New Delhi’s approach to multilateral ties needs clarity

The Beijing-based Asian Infrastructure Investment Bank (AIIB) recently saw its Canadian director for global communications resign, alleging that the Bank was being influenced by the Chinese Communist Party (CCP). The Canadian government has frozen ties with the Bank and launched an investigation, which the Bank has said it would cooperate with. Whatever the outcome, this is an occasion for India to rethink its involvement in Chinese-led economic organizations.

This involvement was the result of an older approach in New Delhi of separating the boundary dispute from other parts of the India-China relationship in the belief that these other parts, including economic ties, would create conditions for resolving the more knottier issues. While the Galwan clashes should put to rest this belief, the record even before 2020 clearly showed a mercantilist Chinese approach, with non-tariff barriers imposed by Beijing against Indian products and a resulting ballooning trade deficit. It was this situation that made it easier for India to retaliate following Galwan with bans on Chinese apps and restrictions on Chinese foreign direct investment even if the bilateral trade deficit continues to grow.

India has, however, persisted with participation in multilateral banks like the AIIB and BRICS New Development Bank (NDB) where China is a dominant or key player. India does get several projects funded through these banks, but its participation in them is perhaps less about economics than about conveying geopolitical signals to the West about India’s ‘strategic autonomy’. This is why despite its strong opposition to China’s Belt and Road Initiative (BRI), of which the AIIB is a part as far as Beijing is concerned, New Delhi decided to join the Bank in 2016. The Indian argument at the time was that the AIIB was expected to follow international standards and practices. The AIIB does do this, according to the open record—it suspended operations in Russia following the invasion of Ukraine, for example. It has also worked together with the World Bank and Asian Development Bank, multilateral banks it was expected to compete with. However, we must recognize that as far as China is concerned, the image of an institution that it dominates appearing like a regular multilateral bank is of great use, as it serves to divert attention from its more important and larger policy banks which are not run according to international standards or norms, and which are also the primary channels for China’s BRI projects.

And yet, even a showcase bank is structured to promote Chinese influence. The AIIB’s Articles of Agreement (bit.ly/44hoSaX) suggest that China holds the equivalent of a veto over important issues such as admitting or suspending members. China is the lender’s largest shareholder with a stake of over 26%, while India is a distant second with about 8%. Further, the AIIB has been headed from the start by Jin Liqun, a former Chinese finance vice-minister, and both the AIIB and NDB are headquartered in China—the latter in Shanghai. The share ownership and locations might be functions of China’s willingness and capacity to share a big part of the burden, but this also comes with the attendant risks of CCP influence and exposure of their communications and privy data, none of which should surprise Indian officials with experience of China. The Canadian official’s allegations do, therefore, have a ring of plausibility, even if the Chinese have dismissed the incident as “a tempest in a teapot”.

As for the NDB, not only is it tainted by the presence of Russia as a key member, its governance, access to capital markets and loan disbursements are all increasingly matters of concern.

The AIIB and NDB have not socialized China into adopting more transparent international lending practices or better governance. Even if the argument about Chinese debt traps can sometimes be overblown and deflect attention from host country responsibility, note that increased financial engagement with China does seem to pose additional economic risks for cash-strapped countries—ask Sri Lanka or Pakistan. Thus, given that India exercises no effective influence on Chinese behaviour, it ends up on the losing side even from the perspective of geopolitical signalling. For one, when scandals such as the latest one at AIIB occur, India suffers a loss of reputation simply by association. For another, China exploits the cover provided by multilateral institutions like the AIIB and NDB to push its agenda through its other policy banks and instruments. It is worth asking if India’s multilateral economic engagement with China has caused smaller countries to lower their guard when it came to Chinese loans and grants.

If India’s goal is to make global economic governance both just and more effective, then its own experiences suggest that the Chinese Party-state is hardly the ideal partner. In the AIIB contretemps lies an opportunity for India to break its silence on the matter and head for the exit.

What is more, New Delhi already achieves a great deal through institutions such as the World Bank, of which India is the largest recipient of loans. With its current geopolitical heft and given the courting by the West, it should be able to find better ways to achieve global institutional reforms than relying on China.

Jabin T. Jacob is associate professor, department of international relations and governance studies and director, centre for Himalayan studies, Shiv Nadar Institution of Eminence