Chinese-led Institutions in the Global South and Their Implications for the Neoliberal Order

Chinese-led institutions were established in the wake of the rapidly growing Chinese economy and the resulting pursuit of greater power, alongside growing Chinese frustration with Western-led institutions (Gottwald, 2017 and Chin, 2012). The emergence of the Asian Infrastructure Investment Bank (AIIB) and BRICS New Development Bank (NDB) have offered states, especially those in the Global South, an alternative to Western-led institutions, such as the IMF and World Bank (WB). Many other Chinese-led institutions are also in the form of regional forums, posing a unique practice of multilateralism altogether. Hence, this article aligns with Alden and Alves (2017), who identify that Chinese-led institutions are creating a ‘Sinosphere’, which is a parallel order to the one established by neoliberal institutions.

Whilst this article recognises that there are perceived constraints to Chinese-led institutions creating a parallel order, including those most often sited: China lacks capacity to manage the system it is creating, China will need to compromise to secure compliance and that multilateralism itself is an constraining and socialising factor, the article chooses to focus on the effects of the parallel order that is evidently being created, in spite of these inhibiting elements. It is also important to distinguish that when speaking of a parallel order, the article is not necessarily alluding to the displacement of Bretton-Woods institutions, but rather the outcome of making the world of international development multi-polar (Epstein, 2015).

Firstly, to be considered as an alternative to the neoliberal order, it is important to establish the medium through which the institutions are able to achieve this status. Chinese-led institutions, have effectively increased its lending to match that of the WB and IMF. The Chinese Exim Bank has spent $12.5 billion more in loans to Sub-Saharan Africa than the WB in the past decade (Chin, 2012). The AIIB, established in 2016, has over 64 active projects amounting to $12.24 billion, ranging from motorways in Pakistan to a prosperous village project in Uzbekistan (aiib.org, 2019). Here, they offer an alternative source of funding for areas and projects which the IMF and WB have been unable and disinclined to finance (Chin, 2012). The AIIB and NDB have the combined ability to lend $230 billion, which equals the WB (IBRD) and Asian Development Bank (Reisen, 2015).

Lending by different institutions

Data from World Bank and AIIB sites respectively – 2020 data yet to be published for AIIB.

Moreover, China has requested to increase its contribution to the IMF, as Beijing believes the IMF needs more resources to fulfil its purpose. However, the USA, who has veto power, did not approve this (Dollar, 2015). China has also argued for the WB to focus on infrastructure for several years, however this again has not been realised. Subsequently, China’s creation of institutions has been accelerated with the support of developing states, who, as illustrated by the Zedillo Report (a report on WB reform), have showcased movement away from existing banks to finance infrastructure because they are both slow and bureaucratic (Dollar, 2015). Thus, Chinese-led institutions have gained support partly because they offer an alternative to Western-led institutions.

An increase in expenditure and subsequent presence in the Global South, coupled with strengthening status, have created a pre-eminent opportunity for Chinese-led institutions to promote Chinese ideals (Alden and Alves, 2017). Of particular note, China endorses its development model, which encourages a more controlled market, compared to the Washington consensus (Wuthnow, 2008). Regional forums also promote norms of political equality and mutual benefit, as well as, seeking acknowledgement that China is the leader of the developing world (Alden and Alves, 2017). The new win-win relations that Chinese-led institutions are pursuing has influence on the international order (Men and Liu, 2015), as it increases Chinese soft power and encourages distancing from the Washington consensus. China has also been promoting its Confucius Institute within the Global South (Danns and Danns, 2015), which is the promotion of Chinese language and culture – inherently alternate to Western institutions.

Furthermore, Chinese-led institutions also often take the form of regional forum diplomacy, which is its ‘own form of multilateralism’, as they establish a dialogue platform within the Global South (Alden and Alves, 2017; 164). For instance, the Conference on Interaction and Confidence-Building Measures in Asia, which has been elevated by China to a similar level of importance as the Asia-Pacific Economic Cooperation, serves as a nexus between China and South East Asia, especially as it excludes Japan and the USA (Keithley, 2014). Regional forums are often based on a different set of norms and are aided by financial institutions where China is de-facto leader. This form of diplomacy becoming a ‘new paradigm of international relations’ (Men and Liu, 2015; 87) is evidence in itself that it’s an alternative to Western institutions. Regional forums are purpose built to seek recognition of China as leader of the developing world and to arrange the negotiation of terms for relations between forum members and China (Alden and Alves, 2017). Thus, making them alternate as they complement China’s bilateral relationships, such as the 16+1 forum with Central and Eastern Europe, which aims to advance existing ties regarding China’s Belt and Road Initiative, specifically focusing on transport infrastructure (Ekman, 2016).

