In March 2015, the UK, France, Germany, and other EU states announced that they would apply to join the Asian Infrastructure Investment Bank (AIIB) as founding members. This multilateral undertaking, a Chinese-led initiative, will fund projects in developing countries, particularly in Asia. The fact that three major European countries, all of them G7 members, have joined the effort has surprised many commentators.

But it should not be surprising that states in the era of globalization and global supply networks engage in initiatives that promote economic growth and increase trade flows worldwide. To paraphrase the Swiss linguist Ferdinand de Saussure, politics and economics are as inseparable as the two sides of a piece of paper; one cannot cut one side without also cutting the other. The AIIB initiative holds great promise for the EU and China in both of these areas.

The Economic Benefits for China and Europe

Shi Zhiqin
An expert on European issues, Shi Zhiqin runs a program on China-EU Relations at Carnegie China.
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Most European states facing internal economic distress have embraced the gigantic potential that the AIIB embodies: a Eurasian economy connected by advanced infrastructure. That is why they have opted to participate in the founding of such a development bank. And now a core European institution, the European Investment Bank, seems poised to deepen its investment cooperation with China by opening an official office in Beijing. To be sure, EU states are acting strategically, preferring to shape the regulations of the bank from within instead of being mere observers of a Chinese-led institution. China welcomes this development as it looks to attract European know-how related to financing development projects and ensuring that high environmental standards are put in place and implemented.

In the past several years, China has accumulated trillions of dollars in foreign currency reserves. The AIIB initiative and the One Belt, One Road (or New Silk Road) plan to promote connectivity and trade with neighboring countries are part of China’s response to the challenges stemming from its economic success. Each endeavor is inclusive, democratic, and nondiscriminatory.

The AIIB and the One Belt, One Road initiative also will help improve the economic situation in China’s neighborhood.  They exemplify the continuity of China’s diplomacy with nearby countries, which is characterized by the principles of amity, sincerity, mutual benefit, and inclusiveness. These initiatives now are seen as central to China’s foreign policy strategy. As the GDP levels of some of the poorest states in Asia increase due to infrastructure investments, higher income levels will prompt aggregate demand to also rise, creating a prosperous community of Asian nations and forging strong economic interdependence between China and its neighbors.  

To answer critics who call the AIIB a part of China’s Marshall Plan designed primarily to benefit itself, the bank should constitutionally adhere to the principle of maximizing the social return on its investments. Preference should be given to companies or ventures that offer the most competitive and socially sustainable contracts independently of their shareholders’ nationalities. The difficulty that companies will have is determining how to cultivate the technical and cultural know-how to cooperate with local authorities in underdeveloped areas, respect local customs, and develop efficient financial instruments that are area-specific instead of applying a one-size-fits-all approach.

In international trade, there is a long-standing empirical finding: the gravity model. According to this theory, the larger the GDPs of trading partners, the more they will trade with one another, and the greater the distance between partners, the less they will trade. Because AIIB investment will reduce such cross-border distances by financing railways, roads, airports, information technology, and other high-return projects, commercial interactions between Europe, China, and Asia will increase exponentially.

This is clearly a win-win for Eurasia as well as for the United States, whose two most significant economic partners are China and the EU.

China, Europe, and a Multipolar World

China has long declared its commitment to a multipolar world and has supported the EU’s integration and the independence of its foreign policy. The EU’s diplomatic initiatives, such as its commitment to nuclear negotiations with Iran, have contributed to global peace and stability.

While the United States has not welcomed the decision of EU states to join the AIIB, this should not lead Europe to sacrifice its core economic interests in Asia—the fastest-growing economic region in the world. After all, U.S. foreign policy heavyweights including Zbigniew Brzezinski and Joseph Nye have criticized the U.S. administration for its isolationist tendencies and its public diplomacy toward the AIIB.

Long gone are the days of the Suez Canal crisis of 1956, when the United States successfully pressured the UK and France to remove troops they had placed in Egypt. At that time, the United States could coercively lecture Europeans on how to behave diplomatically. Now the EU faces a window of opportunity to accelerate its political and security coordination. China may prove helpful to this effort.

China’s commitment to Europe is well-established. In 2014, when President Xi Jinping became the first Chinese head of state to visit EU headquarters in Brussels, he expressed a sincere interest in and support for the sui generis unification of the EU, because a strong EU contributes to a multipolar international system that is more balanced and thus more secure.

China is one of the poles, yet its relative national power will not allow it to enjoy a moment as the world’s lone superpower, as the United States did back in the 1990s and early 2000s. The supposed threat of Chinese hegemony is exaggerated and ignores the fact that U.S. military spending and per capita GDP figures are still far higher than those of China.

Shaping an Inclusive Global Order

The current global financial order was shaped without Beijing’s input at a time when China was weak. At the beginning of the nineteenth century under the Qing dynasty, China was rich and powerful but failed to participate in the global order. Even after 1842, when the great powers of Europe coerced the Qing court into establishing commercial relations, it took a long time for the Chinese government to establish a foreign ministry. China only reluctantly gave up the tradition of managing barbarian affairs, as it could be termed, and teaching ignorant barbarians about the rituals of the empire.

Yet, since the early 1980s, China has repeatedly proven through its comprehensive engagement in multilateral organizations—including the IMF, the World Bank, the General Agreement on Tariffs and Trade, and the WTO—that the imperative of Chinese foreign policy is win-win cooperation.

As China has modernized and bolstered its material standing, in areas ranging from GDP growth to infrastructure development, it has moved from being a passive actor to being more proactive, without abandoning its core diplomatic principle of keeping a low profile. The AIIB, the New Development Bank launched by Brazil, Russia, India, China, and South Africa, and the New Silk Road initiatives, as well as Beijing’s attempt to build a new type of great power relations with Washington all attest to this reality. These incremental changes reflect the dialectic undertones of China’s foreign policy, which balances between continuity and change, tradition and evolution, and stability and movement.

China today will not repeat the mistakes of the past and isolate itself from the world. Being the world’s second-largest economy has increased the urgency for China to initiate projects that promote global economic development as well as free and fair commerce, while always respecting the local cultural and historical conditions of every partner.

In that sense, China’s core modern foreign policy principles have not radically changed. Since China began reforming and opening up, the country has called for the establishment of a more democratic and inclusive global order that respects the variety of polities, customs, and values of all nations. In such a world, the partnership with Europe is indispensable, because it helps China build a bridge of development cooperation directly with a region that is both a Western power center and the world’s largest single market.

The Chinese commitment to an open, inclusive, and democratic global order is reflected in the AIIB initiative. China—the biggest donor—does not hold veto power, and the modus operandi of the organization will be shaped by open and transparent negotiations among its member states. Europe seems to trust Chinese intentions, adding more credibility to China’s desire for an inclusive world order. Supporting sound global governance, political order, and strategic stability is a promising endeavor through which big states (da guo) can peacefully attract other states and promote a more harmonious and inclusive global order.

The Chinese people sincerely hope that Japan and the United States will also engage with the AIIB, joining China and Europe in supporting the development and well-being of some of the world’s poorest areas. Global governance and global development is not a zero-sum game, but an indisputable win-win scenario.

Vasilis Trigkas is a research fellow at the Center for China-EU Relations at Tsinghua University and a nonresident Handa fellow for the Pacific Forum CSIS.

This article was published as part of the Window into China series.