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. 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.

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?

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.

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.

Yu Wang attempts in his paper “Joining the Asian Infrastructure Investment Bank” to examine how political ideologies, economic forces and existing infrastructure for international organizations together shaped countries’ decisions to join AIIB through network effects (Wang, 2016). Using a random utility model, Wang claims that states decides whether to join an international organization (IO) such as AIIB based on their utility calculations, which are in turn influenced by static economic and geopolitical variables, IO linkage variables, and dynamic network variables (Wang, 2016). He also elaborates on the political implications of western democracies such as UK joining the Bank, stating that it is equivalent to lending the Chinese government its votes. He also explains that democratic countries are usually prone to the influence of the US in foreign policy decisions (Wang, 2016), which can confirm the significance of UK’s policy shift. Yu Wang’s research is fascinating since it highlights how a country’s existing involvement in the international community affects it’s decision on joining new international institutions. However it’s quantitative focus on network effects does not by itself provide a satisfactory explanation as to why ‘first-mover’ candidates like UK joined AIIB, but rather how the first- mover countries’ decision influenced it’s neighbouring countries in their decision making.

Mike Callaghan and Paul Hubbard writes in the article “The Asian Infrastructure Investment Bank: Multilateralism on the Silk Road” about the stark contrast in the founding process of the Asian Development Bank (ADB) in the 1960s and the founding of AIIB in 2015. The former largely depended on political leadership from US and European financial capital, while the latter did not depend on any of these for its success (Callaghan & Hubbard, 2016). They provide an overview of the bank’s operations and governance as well as membership compared with similar institutions, with a focus on possible motivations and agendas China had in initiating the bank (Callaghan & Hubbard, 2016). UK is labeled as a ‘first mover’ among the European nations to sign up for membership in AIIB. The authors explain that in order to attract Chinese finance to London rather than Frankfurt, UK acted swiftly without

waiting for Germany, France or Italy. Although UK’s and other member countries’ reasoning for signing up is mentioned in this article, there is a noticeable focus on the bank’s operations and structure as well as China’s role in the operating process. In fact, nearly all the provided references for the member’s decision making are secondary sources from different news reports. This entails problems of material credibility, since each explanation in the news is only given the space of a few paragraphs with few or no references or further detail on how the conclusions were reached.

Vinícius Rodrigues Vieira writes in the article “Who joins counter-hegemonic IGO’s? Early and late members of the China-led Asian Infrastructure Investment Bank” on why states join intergovernmental organizations intended to challenge a hegemon, pointing out AIIB as an example. Based on the idea of contested multilateralism, he uses logit statistical models to test whether states politically distant from US joins AIIB on an early stage compared to states more politically aligned with the US (Rodrigues Vieira, 2018). His results have interesting implications; by showing that members joining AIIB on an early stage resemble Beijing in having authoritarian regimes and that late participants are in contrast more politically aligned with US and democratic ADB members, they both reflect China’s strategy to attract membership and the willingness of more democratic countries to participate if the bank shows enough international recognition. Yet this is also the only argument provided as to why UK joined; only after the bank already gained support from other states. The scope is also not limited to one or a few states but makes generalizations on a general level, for autocratic states and democratic members of the ADB and US allies. This does not reveal enough information on why a certain country makes the decision to join.

Jiejin Zhu questions in “Is the AIIB a China-controlled Bank? China’s Evolving Multilateralism in Three Dimensions” whether the AIIB is a China-controlled bank, or if it can be recognized as a true multilateral institution with international credibility (Zhu, 2019). He explains that many foreign analysts and observers initially regarded the bank as merely a Chinese economic tool to export its excessive industrial capacity and promote the RMB internationalization as well as a diplomatic tool to support the China-friendly countries in the escalating US-China rivalry in the Asia Pacific. Now however AIIB has gained a relatively high level of international credibility and legitimacy sooner than many observers predicted,

and one explanation is China’s apparent restraint from unilateral intervention during the banks founding process (Zhu, 2019) Jiejin Zhu claims that one of the major sources of this legitimacy also came from UK’s decision to join, when Chancellor George Osborne declared that UK wishes to ensure the success of the bank which can unravel potential benefits for the global economy (Zhu, 2019). That Zhu uses a source from the UK government’s own webpage for this statement suggests good credibility, but it is still only one source and makes a too brief explanation to UK’s motivations. As in other research on AIIB participation, this article has a general focus taking several countries into account, which results in a lack of precision required for explanations from an individual state level.

To summarize the above listed research; although there indeed seems to be political considerations taken by western European countries in their decision-making, economical incentives also seem to have played a large part, in particular the bolstering of financial sectors. Interestingly, the research that has been done so far is either dominated by quantitative methodology and analysis, or relatively brief in writing scope. This results in answers that are either too narrow and limited to one or two factors, or too short and inconclusive. What is also missing is the voice of the decision-makers themselves; the government, this is only displayed briefly in Jiejin Zhu’s article. In order to achieve strong credibility, it is arguably a necessary part of the data, otherwise it can be challenging to differentiate between causality and correlation in the analysis and conclusion. Moreover, there is no attempt at theorizing the research. This implies that basic issues of subjectivity in assumptions and chosen directions on the researcher’s part are lifted out of the presentation.

