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China's Creation of the Asian Infrastructure Investment Bank University of Pennsylvania ScholarlyCommons Honors Theses (PPE) Philosophy, Politics and Economics 4-21-2017 Power Transitions and International Institutions: China's Creation of the Asian Infrastructure Investment Bank Liam Gennari Liam Gennari Follow this and additional works at: https://repository.upenn.edu/ppe_honors Part of the Economic Policy Commons, Infrastructure Commons, International Economics Commons, and the International Relations Commons Gennari, Liam, "Power Transitions and International Institutions: China's Creation of the Asian Infrastructure Investment Bank" (2017). Honors Theses (PPE). Paper 26. This paper is posted at ScholarlyCommons. https://repository.upenn.edu/ppe_honors/26 For more information, please contact [email protected]. Power Transitions and International Institutions: China's Creation of the Asian Infrastructure Investment Bank Abstract China’s rise has generated a sense of instability in the international system. Power Transition Theory warns that this period of change at the top of the international hierarchy will be a moment of great danger, as China will likely be dissatisfied with the world order that the United States has created. This view coincides with pessimistic realist projections. Neoliberal institutionalism is more optimistic about the prospects for a peaceful transition, believing that China will not necessarily be a dissatisfied power as the international system and its institutions encourage cooperation and a focus on absolute gains, mitigating the likelihood of conflict. China’s creation of the Asian Infrastructure Investment Bank (AIIB) has frequently been cited as evidence for the pessimistic projections, viewed as a signal that China is a revisionist power, intent on disrupting the international system. This paper utilizes an interest-based approach to examine the AIIB in order to discern whether China is deserving of the label of dissatisfied rising power. First, the debate surrounding the AIIB is situated by offering an overview of China’s position in global governance and the international political economy. The bank itself is then analyzed, both by examining the intentions that stand behind the creation of the bank, as well as the bank itself. Through this analysis, it is determined that in creating the AIIB, China was not acting as a dissatisfied—or revisionist—power, as, in this area, it finds its interests served by the current international system. This finding adheres to the expectations of the neoliberal institutionalist theory. While continued work must be conducted as part of a larger project to examine how the various dimensions of China’s rise fit ogethert and will interact with one another to affect China’s grand strategy going forward, these findings lend support to the optimistic projections for a peaceful power transition. Keywords Asian Infrastructure Investment Bank, AIIB, China, Infrastructure, Investment, Power Transitions Disciplines Economic Policy | Infrastructure | International Economics | International Relations This article is available at ScholarlyCommons: https://repository.upenn.edu/ppe_honors/26 Power Transitions & International Institutions: China’s Creation of the Asian Infrastructure Investment Bank Liam Gennari Submitted to the Philosophy, Politics and Economics Program at the University of Pennsylvania in partial fulfillment of the requirements for Honors. Thesis Advisors: Jacques deLisle & Avery Goldstein Date of Submission: April 21, 2017 2 3 Power Transitions & International Institutions: China’s Creation of the Asian Infrastructure Investment Bank COPYRIGHT 2017 Liam Gennari This work is licensed under the Creative Commons Attribution- NonCommercial-ShareAlike 3.0 License To view a copy of this license, visit https://creativecommons.org/licenses/by-nc-sa/3.0/us/ 4 ACKNOWLEDGMENTS First, I would like to thank my advisors, Professor Jacques deLisle and Professor Avery Goldstein, for their continued advice and support. I feel truly fortunate for their stewardship and am thankful for their willingness to assist in this project. They have guided me throughout the process, providing crucial insights and suggestions during the research phase, as well as helping me structure ideas and format arguments in the crafting of this paper. Beyond what has been produced on the following pages, they have inspired me, fueling an interest of mine that will undoubtedly shape my future. For this, I am most grateful. I would also like to thank my family, specifically my parents Geraldine and Jim, and my friends who have encouraged me not only with this paper, but also throughout my time at Penn. Without this network, I would not be in a position to work on this project. Thank you for all of your love and support. 5 ABSTRACT China’s rise has generated a sense of instability in the international system. Power Transition Theory warns that this period of change at the top of the international hierarchy will be a moment of great danger, as China will likely be dissatisfied with the world order that the United States has created. This view coincides with pessimistic realist projections. Neoliberal institutionalism is more optimistic about the prospects for a peaceful transition, believing that China will not necessarily be a dissatisfied power as the international system and its institutions encourage cooperation and a focus on absolute gains, mitigating the likelihood of conflict. China’s creation of the Asian Infrastructure Investment Bank (AIIB) has frequently been cited as evidence for the pessimistic projections, viewed as a signal that China is a revisionist power, intent on disrupting the international system. This paper utilizes an interest-based approach to examine the AIIB in order to discern whether China is deserving of the label of dissatisfied rising power. First, the debate surrounding the AIIB is situated by offering an overview of China’s position in global governance and the international political economy. The bank itself is then analyzed, both by examining the intentions that stand behind the creation of the bank, as well as the bank itself. Through this analysis, it is determined that in creating the AIIB, China was not acting as a dissatisfied—or revisionist—power, as, in this area, it finds its interests served by the current international system. This finding adheres to the expectations of the neoliberal institutionalist theory. While continued work must be conducted as part of a larger project to examine how the various dimensions of China’s rise fit together and will interact with one another to affect China’s grand strategy going forward, these findings lend support to the optimistic projections for a peaceful power transition. 6 7 TABLE OF CONTENTS ABSTRACT ................................................................................................................................................ 5 INTRODUCTION...................................................................................................................................... 9 Structure and Methodology ...................................................................................................................................... 11 Findings ...................................................................................................................................................................... 14 POWER TRANSITION THEORY ........................................................................................................ 15 Power Transition Theory .......................................................................................................................................... 15 Realist Pessimism ....................................................................................................................................................... 18 Neoliberal Institutionalist Optimism ....................................................................................................................... 19 Applying Neoliberal Institutionalism ....................................................................................................................... 20 ENTERING A POWER TRANSITION: THE RISE OF CHINA ....................................................... 22 Seeking Truth from Facts ......................................................................................................................................... 24 Theories of China’s Rise ........................................................................................................................................... 27 Going Forward ........................................................................................................................................................... 31 THE ECONOMIC DIMENSION OF POWER TRANSITIONS ......................................................... 32 China in Global Economic Governance ................................................................................................................... 34 What does this mean going forward? ...................................................................................................................... 37 China’s Recent Economic Initiatives ....................................................................................................................... 38 Shaken Confidence .................................................................................................................................................... 45 THE ASIAN INFRASTRUCTURE
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