Therefore, almost inevitably, the existence of Chinese-led organisations will lead to the creation of a Chinese sphere of influence, as Beijing remains at the centre of these institutions. The creation of a parallel order is reinforced as the AIIB, for instance, is the functional equivalent of the WB (Wan, 2015). It may not necessarily match the post-war ordering that the US undertook, however, its principal values represent a primary stage in global social reality construction which will legitimise greater Chinese influence (Alden and Alves, 2017). This argument is restated by Gottwald (2017), who identifies that China has frequently developed new roles outside of established frameworks, rather than taking greater leadership positions in existing institutional framework – implying that China has chosen to create alternate institutions, eventually leading to the materialisation of a Sinosphere which primarily focuses on conveying and legitimising Chinese interests (Alden and Alves, 2017).

The premise of this article is thus clear: the creation, construction, and conduct of Chinese-led institutions such as the AIIB and NDB offer an alternative to Western-led institutions. Chinese-led institution also offer an alternative to the Bretton-Woods institutions simply because they exclude Western states from holding powerful positions within them. The AIIB and NDB also specifically offer an alternative to the WB and IMF, as they are direct derivatives of these institutions. Overall, despite there being some alleged limits to the AIIB, NDB and Chinese-led regional forums are evidently establishing a Sinosphere, with Beijing at the centre.

Bibliography

Aiib.org. (2019). Members and Prospective Members of the Bank. Available: https://www.aiib.org/en/about-aiib/governance/members-of-bank/index.html. Last accessed 20th Jan 2020.

Alden, C. and Alves, C. (2017). China’s Regional Forum Diplomacy in the Developing World: Socialisation and the ‘Sinosphere’. Journal of Contemporary China. 26 (103), p151-165.

Chin, G. (2012). Two Way Socialization: China, the World Bank, and Hegemonic Weakening. The Brown Journal of World Affairs. 19 (1), p211-230.

Danns, G. and Danns, D. (2015). Challenging the Dominance of the World Bank and the IMF: The Role of the BRICS Countries and Their New Development Bank in Latin American and the Caribbean. Journal of Business & Economic Policy. 2 (3), p125-134.

Dollar, D. (2015). The AIIB and the ‘One Belt, One Road’. Available: https://www.brookings.edu/opinions/the-aiib-and-the-one-belt-one-road/.  Last accessed 8th Jan 2020.

Ekman, A. (2016). China’s Regional Forum Diplomacy. Available: https://www.iss.europa.eu/sites/default/files/EUISSFiles/Alert_44_China_diplomacy.pdf. Last accessed 20th Jan 2020.

Epstein, D. (2015). New Development? The BRICS Bank and the International System. Harvard International Review. 36 (2), p12-13

Gottwald, J. (2017). China’s Role in International Institutions: The Case of Global Economic Governance. In: Gottwald, J., Harnisch, S. and Berwick, S. China’s International Roles: Challenging or Supporting International Order. New York: Routledge. p127-144.

Keithley, S. (2014). China’s New Global Institutions. Available: https://thediplomat.com/2014/07/chinas-new-global-institutions/. Last accessed 8th Jan 2020.

Men, H. and Liu, X. (2015). Partnership Strategy of China: Progress, Evaluation and Prospects. World Economics and Politics. 2 (2), p65-95.

Reisen, H. (2015). Will the AIIB and the NDB Help Reform Multilateral Development Banking? Global Policy. 6 (3), p297-304.

Wan, M. (2015). The AIIB Versus the World Bank and ADB. In: The Asian Infrastructure Investment Bank: The Construction of Power and the Struggle for the East Asian International Order. New York: Palgrave Macmillan. p58-91.

Wan, M. (2015). A New Hegemonic Order in Asia? In: The Asian Infrastructure Investment Bank: The Construction of Power and the Struggle for the East Asian International Order. New York: Palgrave Macmillan. p92-104.

Wuthnow, J. (2008). The Concept of Soft Power in China’s Strategic Discourse. Issues and Studies. 44 (2), p1-28.