China’s cloak of civility hides battle of wills

Jennifer Hewett
The Australian Financial Review, 27 October 2014

China certainly took note of Australia’s absence when President Xi Jinping held his big signing ceremony on the Asia Infrastructure Investment Bank in Beijing on Friday.

The Chinese state-run media publicised the signing of a memorandum of understanding at the Great Hall of the People, including the fact that 21 countries were represented. But the reports also pointed out Australia was not present.

The official line remains conciliatory. China is suggesting other countries may join at a later date and Chinese officials are briefing the Australian media that Australia will be welcome if it chooses to sign up in future. Behind the polite rhetoric lies a major struggle of wills between China and the United States – as well as allies like Australia.

This reflects the level of influence and control China will have in a new body designed to fund regional infrastructure development with start-up capital of $US50 billion ($56 billion) and eventually up to $US100 billion.

The idea of a new infrastructure bank is not only Xi Jinping’s personal initiative. The Chinese consider it a necessary counterweight to the World Bank, the Asian Development Bank and the IMF, where leadership is dominated by the West.

They argue, with experience on their side, that they are blocked from having a commensurate say in these other multinational organisations.

Many Asian countries would also clearly benefit from greater funding for much-needed infrastructure in roads and rail and telecommunications and energy projects. But the establishment of a new investment bank also fits with a more assertive foreign policy by China, even if it argues it is really just taking on more international responsibilities as a global power – as demanded of it by the West.


So China is keen to add to the bank’s credibility and image of independence by including close allies of the US. That diplomatic effort has particularly focused on Australia and South Korea. The US has been quietly pushing the argument with these same countries that this would not only undercut the role of institutions like the World Bank, but is another “soft power” play by China with a hard edge.

A bank dominated by China would make more countries more directly dependent and less inclined to challenge Chinese territorial and other claims. Funding for a port, for example, might mean pressure to allow it to become a de facto port for the Chinese navy.

Australia’s Foreign Minister, Julie Bishop, was already alert to such broader strategic risks, quite independent of the US view. While Treasurer Joe Hockey and Trade Minister Andrew Robb were in favour of joining up immediately, Bishop has been insisting on first getting explicit undertakings and details on the bank’s board structure, voting rights and how the money would be allocated.

The Chinese were willing to give verbal assurances as part of the protracted discussions with Australia. But the wording of the MOU, when it came back to Canberra, answered none of these concerns in any detail.

The China Daily this weekend pointedly referred to a report in The Australian Financial Review on Friday that US Secretary of State John Kerry had personally asked Tony Abbott to keep Australia out of the bank.

And it was the Prime Minister’s call that ended up in cabinet deciding last week not to meet China’s request for the October 24 deadline, despite the clear preferences of the Treasurer to do so. During his own visit to Beijing earlier last week, Hockey told the Chinese finance minister that Australia had “yet to decide”.

The China Daily’s lead story declared “the absence of some major economies underscores the difficulty China faces as an emerging power in making global governance initiatives”.


According to the Chinese, China will have a stake of up to 50 per cent, with other nations’ stakes generally allocated according to GDP, clearly making China by far the most significant shareholder.

This has not put off many others in the region, including India, the Philippines, Malaysia, Vietnam, Sri Lanka, Pakistan, Myanmar and Cambodia, as well as several Middle Eastern countries. Not surprisingly – given the tensions with its neighbour – Japan publicly declared it would not join. But the Chinese had hopes for Australia, especially given Hockey’s evident enthusiasm.

The Chinese deadline pressure for a commitment was because of the formal announcement of the bank’s establishment, expected at the meeting of APEC in Beijing next month – a meeting which President Barack Obama, as well as Japanese Prime Minister Shinzo Abe, will attend, along with Tony Abbott.

China is approaching its role as host with typical fervour and wants to present the bank as an example of China’s growing global leadership.

Australia’s rel­uctance to follow this timetable doesn’t mean it is ruling out joining if its concerns are addressed. But this can no longer tie in with Australia’s emphasis on infrastructure as part of the agenda at the G20 in Brisbane immediately following APEC.

This also comes at a delicate time between China and Australia in the last stages of negotiating a free trade agreement. The Chinese paper quoted the US State Department saying the US welcomed the idea of an infrastructure bank for Asia, but only if it met international standards of governance and transparency – a similar stance to that of Australia.

The Chinese are likely to see this as Australia, once again, following America’s lead. Payback to come?

This article was originally published here.

Jennifer Hewett was in China for the China Australia Journalist Exchange 2014.