Making of a New World Order
Making of a New World Order
If one needed any more proof of the new world order emerging, it was on full display in March-end.
With the deadline looming for founders’ membership of the China-led Asian Infrastructure Investment Bank, Washington’s major European allies rushed in ignoring its warnings. The most telling action was that of the UK, once the co-architect with the US of the Bretton Woods system. It scrambled to join the Chinese bank, explicitly designed to challenge the World War II-era global financial architecture. Leaders in Washington were stunned that their transatlantic “cousins” did not even consult them before rushing to sign up with AIIB.
Ever since China announced the creation of AIIB with its $50 billion initial investment, the US has expressed concerns overs the absence of international standards of transparency, policies to support the creditworthiness of borrowers and environmental sustainability. It publicly worried that AIIB would weaken the institutions of the World Bank and the IMF. Despite such concerns, many friends and allies — including India, Singapore, the Philippines, Thailand — joined the bank. Britain, Germany, France and Italy also rushed to sign up. An embarrassed Washington publicly criticised London, expressing its misgivings “about a trend toward constant accommodation of China”.
Washington should not have been surprised. Beijing’s growing economic clout has been on display ever since the 2008 financial crisis shook Western economies. The fact that China, along with fellow rising economies India and Brazil, has been denied its due share of voting rights in the IMF and leadership of the World Bank, has given it additional impetus to seek its own avenues of influence.
Beijing has emerged as a serial founder of economic institutions as well as promoter of initiatives such as the $41-billion BRICS development bank, the Central Asian Silk Road Belt and the New Maritime Silk Road backed by a $40-billion fund. The launch of AIIB was generally welcomed by Asian neighbours, largely starved of the large-scale capital needed to build critical infrastructure.
In its early years, the Obama administration had expressed a desire to rectify the disconnect between new economic realities and the increasingly sclerotic system established at Bretton Woods. But its ability to pursue such over-the-horizon initiatives has been snuffed out by stiff opposition from a Congress increasingly dominated by small-government, isolationist-leaning Republicans. The US has thus been left, without even its closest allies, to defend an outdated system that even it knows needs to radically reform.
While the politics in Washington has only permitted one policy direction — namely, vetoing China — Beijing has steadily built its economic influence in Europe. In doing so, it has successfully driven a wedge between the US and the European Union as well as between European countries.
Even in Asia, where America’s allies have cause for concern over Chinese assertiveness over airspace and the high seas, there is limited faith in the US willingness to come to their aid. Many who would normally count on the reliability of the US military deterrent to keep China at bay have begun to hedge their bets. After initially staying away from the Chinese-sponsored AIIB, major American allies like Australia and South Korea have hinted at changing their minds. Only Japan, which is facing direct Chinese territorial challenges, has been steadfast in refusing to join the bank.
The decision by the British and other European countries to join China’s new bank may one day be seen as the last straw on the back of the aging and beleaguered camel that is the post-war economic system. With the western alliance seemingly in disarray, and China consolidating its economic dominance with savvy new political maneuvering, a New World Order may truly be upon us. Mindless partisan politics in Washington and political opportunism in Europe have handed China the leadership crown on a platter.
The author is editor-in-chief of YaleGlobal Online, published by the MacMillan Center, Yale University.