Australia and the AIIB: A lost opportunity

The debate about whether Australia should join the Asian Infrastructure Investment Bank (AIIB) has gone beyond the realm of economic development and investment to hit at the core of Australia's apparent security dilemma.

The initial concern revolved around the governance arrangements and whether Australia should be part of a new China-led regional development bank. As I argued last month, in this regard Australia would have more influence by being involved than by not.

But Paul Kelly's piece in The Australian today reveals some interesting insights into how the Australian Government views China, and how it sees Australia's position vis-à-vis its allies. It seems to me that the Government has attributed more meaning to the AIIB than need be. Two statements in particular in Kelly's article struck me:

The issue has triggered a core split within cabinet over the classic dilemma for Australia's future — how to decide between China and our US-led alliance partners. Japanese Prime Minister Shinzo Abe was keen for Australia to remain tied to the existing institutions, the World Bank and Asian Development Bank, now dominated by the US and Japan.

Why frame it as a choice? There is nothing in the AIIB proposal that suggests by being involved Australia would loosen its ties to the Asian Development Bank or World Bank. This is not a zero-sum decision. Indeed, this consideration evidently hasn't affected Singapore's decision to join.

Here's the second quote from Kelly, who says the cabinet debated this issue twice, but that the second discussion occurred only among members of cabinet's National Security Committee: [fold]

It is revealing that the second debate was conducted in cabinet's NSC, where strategic rather than financial arguments became paramount. Ms Bishop provided scenarios of how China could convert financial power via investment loans into direct military advantage in vulnerable nations close to Australia.

Again, this tells as a lot about the Government's thinking on China and how it views its development finance in the region. Let's think about this.

There could plausibly be a concern that if countries in the Pacific couldn't pay their debt (owed to the China Eximbank for concessional loans, not investment), China would use this as leverage or a bargaining chip for enhanced military engagement (or access to fisheries, which Pacific countries are more concerned about). The only case where this is a potential concern at the moment is Tonga; others are on track to pay off their Chinese (and ADB) loans.

Another possibility is that China's 'financial power' could be converted into soft power, with 'vulnerable nations' swayed to follow China's demands rather than Australia's. This is more likely than the first possibility. But as I've recently noted in the case of Fiji, the love for China is wearing thin.

China is already providing millions of dollars of development financing in the region and will continue to do so, both through its own financing mechanisms (like China Eximbank loans) and through a range of regional facilities – including the Asian Development Bank, World Bank and now its new Asian Infrastructure Investment Bank. If you believe these scenarios will eventuate (and I would caution against doing so), they would happen regardless of whether the AIIB exists and certainly regardless of whether Australia is part of it.

By seeing the AIIB as purely 'an instrument of China's national interest' (and therefore not in our national interest) Australia has lost a valuable opportunity to participate alongside other Asian nations and influence the direction China's financial engagement. And the strong overtures from US representatives feeds the Chinese perception that Australia doesn't make independent foreign policy decisions, making it harder to convince China that we're not just America's 'lapdog' when it comes to China's role in the region.

Photo courtesy of Flickr user Tony Abbott.

Philippa Brant