Global Economic Governance in the Wake of Asian Infrastructure Investment Bank: Is China Remaking Bretton Woods?

Abstract

The post-World War II economic architecture underpinned by the Bretton Woods system was a political and intellectual product of the transatlantic alliance. With the Transatlantic Trade and Investment Partnership (TTIP), the Europe and US are trying to forge a closer alliance and advance a new horizon of governance in international economic law. However, such a stronger partnership, and the attendant high expectations, face challenges from emerging economic powers, the BRICS countries in general and China in particular. This challenge can be seen in the upset and disappointment expressed by the US when the UK, followed by Germany, France and the Netherlands, decided to join the Asian Infrastructure Investment Bank (the AIIB), which is seen as a rival to the Bretton Woods institutions (as well as the Asian Development Bank, the ADB) and may reshape the Bretton Woods system. Whether or not the assertion that the AIIB is reshaping the Bretton Woods system is true remains to be seen; nonetheless, doubtless the AIIB presents great challenges to the transatlantic alliance and, subsequently, transatlantic governance. In this context, this paper aims to examine transatlantic governance in the wake of the AIIB, which can be seen as part of China’s tripartite efforts to internationalize its economy: firstly through its accession to the WTO; secondly, through the internationalization of its currency by bilateral SWAPs, off-shore currency exchange, and efforts to include the Chinese Yuan into a basket of currencies of special drawing rights (SDR) in the IMF; and thirdly, through establishing a lending banking under the initiative of the AIIB. One the one hand, China’s challenge to transatlantic economic governance is comprehensive, involving trade, monetarism, and development. On the other hand, China’s efforts to internationalize its economy mirror those of Japan during the 1970s and 1980s, which in turn, reinforces the underlying structure of the Bretton Woods system. The substance of this paper will cover three fronts. In the trade aspect, the paper will examine China’s role in trade negotiations in multilateral fora and ask how conventional trade negotiation patterns dominated by the EU and US have been challenged and reshaped. In the monetary dimension, this paper investigates China’s efforts to internationalize its currency and looks at the progress of IMF reform, asking whether the dominance of the transatlantic alliance in the Bretton Woods institutions is justified, and how it might be challenged. Thirdly, in the development dimension, this paper explores whether China's lending activities, largely led by the China Export-Import Bank, and from the perspective of the AIIB, may present a threat to the good governance disciplines set forth by the World Bank in its lending activities.