3. Theoretical framework

3.1 Relation between theory and ideology Since the definition of theory could be rather vague and implies different meanings depending on which academic field the research is conducted in, it is important to clarify how this concept is used within the field of this research, which is international relations. In a simplified way, we can consider theories of IR as tools used to help us make sense of the world around us; we use the theories as different lenses when observing international politics, each of which represents a certain perspective (Mcglinchey, Walters & Gold, 2017, p. 1). Theories in this sense can be used to interpret and anticipate behavior or to discern the world as seen from actors’ point of view, and provides the necessary conceptual framework to understand issues and events in international relations (Burchill & Linklater, 2013 p.17). In a more concrete and practical sense, theories in IR functions as an analytical toolkit as they provide multiple methods for us to use when explaining international political phenomenon (Mcglinchey, Walters & Gold, 2017, p. 2). They do this by helping us sort the phenomena into manageable categories so that the relevant units and level of analysis can be selected, and meaningful connections and patterns of behavior are identified (Burchill & Linklater, 2013 p.16). It could be tempting to embark on empirical IR-research without ‘distracting’ theorizing and conceptualizing of the case in question, however it is important to remember that our interpretation of ‘reality’ is always contingent on different theoretical assumptions (Burchill & Linklater, 2013 p.16) and this is why we need the toolkit provided to us by IR-theory.

The chosen IR-theory for this thesis is liberalism, or to be more precise; representative concepts derived from economic and commercial liberalism and neo-liberal institutionalism. These will be elaborated on in greater detail below. Since liberalism is a school of thought often used in different ways within the political science and IR, which can sometimes cause confusion between ideology and theory, it is important to first explain how these two concepts relate to one another in international relations. In the book International Relations Theory, Alex Prichard explains that ‘isms’ are in IR considered as theories, not ideologies. This can be perplexing, for example why is Marxism named a theory in IR, but an ideology in political science? (Prichard, 2017, p.146). Apart

form being simply a semantic issue, the reason can be traced back historically to the turn of the twentieth century, when the first prominent IR-theory; realism, gradually became considered as a simple set of universal truths about politics. This tendency was further cemented by the end of the Cold War, which saw a widespread consensus that realism’s main ‘competitor’ liberalism, was no longer simply an ideology. The demise of its main competitors – fascism and communism, made it, in Fukuyama terms: the “truth revealed at the end of history” (Prichard, 2017 p.146). Starting from the beginning of 1990, ideologies were increasingly seen as unscientific, dominating and moralizing, and by contrast, theories were scientific, relatively testable and depoliticized, as they do not include the “world historical and totalizing visions of the good life we usually associate with ideologies” (Prichard, 2017 p.148). However, as Alex Prichard also points out this distinction is problematic, since it does not take into account the strong ideological nature that lies within the concepts we use in IR’s theories (Prichard, 2017, p.149). Theories can indeed be seen as reflections of ideology, as they share similar constraints or benefits of taken-for-granted ideas, concepts and norms. Rather than being ideologically neutral they are in fact ideologically saturated, in that IR theory reflects the underlying ideological thinking and structure that actors abide by (Prichard, 2017 p.152).

We can use the liberal approach to IR explained by Scott Burchill in Theories of International Relations as an example. He explains that this is an inside-out approach, where the behavior of states internationally can be explained by their endogenous arrangements (Burchill, 2013 p.56). Liberal democracies are unlikely to use military force against each other to resolve conflicts, building on common liberal ideological ideas of cooperation, legitimacy and the value of internal restraints on government power (Meiser, 2017 p.23), a phenomenon named “democratic peace theory” in international relations (Meiser, 2017, p. 23). The same case can be made in the economic realm, where a free domestic market is seen as a main goal of liberal economists, letting the in Adam Smith terms “invisible hand of the market” decide the outcome of supply and demand, without intrusion of the state (f, 2013, p.73). Similarly, artificial barriers to commerce between states distort their relations, and risks leading to international tension (Burchill, 2013 p.59-60). Free trade then is seen as a peaceful and efficient way to achieve national wealth as well as guarantee the well-being and liberty of

the individual, domestically and internationally (Burchill, 2013 p.63-64) (Meiser, 2017 p.24). The liberal ideological assumptions of free markets and capitalism, which are found domestically in most industrialized countries today, are also institutionalized to a high degree internationally, through the efforts of international organizations like IMF, WTO and WB (Meiser, 2017 p.24). In other words; most international institutions, organizations and norms of this world order are more or less created on the same base and groundwork as domestic liberal institutions and norms (Meiser, 2017 p.23), which is in turn reflected in the liberal IR- theory. This highlights the point that an ideology can serve an explanatory function both domestically and internationally, due to its’ assumptions which can be found in both levels of politics, the difference could lie in the perspective and corresponding level of analysis a research applies. For further clarification; the theory used in this thesis is a theory as defined above: a tool used to understand and explain phenomenon in the world of international relations and politics. However, based on the inherent ideological ideas built into the theory, it will reveal underlying ideological assumptions, which will undoubtedly shine through in the operationalization and analysis.

