bank is to bridge the gaps in south-south and north-south cooperation as it aims to do.

Coordinate with NGOs: European countries have often worked with NGOs to coordinate international policies through the European Union. Beijing tends to be more cautious in its dealings with NGOs, however Europe can facilitate more positive relations by pointing out the way in which NGOs can reach parts of a country that governments cannot. In a sense, they can highlight that relationships with NGOs need not be zero-sum, but can benefit all parties involved.

Encourage transparency: It will be crucial that Europe ensures transparency in the AIIB and its operations. Much of the criticism directed at the AIIB relates to its workings and what China intends to do with it, particularly in the future as its power grows. Ensuring transparency will help facilitate not only an understanding of the bank, but also reflect upon the true intentions of China toward the region. Call it a litmus test for China’s peaceful rise.

Tell the development story: Development projects are not just about funding highways and bridges, knowledge also plays an important. For example, establishing an export processing zone in Central Asia could entail many difficulties as not always such projects emerge as success stories. Therefore, learning from the experience of those who have achieved success and in particular from those of similar size and economic background is critical. There are many examples that less developed countries in the region can learn from and acquire this key experience. The story of South Korea’s economic development is a very good case study for other countries to learn from and is one that European countries should seek to promote it as part of the bank’s operations.

References

[1] Page 182 in Friedberg, Aaron (2011) A Contest for Supremacy: China, America, and the Struggle for Mastery in Asia, London, New York: W.W Norton & Company.

[2] Paul, T.V. (2005) “Soft Balancing in an Age of U.S. Primacy” International Security, Vol. 30, Number 1, pp. 46-71.

[3] Pape, Robert A. (2005) “Soft Balancing against the United States” International Security, Vol. 30, Number 1, pp.7-45.

[4] A word should be mentioned on internal balancing, although China has undertaken a large process of military modernization and increased its defence budget, this has not come at the expense of its own economic development which has always been the priority.

[5] Brooks, Stephen G. and Wohlforth, William C. (2005) “Hard Times for Soft Balancing” International Security, Vol. 30, Number 1, pp.72-108.