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China Divides the West?

When the German, French, and Italian ministers of finance announced on March 17 that their three countries would accept a Chinese invitation to become founding members of the Asia Infrastructure Investment Bank (AIIB) writes Volker Stanzel, they did so in clear opposition to the United States’ preferred outcome — and still trailed the United Kingdom, which for once had blazed past the Germans in its rush to Beijing.

Now there is anger in Washington, and speculation in Asia that countries such as South Korea and Australia might also join, in spite of Washington’s objections. China proposed the AIIB to — according to Chinese Foreign Ministry Spokesman Hong Lei — set up a “professional infrastructure investment and financing platform to contribute to regional infrastructure and economic development.”

The Asian Development Bank and the World Bank already do this, which is the U.S. argument against the AIIB. But China feels underrepresented and arbitrarily sidelined in the existing institutions, mainly by the United States, so they have set up a new heavily financed institution, which they will be able to dominate.
Certainly there are many reasons to regard the United States’ decision not to join the AIIB as unnecessarily defensive. A U.S. “rebalancing to Asia” should, perhaps, also mean moving closer to its major competitor, China. U.S. participation in China’s first true international institutional invention also might enable Washington to shift the weight somewhat away from Beijing. But the United States is hesitant to do so. “We are wary about a trend toward constant accommodation of China,” a U.S. government representative told the Financial Times.
But while this dispute is important, and indicative of future controversies with China in the field of international governance, something else is far more worrying: the complete lack of transatlantic — or even intra-EU — coordination. When the United States, supported mainly by Japan, made clear it would not join, China increased the pressure on others: Only countries that join before end of March would have a chance to occupy senior positions in the new institution.
British Prime Minister David Cameron’s government announced on March 12, that it would join the AIIB, the first major Western country to do so. Cameron’s goal was certainly not to antagonize the United States, nor was it to bring about a new Asia-based financial institution. Cameron’s move was aimed first of all at undermining Germany and its role as China’s major partner in the European Union. Over the past decade, Germany has come to dominate the EU’s economic exchange with China. German-Chinese trade accounts for almost 40 percent of total trade between the European Union and China; it is about four times as much as French-Chinese trade and almost three times as much as U.K.-Chinese trade. The other 25 member states trail behind. And while France and Britain regularly run a large deficit with China, Germany’s deficit is slim.
But these figures do not tell the whole story. Germany is the only country in Europe that has an agreement with China to hold annual joint cabinet meetings, which means annual visits by the heads of government accompanied by a large number of their ministers in both directions. Despite obvious different political viewpoints, they understand each other and how they tick.
This, in principle, benefits all of the European Union. The EU is China’s biggest trading partner worldwide, and if there is at least some political understanding through the German channel, that might help prevent or defuse frictions.

It is sensible to expect that this would be reflected in the EU’s China policy, but it carries obvious risks. A British geoeconomics expert at the European Council on Foreign Relations, Hans Kundnani, wrote in Foreign Affairs: “China may see Germany as the key to getting the kind of Europe it wants.” This may have been proven true indirectly; Cameron’s effort to catch up with Germany may have led him to become the first G7 country to join the AIIB — right into the face of the United States.

Whatever Cameron’s logic may have been, he has also led the way to disregard the need for consensus in a matter that concerns the basics of the West’s relationship with the major new rising power in Asia, and which is of great importance to the United States. Germany, France, and Italy have followed Cameron into the AIIB. There has been no thorough transatlantic discussion, no G7 evaluation, and no public discussion that would have involved the financial and business actors concerned.

Under the time pressure China has devised, there has been no effort to arrive at a consensus in the European Union. Confusion is the result, and further friction and conflict inside the European Union, in the G7, and across the Atlantic are foreseeable. “Divide and rule” is an art mastered long ago by Beijing.

This article was first published today (30/03)by the German Marshal Fund. Volker Stanzel is an incoming senior advisor to The German Marshall Fund 

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