The New Policy Direction

The New Policy Direction A qualitative content analysis of United Kingdom’s motivations for being the first western country to join The Asian Infrastructure Investment Bank Simon Edholm Uppsala University, Department of Government Bachelor thesis Political Science, spring 2020 Supervisor: Markus Gossas Word count: 13 764 Table of Contents 1. Introduction……………………………………………………………………………….2 1.1. Problem formulation…………………………………………………………………...3 1.2. Aims, Objectives and research questions…………………………………………..4 1.3. Material………………………………………………………………………………...5 2. Previous Research………………………………………………………………………6 3. Theoretical framework…………………………………………………………………9 3.1. Relation between theory and ideology………………………………………………9 3.2. Discussion and explanation of liberalism……………………………………………11 3.3 Commercial and economic liberalism……………………………………………13 3.4 Neo-liberal institutionalism………………………………………………………14 4. Methodology……………………………………………………………………………16 4.1. Operationalization: Key aspects…………………………………………………….17 5. Analysis…………………………………………………………………………………19 5.1. Trade & investment Openness………………………………………………………19 5.2. Cooperation…………………………………………………………………………26 5.3. Regime-development………………………………………………………………28 6. Concluding discussion…………………………………………………………………33 7. Future research…………………………………………………………………………36 References…………………………………………………………………………………37 1 1. Introduction In 2013, China launched the ambitious project of creating a new development bank named Asian Infrastructure Investment Bank (AIIB). The size of the bank was in 2015 about one- third the size of the Asian Development Bank, with $50 billion in initial capital as opposed to ADB’s $165 (Swanson, 2015) and began operations in January 2016. It is an initiative that involves many countries around the world as partners and contributors, and is designed to provide funding for infrastructure projects for developing countries in Asia (Tiezzi, 2015). The establishment of the AIIB means that the present Bretton Woods system, mainly composed of the International Monetary Fund (IMF) and the World Bank (WB) has another Asian counterpart in international financial regulation and development lending. At first, many western states and particularly close US-allies hesitated to join as founding members of the bank, especially after receiving clear warnings from Washington of engaging rising superpowers in this way (Hong, 2015). The United States had been lobbying its allies not to join AIIB, arguing that the bank at best duplicates, and at worst undermines, the role of the WB and ADB (Higgins & Sanger, 2015). The US also voiced concern on whether the new bank can reach the same levels of governance, environmental and social safeguards as the WB and ADB (Watt, Lewis & Branigan, 2015). Both USA and Japan viewed the Chinese initiative as a potential rival to the WB and the ADB as it is independent of the Bretton Woods system, while the others are a part of or in very close connection to the system and dominated by either United States or Japan (Hong, 2015). However on the 12th of march 2015, The United Kingdom suddenly announced it would be the first major western country to join the bank. Not only was UK the first western country to sign up as prospective founding member, it was also the first but certainly not the last of the G7 countries to do so, as Italy, France and Germany announced the same intention just days after Britain’s (The Guardian, 2015). It was a welcomed result by Beijing (Schomberg, 2015). The fact that UK’s government made this decision represents a shift in the international political and economic arena, where a possible competitor to the highly institutionalized western- dominated framework for development receives support from a major western state. 2 UK is already a major shareholder in both the WB (WB.org, 2019) and the ADB (ADB.org, 2018) and therefore well integrated in the western development regime, raising questions of what is motivating this controversial decision. Britain has often been the US’s foreign policy shadow and the two countries’ interests are usually broadly aligned, therefore Britain’s announcement came as a surprise to many observers, considering US subsequent criticism and refusal to join the bank (Swanson, 2015). The political commentator and journalist Martin Jacques describes it as the “boldest change in British foreign policy since the second world war, when John Maynard Keynes argued with America’s Dexter White at Bretton Woods over the new international financial order” (Jacques, 2015). 