3.2 Discussion and explanation of liberalism As mentioned above, I have chosen the theoretical lense of liberalism for the analysis in this research, and will discuss the benefits and eventual drawbacks of this decision below. However, I would first like to point out the difficulty in defining the theory of liberalism in IR, since despite the often clear layout and categorization of IR-theories in the literature, there is no single variant of each theory. Even scholars who share the same theoretical approach seldom agree with each other on defining characteristics of a theory (Mcglinchey, Walters & Gold, 2017). To avoid confusion then, I have made an attempt to narrow down the focus into two branches of liberalism with different sets of explanatory conceptual tools; one that focuses on economic- and commercial links between states which can be referred to as commercial and economic liberalism , and another that focuses on institutions and regimes, namely neoliberal institutionalism. More thorough descriptions of these branches can be found below. One major reason for this direction is the nature of the case; the arguments behind joining an international investment bank. The underlying reasoning behind this can be assumed to be liberal or neoliberal, with considerations of investment opportunities, expanded trade-ties and 11

economic growth, hence using commercial and economic liberalism on one side. However, AIIB is not merely a small bank invested in basic loaning operations. It constitutes an international institution with several states as providers and with a major purpose of improving social and economic outcomes in Asia by collectively supporting infrastructure development (AIIB.org (a)). Therefore it is suitable to also apply neoliberal institutionalism, with it’s focus on multilateral cooperation and regimes.

Another reason is the fact that the British political party behind the arrangement; The Conservative Party, is influenced by the liberal ideology, promoting capitalism, free enterprise and minimal intervention by government, as well as championing economic globalization and foreign direct investment as beneficial for UK (Bagehot, 2015a). Since the conservative government of the U.K. is influenced by the ideological assumptions of liberalism, we can assume that they adopted this viewpoint in arguing in favor of joining AIIB. However, in order to accurately and effectively answer the research questions posed above, making this assumption is not sufficient; we need to delve into the underlying motives and assumptions of the argumentation. Having the liberal lens then allows us to achieve this by unravelling the matter from a possibly similar view as the conservative government, as well as staying in close connection with the nature of the case.

Although, to put the supposed ideological influence in perspective; it is important to point out that the conservative government’s foreign policy under David Cameron did not always seem to be guided by liberal economic incentives, as pointed out above in the Problem Formulation. Evidently, there has been quite a dramatic divergency in policy direction towards China, which is interesting considering Cameron and his party led UK during all these issues. While the stance taken in 2010 and 2012 seems understandable from a liberal lens guided by normative principles which focus on norms of human rights and democracy, the joining of AIIB implies different priorities. It will then be interesting to determine whether the chosen, more pragmatical liberal lense of this thesis, holds water in explaining the case.

3.3 Commercial and economic liberalism While liberalism in IR is often associated with its view on the importance of democracy, human rights and institutional arrangements used to limit military conflict and tension between states, there is also an emphasis on economic and commercial factors in building solid international bonds between states and other actors (Meiser, 2017 p.22-28), as well as allowing states to achieve their goals of increased economic growth and prosperity (Burchill, 2013 p.58-70). As mentioned above, liberal concepts such as free trade and capitalism has spread internationally to a large extent, creating an open, market-based, international economic system (Meiser, 2017 p.24). States are believed to benefit mutually from this system, since a high level of trade tend to decrease conflict and makes states more incentivized to maintain peaceful relations (Meiser, 2017 p.24). According to Andrew Moravcsik; commercial liberalism seeks to clarify and analyze the international behavior of states based on the domestic and global market positions of domestic firms, workers and holders of assets. (Moravcsik, 2010).

The underlying assumptions of commercial liberalism advocates free trade and a market- oriented capitalist economy as the best tools states can use towards peace and prosperity, in this view, private property rights and free markets will result in a richer, more innovative and more tolerant world (Lamy, 2014 p.132). Free trade, or openness to trade and commerce, is considered an important means of achieving national wealth, since according to the idea of comparative advantage, each state’s economy is better positioned materially by trade than if it had been pursuing self-sufficiency, or autarky (Burchill, 2013 p.63). Economic efficiency is considered by liberals to be a powerful argument motivating free trade, as it is the only way emerging and developing economies can be integrated in the global economy (Burchill, 2013, p.76)

The trade regime is not only limited to goods or commodities, but it also takes a more ‘sophisticated’ shape in different kinds of foreign investments and foreign exchange in capital. These could involve creation of new production centres by TNCs in different countries or capital contributions to companies in these countries, speculative trading of currencies or commercial loans (Burchill 2013 p.71-72), (Globalization 101, 2020).

These points are also frequently used by liberals in arguing in favor of economic globalization, claiming that this is in many ways a desired new phase of capitalism (Burchill, 2013 p.72) and that all states will benefit from the economic growth generated by it (Lamy, 2014 p.136-137). The belief is that free trade will maximize economic growth and bring about the needed competition that will promote the most efficient use of resources, people and capital (Burchill, 2013 p.73).

This view is further promoted on an international level through institutions such as IMF and WB, who actively strive to reduce structural obstacles to economic growth, domestically and internationally (WB, 2020) (IMF, 2020). Doing this is believed to reduce poverty, generating jobs and strengthening state’s economies (WB, 2020) (IMF, 2020).

