China’s Asian Infrastructure Investment Bank (AIIB) is an organization intended to support infrastructural development in the region. Despite its evident positive implications, several major actors, including the U.S. and Japan, voiced their disproval of the endeavor. The following paper outlines three global connections related to the phenomenon.
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Economic Growth Sustainability
The first global connection that can be identified as relevant to the Asian Infrastructure Investment Bank is the economic growth of China as an international economic player. Since its onset in the late 1970s, the region has demonstrated unprecedented development in the majority of areas, leading to the emergence of one of the main economic forces in the contemporary setting. However, it should be noted that the sustainability of the described process is being questioned by some experts who suggest that the Chinese economy depends on several factors that determine the success of the process.
First, the pace of the development is highly dependent on the influx of resources, introducing vulnerability in the form of possible resource deficit. Second, and, perhaps, more important, is the dependence of economic growth on the active urbanization process observed in the country. Despite significant improvement demonstrated in recent decades, the pace of urbanization is inconsistent, with significant gaps in transportation, infrastructure, and accommodation, among others (Cai & Lu, 2013).
This factor contributes to a situation where the existing labor market is unable to provide the resources at an expected rate, leading to the potential creation of bottlenecks in the economy. Finally, and, perhaps, most importantly, numerous experts point to the fact that rapid economic development is dependent on the state of affairs in the political domain (Breslin, 2016). It is widely believed that the government’s heavy involvement in economic matters is at least partially responsible for the steady pace of development.
By extension, it is possible to assume that the deteriorating stability of the political system has a potentially disruptive influence on its economy. In other words, a combination of factors can be identified that can be characterized as risks to the economic development of the region, necessitating an additional source of funding to keep up the pace of development and thus retain economic stability.
The second global connection is the country’s current funding gap. According to the latest estimates by the Asian Development Bank, a similar institutional lender, the gap is expected to reach the amount of $8 trillion in the period between 2010 and 2020 (S.R., 2014). The majority of the institutions with responsibilities are unable to cover the gap entirely due to an insufficient capital base. For instance, the funds available to ADB that can be allocated for the matter are estimated at $160 billion.
The World Bank, an international organization that is readily recognized as one of the primary alternative sources of funding, may offer an additional $220 billion, which is clearly insufficient considering the estimates (S.R., 2014). It should also be mentioned that both of the existing institutions, as well as the majority of organizations from the field, tend to address a broad range of problems, including gender equality, environmental protection, and cultural issues.
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This approach will likely further dilute the focus on economic performance necessary for sustaining the currently demonstrated pace of development (Ong, 2017). From this perspective, the establishment of the AIIB addresses the issue more directly while at the same time provides the necessary diversification on a global arena. Specifically, the establishment of a major banking institution in the Asian region disrupts the current setting in which the United States and Europe can be considered major players.
Global Initiative Investment Potential
Finally, the third global connection is the emergence of several initiatives, such as One Belt One Road (OBOR). OBOR, which is currently in the initial stage of its active development, is expected to provide numerous benefits to both the Chinese and European economies, in particular, due to the concentration of both sea and land routes, identified in the initiatives, in the European territories (Jing, 2014). Nevertheless, despite the evident attractiveness of the potential financial gain, European policymakers show a certain degree of reluctance in responding to the OBOR’s implications (Mishra, 2016).
The most apparent of the opportunities in question are increased access to new markets and the potential for development for players involved in the initiative. Currently, the Chinese economy is over-reliant on manufacturing and agricultural domains, which potentially creates instability in the long run. OBOR and similar initiatives offer the possibility of a non-disruptive restructuring of the economy, which would be equally beneficial for all of the involved stakeholders, including the host country.
On the other hand, the European economic domain is in a strong need for a sustainable solution to the aftermath of the Global Financial Crisis, which can be achieved with the help of identified initiatives. In other words, OBOR is expected to provide a performance boost for the Chinese economy while at the same time, stabilize the situation for European players and facilitate investment in the infrastructure. Since AIIB is expected to become a major investor in OBOR and similar initiatives, its emergence on a global theater signifies the potential redistribution of power among the powerful actors such as the United States.
As can be seen, the establishment of AIIB poses numerous benefits to stakeholders. Specifically, it offers a steady influx of resources necessary for an infrastructural update and provides expanded market access to several European countries. Thus, it is possible to expect an overall improvement of a global economic domain as a result of the stronger participation and commitment of its members.
Breslin, S. (2016). China and the global political economy. New York, NY: Springer.
Cai, F., & Lu, Y. (2013). Population change and resulting slowdown in potential GDP growth in China. China & World Economy, 21(2), 1-14.
Jing, F. (2014). Silk Road initiatives fit into EU recovery goals. China Daily. Web.
Mishra, R. (2016). Asian Infrastructure Investment Bank: An assessment. India Quarterly, 72(2), 163-176.
Ong, D. M. (2017). The Asian Infrastructure Investment Bank: Bringing ‘Asian values’ to global economic governance? Journal of International Economic Law, 20(3), 535-560.
S.R. (2014). Why China is creating a new “World Bank” for Asia. The Economist. Web.