1.1 Problem formulation The UK’s decision seem to imply that there has been a shift of priorities in its’ foreign policy, concerning factors deemed more important than heeding Washington and supporting the American narrative about Chinese-led institutions. Furthermore, UK’s decision to join the bank seems to have had a domino effect in influencing other western states to change their policies in AIIB:s and China’s favor (Higgins & Sanger, 2015). Considering that UK is an influential western European country in the Bretton Woods system, as well as one of US strongest allies, it took a political risk both at home and abroad by joining a China-led investment bank. This is highlighted by the criticism UK faced domestically and internationally for it’s renewed China policy (Gracie 2015; Mardell, 2015). To illustrate the policy shift one can look back at the time just five years prior to the announcement of joining AIIB, when Cameron made a case for stronger human rights and democracy in a speech to Chinese officials and students in Beijing, which led to the loss of large trade deals and rebuke from China’s premier Wen Jiabao (Wintour & Inman, 2010; Wintour, 2011). In addition, Cameron and Deputy Prime Minister Nick Clegg met with the Dalai Lama 2012, sparking further official Chinese protests and warnings of serious consequences for the China-UK relations (BBC News, 2012). The shift in attitude was apparent, when UK was reluctant to support prodemocracy protests in Hong Kong, just months before the AIIB announcement (Bagehot, 2015b). Combined with the Chancellor of the Exchequer being praised in Chinese media for his ‘pragmatism’ in not raising human 3 rights issues during a state visit to China later in 2015. (Bagehot, 2015a). The attachment to AIIB has been an exemplifying measure of this new posture (Bagehot, 2015b). It would therefore be interesting and necessary to understand how the British conservative government under David Cameron at the time reasoned to justify the decision to join AIIB and its implications for China-UK relations. 1.2 Aims, Objectives and research questions Against this background, this thesis aims to make an academic contribution to British foreign policy studies as well as fill up a gap of qualitative research that has not been addressed by previous research on this case. This will be done by providing in-depth research on the UK government’s reasoning behind the decision to join AIIB in order to better comprehend why this was the desired path to take. The paper will attempt to provide a systematic description and explanation of quoted statements from British officials, by analyzing the arguments and elaborations used by the conservative government in parliament debates, public statements and interviews at the time to motivate the decision. The desired objective of this study is to shed more light on the reasoning and motivations of the conservative government under David Cameron at the time reflected in its argumentation, and thereby produce an understanding to why the decision was taken. Research Questions 1. Why does The United Kingdom, a western European country with strong ties to the Bretton woods system and previously outspoken critic of the Chinese regime, seek to be a part of AIIB and Chinese-led infrastructure development in Asia? a. What are UKs expectations from AIIB and how can the bank fulfil these expectations according to the UK government? b. Does joining AIIB imply a tighter UK-China bond? c. What are UKs motivations of being the first western country to join AIIB? 4 1.3 Material The empirical material is derived from four different sources: interviews on news-websites, UK parliamentary debates as well as public statements and announcements and speech transcripts on the government’s own website (www.gov.uk). The news-websites consist of the well-established news-sources: BBC News, The Guardian, The Telegraph, Reuters, Financial Times, DW and The Economist. They have been chosen due to their extensive coverage of the subject as well as being large international news-platforms. Information from the official websites of AIIB, WB, ADB and IMF have also been used. Verbatim transcripts from parliamentary debates have been selected from Hansard Online, a website that serves as an archive for what is discussed in both houses of the British parliament. Since discussions have occurred in House of Commons and House of Lords, the paper uses transcripts from both these houses in the analysis. The empirical material is selected from the time period of UK:s announcement of joining the bank 12th of march 2015 until 4th of December 2015, when the last debate of AIIB in the parliament occurred. Most news articles and public statements on the subject are published around the time of the announcement, the debates in parliament however were held more sporadically during the year. All debates on the subject during the time when the announcement was still relatively recent are valuable sources of information on how the government argued in favor of AIIB, hence the decision to use the material from this period of time. Quoted statements from news articles are secondary sources compared to the transcripts from parliamentary debates and official statements on the government’s website, which raises the issue of credibility of the material. However, a major criterion for the material selection has been to as much as possible use quoted text, which should help solve this issue, combined with the fact that majority of the texts are actually from the parliamentary debates. 5 2. Previous research There are several analyses that have been made regarding why U.S. allies in general and UK in particular decided to join AIIB.

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