Dag Einar Thorsen and Amund Lie explains that the liberal beliefs of a well-functioning system of free markets and free trade on an international level, reflects the same logic used by liberals domestically. Where the “only acceptable reason for regulating international trade is to safeguard the same kind of commercial liberty and the same kinds of strong property rights which ought to be realized on a national level. (Thorsen & Lie, 2007). This view is in line with the inside-out approach that mentioned above by Scott Burchill.

3.4 Neo-liberal institutionalism Neo-liberal institutionalism, also named liberal institutionalism, promotes states as key actors in international relations; they are seen as rational actors who strive to maximize their absolute gains, described as states’ “assessment of their own welfare independent of their rivals” (Burchill, 2013 p.65) in all issue-areas. Rational behavior allows states to see more value in cooperation than competition, and leads them to create and maintain institutions to manage issues where there are mutual interests involved (Lamy, 2014 p.133). These issues can range from areas of political economy, globalization, interdependence to human rights and the environment (Lamy, 2014 p.133).

Neo-liberals recognize that cooperation between states is a desired, but far from an always smooth process, particularly considering the anarchic condition of the international system. 14

They believe however that states are likely to shift loyalty and resources to institutions provided these are seen as mutually beneficial, as well as creating opportunities for them to secure their international interests (Lamy, 2014 p.133). Economic institutions in particular, are efficient at encouraging cooperation due to the considerable benefits that can be derived from economic interdependence (Meiser, 2017 p.27). Both states and other actors can be persuaded to engage in cooperation as long as they are convinced that every state will comply with agreed-upon rules and norms (Lamy, 2014 p.133).

An influential force that enables states to cooperate and pursue their mutual interests is that of regimes, commonly defined by Stephen Krasner, mention by Richard Little as “sets of implicit or explicit principles, norms, rules, and decision-making procedures around which actors’ expectations converge in a given area of international relations.” (Little, 2014 p.293). In this sense, regimes can constrain state behavior by formalizing the expectations of each state to an agreement that involves shared interests (Burchill, 2013 p.65). Regimes also presupposes a high level of institutionalization in that they, apart from the above mentioned formalized agreements, can also be associated with the emergence of international organizations. Both the WTO and the IMF are examples of consolidated sets of economic regimes promoted mainly by USA, which are built upon liberal principles (Little, 2014 p.295). In it’s institutionalized form, regimes can occupy the role of encouraging cooperative habits, supervise compliance and sanctioning defectors. Regimes also reinforces trust, continuity and stability in the anarchic world (Burchill, 2013 p.65-66).

Summery, drawbacks and benefits The purpose of this chapter is firstly to clarify common misconceptions of theory in relation to ideology in international relations, in order to increase the transparency and reliability of the research process. Moreover, an attempt in explanation of the two chosen branches of liberalism is provided. Using liberalism provides the thesis with a useful tool of analysis since it stays close to the nature of the case and grants us a theoretical insight into the government’s argumentation, with hopes of remaining close to their point of view. Additionally, liberalism is suitable for an actor-oriented approach which is in line with this thesis’ focus, as one of the theories’ core assumptions is that states are key actors in

international relations. IR-liberalism in general and neoliberal institutionalism in particular focus on states’ efforts to navigate an anarchic international system through trade and cooperation, rather than on how the system potentially shape states’ behavior (Lamy, 2014 p.132-135).

A possible critique against using the liberal lens in the analyses is that its’ rather narrow focus on regimes, institutions and market-driven economies could miss other relevant aspects and motivations behind a state’s policy decisions. Examples of these aspects could be different ideas and perceptions of foreign policy objectives as well as their changes over time. In this case constructivism should be more useful than liberalism, or it might be used as a complementary perspective. Yet it is important to remember that the nature of this case is arguably tilted towards liberal assumptions, together with a wish to keep the study’s narrowed down precision, rather than embarking on a longitudinal direction, liberal theory becomes a more natural choice. Liberalism’s general optimism towards cooperation and trade seems to grant it stronger explanatory power in why a country decides to join a bank.

4. Methodology The purpose of this study is to provide a systematic liberal interpretation and explanation to what motivated UK to join AIIB, therefore it requires a method that enables systematic description and analysis of the text material in question. In this way, a qualitative research approach is considered the most suitable for this study since qualitative content analysis provides this usage (Bergström & Boréus, 2014 p.50). The thesis will be collecting data from both news articles, parliamentary debates as well as from different official statements. As such, it will utilize an analytical method of qualitative content analysis of the selected material. This application involves a search of underlying themes in the material, which in turn are divided in different categories. Initial categories guide the study, however, others are allowed and expected to emerge during the material analysis (Bryman, 2012 p.557).

