Israel Joins New Asia Bank Opposed by US
by Dr. Alon Levkowitz
April 16, 2015

BESA Center Perspectives Paper No. 295

EXECUTIVE SUMMARY: The Israeli government’s decision to apply to the Asian
Infrastructure Investment Bank (AIIB), despite Washington’s displeasure, is
an expression of Israel’s strong interest in increasing its economic
engagement in Asia.

Prime Minister Benjamin Netanyahu, in his capacity as minister of finance,
signed a letter of application to join the Chinese-led Asian Infrastructure
Investment Bank (AIIB) on March 31, despite Washington’s displeasure. Fully
aware of Washington’s failed attempt to convince its allies not to join the
AIIB, the decision to apply demonstrates Israel’s understanding of the
rising importance of Asia, especially China, to Israel’s economy.

The new bank is viewed by many as an important indicator of the changing
economic and global balance of power, appearing as a threat to the World
Bank. The decision to join the AIIB is another phase in Israel’s policy to
improve relations with Asia. Additional moves include negotiating free trade
agreements with China, Japan and South Korea.

Does the AIIB symbolize a global financial shift towards China? Is it yet
another indication of the gradual decline of the United States in Asia and
the global arena?

During the 1990s, there were a few failed initiatives to establish new
regional economic and political organizations in Asia mainly as a result of
Washington’s objections. Malaysia’s prime minister at the time, Dr. Mahathir
Muhamad, called for the establishment of a regional organization that would
include all Asian nations and exclude the United States. This attempt was
blocked by Washington and Tokyo.

After the 1997 Asian financial crisis, Japan initiated another attempt for
Asian nations to establish an Asian Monetary Fund (AMF), which would attend
to Asian needs in contrast to the International Monetary Fund (IMF),
increasingly criticized for its lack of sensitivity to their needs during
the 1997-1998 economic crisis.

The AMF initiative was thwarted by Washington because of concern that it
might lead to the decline of US power through the IMF and in Asia as well.
In the end, Beijing also seemed to back Washington’s opposition based on the
worry of the rise of Japanese power in the region.

Chinese President Xi Jinping announced the plans for the AIIB in a speech to
the Indonesian parliament in 2013. The bank looks to invest about $100
billion in infrastructure projects in Asia in contrast to the World Bank,
which has a global, not regional focus. Another difference between the two
banks is the amount that they would invest in Asia. While the WB total work
program funding for 2015 in Asia is $172 million, the AIIB intends to invest
more than $800 million in Asia in 2015.

The AIIB will boost China’s role in the global economy beyond what is
currently reflected in the voting mechanisms of the IMF and World Bank. It
will also allow China to enhance its soft power in Asia. The AIIB might, as
suggested by Washington, have transparency and technical problems, but the
fundamental issue for the Americans is that it challenges its global
hegemonic position.

Washington’s allies, mainly in Asia, were faced with a dilemma: to join or
follow Washington’s recommendation not to. While the United States is
undoubtedly an important ally for many countries, China’s importance as a
major trading partner and ally also carries substantial weight.

For example, South Korea found itself in a dilemma, stuck between Washington’s
request to abstain from joining the AIIB and to deploy the American Terminal
High Altitude Area Defense (THAAD) anti-missile system. On the other hand,
Beijing asked Seoul to join the AIIB and abstain from deploying THAAD. In
the end, Seoul decided to join the AIIB and delay its decision on deploying
the sophisticated anti-missile system. One possible reason why Seoul decided
to join the Chinese led bank could have been to assist infrastructure
projects in North Korea which would decrease Pyongyang’s incentive to
initiate military provocations.

Besides South Korea, many other US allies decided to join the AIIB in spite
of Washington’s objections. These include Britain, France, Germany, and
Saudi Arabia. Tokyo and Washington are the two main economic powers that
have so far decided not to join the new bank. However, based on Washington’s
past record of opposing Asian regional initiatives at the beginning, only to
later reverse its decision, it is likely that Washington and even Tokyo will
also join in the long run.

The AIIB is another indication of China’s growing economic growth and
willingness to challenge American power on the world stage. And although
Washington and Beijing do not see eye to eye on political, security, and
economic issues, both states are economically interdependent, which could
serve to constrain their rivalry over the balance of power in Asia.

The Israeli government’s decision to apply to the AIIB, despite Washington’s
reticence, shows that it understands that it cannot afford to be left out of
Asia’s economic rise. Once its application is approved, Israel will be able
to initiate projects in Asia through the AIIB and assist Israeli companies
in the process, thus increasing its relations in Asia.
========================
Dr. Alon Levkowitz, a research associate at the Begin-Sadat Center for
Strategic Studies, is an expert on East Asian security, the Korean
Peninsula, and Asian international organizations.

BESA Center Perspectives Papers are published through the generosity of the
Greg Rosshandler Family.