For all the clumsiness of its announcement, the decision on 16 March by the UK to break from the pack and join the China-instigated Asian Infrastructure Investment Bank (AIIB) is welcome news for two reasons. The first is that it shows overdue strategic clarity, and awareness among the political establishment that foreign policy towards China should aim to advance the national interest rather than placate Britain’s other allies. The second is that it shows pragmatism after a long period in which UK–China relations have been confused and at times incoherent.
In defence of Britain’s policy in recent years, politicians might argue that they are reliant on the advice of their officials. The Foreign & Commonwealth Office (FCO) has a track record of institutional delusion about China. Those with long memories will recall the China policy paper issued around the time of the Beijing Olympics. It is hard to find this document now, as the FCO has wisely removed it from its main website. But the paper outlined a series of ambitious objectives, most of which hinted that the UK’s mission was to save China from itself. These objectives included, for instance, helping China with internal legal and political reform. The arrival of the global financial crisis interrupted this agenda, as the UK found itself preoccupied with saving its own economy rather than delving into the domestic political affairs of other countries.
But the template was set. In the ensuing few years the abiding theme of UK–China relations, at least from the British side, was one of unrealistic expectations and blundering policy. The UK seems to have badly misjudged its meaning to China over this period, still clinging to an historic role it no longer had, and seeking to assert influence over issues such as Hong Kong long past the time when it could achieve anything meaningful. Politicians should have been better advised. From 2010, the setbacks piled up – from the freezing out of Prime Minister David Cameron after his meeting with the Dalai Lama in 2012 to UK officials’ incompetent handling of the murder of British businessman Neil Heywood. This did not look like strategic or pragmatic diplomacy, but more like constant crisis management.
With the decision to join the AIIB, a strand of pragmatic, tactical engagement focused on the UK’s strengths has come to the fore once more. That this decision evidently emanated from the UK Treasury only shows that if you are looking for coherence in UK–China relations, then head there rather than to the FCO. It is particularly notable that a US-friendly chancellor, George Osborne, mandated joining the AIIB in defiance of American complaints. This underlines the critical importance of membership for maintaining Britain’s strength as a finance centre, and London’s core role as a source of financial expertise and capital.
It seems that there was little, if any, consultation between Washington and London before the announcement, which took American officials by surprise and showed a rare streak of independence on Britain’s part. The UK rarely disobeys its most important ally, yet here the reasons were too powerful to resist. And the UK has been vindicated. After initial grumbles, Germany, France and Italy quickly agreed to join the AIIB. South Korea and Australia are also likely to do so. So the UK deserves credit where credit is due. It took the lead, has done something worthwhile and significant, and has even garnered plaudits from the World Bank and the IMF.
Why is all this happening? The answer, in part, is that Asia’s infrastructure investment needs are massive. Hong Kong alone, a tiny part of the region, plans to spend over $1 billion per year on infrastructure in the coming years. Other economies in the region have needs way beyond this. With the right strategy, the new bank will have no need to compete with the Asian Development Bank or anyone else. Demand for infrastructure finance is likely to far exceed the AIIB’s $200 billion in initial capital, so there is plenty of space for different players. And London’s argument is right: why sit on the sidelines when you can be an integral part of the bank and at least ensure it develops according to your own view of international norms? The only other option is to sit on the outside carping.
Added to this is the fact that the US response was clearly ill thought out. Objecting to the establishment of such a bank because of China’s leading role in it seemed petulant. Even Jack Lew, the US Treasury secretary, conceded on 18 March in Washington that the US had to embrace a greater role for the world’s second-biggest economy in bodies like the IMF – or risk them becoming unrepresentative and irrelevant. If the US cannot expand its horizons in this most politically manageable of spaces, then what hope is there over other issues? Its exceptionalist mindset was too blatant this time. The UK was right to strike out on its own. It should run its China policy from London, not Washington. The fact that Britain is no longer alone in the position it has taken, with other EU partners now also joining the bank, makes it far less exposed. There are even noises in Washington that opinion towards the AIIB is changing. Diplomatic collateral damage with the UK’s most important partner is likely to be negligible.
Despite this, the real hard work starts now. The UK must have a strong voice on this body if everything goes ahead. It must show that it can wield influence. There are newer, more open-minded advisers on Chinese affairs that the government can now call upon. A new ambassador, Barbara Woodward, has just been posted to Beijing. Relations with China up to 2014 were largely a failure for the UK. But in 2015, things are looking much better. It is to be hoped that the decision to join the AIIB will usher in a new, more successful era.
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