One of the differences between qualitative content analysis and quantitative content analysis is that the former has much more movement back and forth between conceptualization, data collection, analysis and interpretation than the latter (Bryman, 2012 p.559). Furthermore, since quantitative analysis focuses on the quantifiable aspect of material, it is unable to be 16

used in order to grasp underlying motivations that guide social actors in decision making. Through the use of qualitative content analysis there are possibilities to refine the categories and create new ones during the research process. As such, it provides a considerable amount of flexibility in the analysis that is useful in the search for different arguments in the material. Furthermore, by organizing the statements and arguments into thematic categories it should be possible to get a relatively comprehensive view of the British Conservative government’s reasoning as well as focusing on the core of the material valuable for the research problem; the argumentation’s content; what factors and benefits are being pointed out and in which way. Therefore, a qualitative content analysis is considered the most suitable method for the study.

A critique against the use of qualitative content analysis is that the processes through which the themes are extracted are often not specified in detail (Bryman, 2012 p.557), which in turn risks becoming an issue of research transparency and validity. To solve this, the thesis seeks to operationalize the material into specific themes based on the selected theoretical framework, which is outlined in further detail below. Another often mentioned critique is that the scope of qualitative research in general is too restricted, causing problems with generalization. However, the findings of qualitative research are often not meant to generalize to populations but to theory, it is therefore the quality of the theoretical inferences being brought out of qualitative data that is relevant rather than statistical criteria (Bryman, 2012 p.406).

4.1 Operationalization: Key aspects

In order to make the theoretical framework manageable as an analytical tool for the content analysis, the thesis uses a coding process involving different prominent thematical categories derived from liberalism. The theme in this sense is best defined by Alan Bryman: “a theme is a category identified by the analyst through his/her data, that provides the researcher with the basis for a theoretical understanding of his or her data that can make a theoretical contribution to the literature relating to the research focus” (Bryman, 2012 p.580).

The coding process was conducted in two phases. Phase 1 consisted of a general overview of the empirical material, selecting statements from government officials where arguments and explanations of the AIIB direction were made. In phase 2, a second overview was made with application of the theoretical lens, which identified liberal key aspects correlating with liberal ideology and it’s corresponding IR theory, in turn shaping the practical explanatory function of the theory.

The different themes will be outlined below, and for the sake of additional clarity, they are listed together with a short description of the liberal associations and assumptions that they imply. More details on this are also found in the theory chapter. As seen below and in the theory chapter, these thematic concepts are often used in the liberal vocabulary or its underlying assumptions to describe states’ actions and motivations in international politics. This makes an argument for upholding concept validity; an indication on how a research’s theoretical definition matches the operationalization (Bryman, 2012).

It should also be mentioned that the choice of narrowing down the aspects to these three is based on the wide recurrence of these themes in the material, which makes them representable of the argumentation’s main lines of thought.

Commercial & Economic liberalism

• Trade & Investment Openness – Trade openness is based on the liberal conviction that the state ought to be minimal in strength and size and not interfere in commercial, liberty and property rights. On an international level, this thinking results in a system of free markets and free trade, with minimum barriers. (Thorsen & Lie, 2007). Openness to investment is also a part of a liberal strategy to increase a state’s economic level by attracting foreign capital in a world with intertwined markets (Burchill, 2013 p.76-77).

Neo-liberal institutionalism

• Cooperation – In a competitive and anarchic international environment, neo-liberal institutionalism implores states to seek maximizing absolute gains through cooperation. Rational thinking makes states see value in cooperative behavior rather than competitive behavior (Lamy, 2014 p.132-133). • Regime-development Regimes are often associated with highly formalized agreements and establishments of international organizations, and are seen by neo-liberal institutionalists as significant forces in managing interactions between states in the international arena (Lamy, 2014 p.132-135).

5. Analysis

The analysis for 5.1 is structured by providing short summaries and interpretations of the selected quoted statements, followed by application of theoretical concepts relating to the category and ending in a summery. 5.2 and 5.3 follows a slightly different approach, with the bulk of theoretical application concentrated in the summery section of each category. This division was done to present an easy way to follow the thinking process; since the statements in the first key aspect are longer than the other two, it was more natural to add the theory right after the relevant part of the text in 5.1.

5.1 Trade & investment openness Conservative MP James Duddridge describes AIIB as a tool to expand UK business involvement in emerging markets. The rapid growth of these economies is vital to facilitate trade on a global scale, the UK then needs to aid in developing these markets, which in turn may advance the whole global economy:

“The fast-growing markets of the emerging economies are becoming increasingly important to global trade, to British businesses generally, and to our values in the United Kingdom. The United Kingdom must, therefore, continue to play a significant role in developing the markets, as well as the global economy.” (Hansard 2015b, col 1)

Only judging from the above statement, it is challenging to understand what Duddridge mean when he vaguely points out the ‘UK-values’; do these values entail the country’s inclination towards open international markets, to a certain British business culture or a willingness to help emerging countries in their economic development? Perhaps all three are important values. What does seem clear in Duddridge’s mind however, is that it is in the UK’s interest to play an active role in the development of emerging economies. The active role UK wishes to pursue in emerging markets and globally far from the British mainland, can be seen as a manifestation of liberal ideas on economic globalization, where transnational corporations and capital are to be ‘liberated’ from national and territorial constraints through the help of government’s decrease of barriers, and active support of corporations expansion in other countries.

In a debate in House of Lords on the 27th October 2015, MP Patrick Courtown, also known as The Earl of Courtown, delivers opening remarks by linking the AIIB to UK’s ‘prosperity objectives’, stating that UK ought to expand economically into areas of underrepresentation and echoing James Duddridge in saying that UK should develop the global economy and emerging markets. Moreover he accentuates UK’s advantage in having an openness to global markets, in sustaining a business-oriented recovery:

“ I would like to set the context by saying a few words about the bank and its link with our prosperity objectives. These recognise that, as we continue our business-led recovery, one of our greatest strengths is our openness to global markets. The fast-growing markets of the emerging economies are becoming ever more important to global trade, British business and our values. The United Kingdom must continue to play a significant role in developing these markets, as well as the global economy. Equally, we must expand into areas where we are economically under represented.” (Hansard, 2015c, col 191)

Courtown provides a more pronounced mention of openness to global markets than Duddridge, claiming it being key to the economic recovery of the UK; it constitutes a part of the foundation upon which the recovery takes place, while simultaneously serving as an ‘engine’ to expand UK’s role in emerging economies. Apart from a repetition of the assumptions of liberal globalization as mentioned above in a

general sense, the thinking behind this statement could also be more concretely tied to the liberal premise of free trade as a tool to achieve national wealth, or more precisely in this case; economic recovery. The thinking of ‘developing markets’ also ties into the liberal idea of economic efficiency, mentioned by Scott Burchill, linking it to free trade and using free trade to integrate emerging economies into the global economy (Burchill, 2013, p.76). Further on in the debate, Courtown also ties UK expertise in a broad range of areas to the prospect of investment and growth chances offered by the fast growing emerging economies (Courtown, 2015). Attention is also put on the potential of growth in London’s financial sector:

“The UK has expertise in areas ranging from green investment, infrastructure and engineering to accountancy and project management. Add to that our world-leading position in finance and we see that a host of businesses around the country and across a variety of sectors are well-placed to take advantage of the opportunities offered by the world’s fastest growing economies. There are also significant opportunities for the financial sector in London (Hansard, 2015c, col 191).

Courtown claims there are a large amount of businesses in several sectors in the British society who are ready to grasp the opportunities offered by the emerging markets. In other words: Britain has the domestic resources and expertise that can benefit from being inside the AIIB network, an advantageous position which could in turn have been used by lobbying groups and other representatives of the British business community to influence the government’s decision-making. In line with Moravcsik’s view of commercial liberalism, a state’s international behaviour is indeed partly based on domestic market positions of different actors, and in particular pressure from powerful private actors who perceive economic benefits from the policy in question (Moravcsik, 2010). It is therefore possible that Courtown’s statement above reflects the outcome of effective lobbying, considering how widespread the phenomenon is in British politics (Curtis, 2011).

The conservative MP and at the time Chief Secretary of the Treasury, Greg Hands continues on the same path of argument as Courtown on the 19th October in the House of Commons, linking the ability to allow a business-led recovery to having an openness to global markets, also pointing out that China is a major actor and key to further UK’s position in emerging markets:

“As we continue to secure our business-led recovery, one of the strongest cards in our pack is our openness to global markets and the fast growing markets of the emerging economy in particular. Indeed, Mr Gray, you might have noticed that the biggest game in town – China – is coming to town tomorrow. As we have always prided ourselves on leading the field, it is no coincidence that the UK was the first western country to issue a renminbi denominated bond. It is the same story with the AIIB.” ( Hansard, 2015a, col 4).

In a similar way as other mentioned MP’s, it is apparent that Greg Hands view the British policy of openness to global markets as a gateway to economic benefits through investment opportunities provided by AIIB in general, and in this case China in particular, when refers to the at the time upcoming visit by Chinese president Xi Jinping. The mention of China in relation to economic recovery is no coincidence; ever since the financial crisis and in 2015, western growth rates were essentially zero and their economies debt-ridden, making the their economies highly dependent on China for both growth and capital (Jacques, 2015). Hands seem to have no qualms in strengthening UK’s relationship with China, despite the concerns voiced by US on the ‘accommodation’ of a rising superpower. Quite the opposite, there is a certain pride in being the first western country to switch foreign policy direction towards the east in this way. In this case it seems to be mostly based on an economic rationality of increasing growth and safeguarding UK business interests abroad, but it also suggests a larger shift in geopolitical influence, where China is emerging with increasing capability to attract partners on the global stage. Greg Hands continue on the importance of a having a good commercial relationship with China:

“China is our sixth-largest goods market. Our goods exports to China have more than doubled since 2010 and we are now the top European destination for Chinese inward investment.” (Hansard, 2015a, col 4).

Continuing, Hands frames joining AIIB as an ‘investment’ proving that UK is an outward- facing country that:

“…delivers opportunities for British entrepreneurs and businesses and puts us at the heart of a new

institution to deliver much needed investment. It proves that this country invests in growth and builds productive partnerships across the world.” (Hansard, 2015a, col 4)

Just as Courtown, Hands believe that being a part of AIIB is particularly beneficial for London’s financial service sector, continuing on the benefits for British businesses to connect with Asian countries;

The whole of Asia provides British businesses with opportunities…Nowhere is that truer than in the financial sector…“London is the global financial capital: 40% of the global foreign exchange trading happens here” (Hansard, 2015a, col 4).

He describes the UK in general as a ‘truly global’ country, with a leading position in Asian finance;

“Importantly, we are truly global, with particular strengths in Asian finance and Islamic finance. The five largest Chinese banks have established operations in London and are growing their international business in the City. London engages with the world, and that means that the world engages with London” (Hansard, 2015a, col 4).

Here we have the first concrete definition of what is meant by ‘trade’, when Greg Hands lift goods exports and financial services as examples. Just as Courtown before him, he also points out substantial benefits to London’s financial sector that the AIIB can bring, confirming to some degree the conclusions mentioned previously by Callaghan & Hubbard.

In a news article from The Telegraph, Chancellor of the Exchequer George Osborne is quoted:

“Forging links between the UK and Asian economies to give our companies the best opportunities to work and invest in the world’s fastest growing markets is a key part of our long-term economic plan…Joining the AIIB at the founding stage will create an unrivalled opportunity for the UK and Asia to invest and grow together” (Agencies, 2015).

The investments provided by the bank are seen by Osborne as mutually beneficial in terms of economic growth for both Europe and Asia. Although the main point of this argument seems 23

to be the economic links between Asia and UK that AIIB can provide, the later part could in fact be understood from a liberal institutionalist perspective; where both parties have mutual interests which are addressed by this new institution. And again, strengthening the relationships between UK and Asia to provide opportunities of investment for British companies is seen as a vital part of a greater economic strategy. Participating in the AIIB contributes as a part of what Osborne named the “golden decade” for Chinese- and UK relations (Osborne, 2015), (Phillips, 2015):

“It’s a win-win for Britain and China, and I think if we set out on this goal of making Britain China’s best partner in the west then we reap the benefits for both our economies” (Phillips, 2015).

Moreover, on the subject of the ‘golden decade’; the large amounts of foreign direct investment coming into UK from China at this time is considered by Osborne as beneficial and another symbol of Britain’s internationally open and welcoming stance:

“There is no country in the west that is as open to Chinese investment as the United Kingdom. We welcome Chinese investment. There is huge amounts of Chinese investment coming into Britain at the moment. Indeed, we are attracting more investment than Germany, France and Italy put together.” (Phillips, 2015).

This welcoming attitude to Chinese investment in the UK can be seen in the light of the liberal logic in explaining FDI’s (foreign direct investment) importance to a state’s economy in general. In a world where capital markets are connected on a global level, a state gains a certain high ‘status’ by offering the most attractive investment climates to foreign companies, or in other words; their comparative ‘hospitality’ to foreign capital (Burchill, 2013 p.76-77). This would give Osborne and his colleagues inventive to ‘market’ their country in the investor-friendly way they do. It was also proven to be a successful strategy, confirmed by the fact that UK took $5.1bn (£3.3bn) out of a total of $18bn (£11.7bn) of Chinese investment into its markets, making it the highest in the EU in 2014 (Niblett, 2015). Apart from simple growth maximizing, this investment strategy also seem to come form a by then neglected infrastructure in the country that demanded large amounts of capital, money that UK could not itself provide (Jacques, 2015). Martin Jacques uses Chinese investments

into a British nuclear reactor programme as an example, a programme that offered opportunities impossible without Chinese contribution (Jacques, 2015).

In a speech delivered in Shanghai on the 22th September 2015, George Osborne praises President Xi’s massive infrastructure project translated in English into “One Belt One Road” in connection with AIIB, saying that developing the infrastructure it provides will

“…create huge opportunities for European and Asian businesses, as will the new Asian Infrastructure Investment Bank, which will boost regional investment. That is why Britain was the first major western country to apply to be a member of the AIIB and the UK is committed to it being a success” (Osborne, 2015).

Since ‘One Belt One Road’ is by large depending on finance from AIIB, it is not surprising that Osborne link the two initiatives together. It is clear that opportunities coming from infrastructure development is not only described as beneficial for European- but also Asian businesses, which can further confirm the liberal ideas of cooperation in areas of mutual interests.

Summery of aspect Trade & Investment openness Joining AIIB has been explained by the British government officials in the context of a British economy that is reliant on open markets and an international business climate that favours finance and investments to promote economic growth. The country has the comparative advantage of expertise in infrastructure, engineering and project management which it wishes to ‘trade’ on the Asian market through AIIB, thus increasing its prosperity. Moreover, UK needs from a commercial and economic standpoint to take part in investment opportunities abroad which the AIIB provides directly, but also receive FDI from abroad and China in particular, which AIIB provides indirectly, by UK strengthening its relationship with this country that has 26% shares in the bank (AIIB.org (b). This makes China influential within the bank but also proves that China has enough resources to expand its ‘FDI-portfolio’. The conservative government is trying to create a narrative in which the acceptance and membership of AIIB is one of several necessary steps in a comprehensive strategy laid out to benefit economically from China.

5.2 Cooperation MP James Duddridge mentions in the debate on the 2th November that UK needs to expand into areas of underrepresentation, and that strengthening ties to China is key to this activity (Hansard, 2015b). He describes deeper cooperation between China and UK and taking part in Asian infrastructure development as a way to deliver economic opportunities for UK:

“The recent state visit by the Chinese President demonstrated the scale of the opportunities that lie in deeper cooperation between our two nations, and a key component of opportunity and growth in Asia is, and will continue to be, infrastructure.” (Hansard, 2015b, col 1).

This position and argumentation is echoed almost in exactly the same way by The Earl of Courtown:

“Equally, we must expand into areas where we are economically under represented. China is at the heart of this. Last week’s state visit by the President of China demonstrated the scale of opportunities that lie in deeper co-operation between our two nations.” (Hansard, 2015c, col 191).

He further explains that in order to strengthen the economy in a world that has become more and more globalised, UK needs to establish solid partnerships and economic links:

“The raison d’être of this is to continue building a strong economy in an increasingly globalized world which requires good partnerships, deep co-operation and strong economic links.” (Hansard, 2015c, col 194)

Further evidence that the British government attached importance to cooperation and relationships in the argumentation can be found in an interview made by The Guardian, where an FCO (Foreign & Commonwealth Office) spokeswoman is quoted the following:

“Our approach to China is consistent. This is a relationship that matters and that brings with it a wealth of opportunities for closer working on issues that are important worldwide. That does not mean to say we do not have areas on which we differ, but we handle these through an established process of regular dialogue.” (Branigan, 2015a)

It is apparent that the government wants to highlight the international importance of the China-UK bond and that working together is the preferred way forward, although it is not clear what exactly the “wealth of opportunities” and “issues” mentioned above entails, but as it is in reference to AIIB it likely relates to development projects worldwide. 26

The FCO also raises the issue of differing views, which are said to be handled through dialogue. This could be seen as a response to previous criticism of Britain’s accommodation to an autocratic regime (Gracie 2015; Mardell, 2015, and a reassurance that the officials still raise issues of human rights, albeit behind closed doors. Apart from the national economic interest, there are also implications of a more altruistic notion, with phrases such as “working on issues that are important worldwide”; there seems to be an expressed willingness to assist in the development and growth of the emerging economies, making them more prosperous and well-functioning.

In a speech held 12th of August 2015 at Beijing University, Foreign Secretary Philip Hammond mentions the AIIB as a part of an overarching policy adopted towards China, including support of the internationalization of the Renminbi, and collaborating on President Xi’s “One Belt One Road”. He portrays Britain as being the best in Europe at working with China and emphasizes the fact the his country was the first major European country to sign the bank’s Articles of Association in Beijing:

“And when it comes to working in partnership with China on the world stage, there is no country in Europe more open than Britain. We were the first major European country to join the Asia infrastructure Investment Bank, signing the Articles of Association here in Beijing at the end of June,…” (Hammond, 2015).

Summary of aspect Cooperation: The conservative government is trying to frame cooperation between China and UK as a solid foundation upon which a strong economy can be built; the link between cooperation, partnership and stronger economy is implied several times. It is also pointed out that UK has an chance to, through strong tries with China, gain benefits from development in other Asian countries; China and AIIB thus becomes a gateway to economic growth from a larger region. One thing that stands out is that there is a stronger focus on furthering the China-UK relationship in terms of cooperation, while Asia in general is mentioned more often in the previous aspect in connection with trade and investment. UK has seemingly a wish to increase it’s absolute gains, assessing that cooperation through AIIB with China will grant many welfare opportunities for the country. The difference in 27

contribution and corresponding voting shares will naturally be unequal in favor of China, with 2,9% compared to 26% (AIIB.org (b) but the value of working together in infrastructure development is seen as the rational way forward, regardless of who gains more in the arrangement. This is also in line with the neoliberal logic that states are attracted to economic institutions as they provide opportunities for them to secure their own national interests. In the same ideational reasoning, UK is willing to shift it’s loyalty and resources to a new institution and a new superpower, since this benefits not only its own economy but also emerging ones in Asia. The mention made to improve the economy in a ‘globalized world’ which requires ‘strong economic links’ implies that a present state of economic interdependence demands a greater engagement with present and future economic powerhouses in Asia. In this view, a membership in AIIB becomes a natural and necessary step taken in order to achieve the desired level of partnership and economic gains.

5.3 Regime development In his remarks in the House of Commons on 2015-11-02, James Duddridge recognizes that AIIB requires support in becoming an efficient and qualified international organization, and as one of the founding members, the UK has substantial expertise and knowledge to offer:

“The UK has expertise in areas ranging from green investment, infrastructure and engineering to accountancy, finance and project management. Key to enabling effective support for infrastructure development in the region is ensuring that the Asian Infrastructure Investment Bank is well established as a high-quality and functioning international organization, and that is why UK has taken on such a strong role in supporting it.” (Hansard, 2015b, col 1)

Although it is not stated directly what Duddridge defines as a “high-quality and functioning international organization”, based on Britain’s strong position and long experience in similar institutions as WD and ADB, it is reasonable that he refers to these banks as ideals to strive towards. Judging from his comments on expertise, it is probable to assume that he proposes the opportunity for Britain to shape this institution in a way that not only benefits it’s purpose of

infrastructure development, but also complies with British values and norms in the listed areas.

The Earl of Courtown makes similar remarks during a debate in the House of Lords 2015-10- 27:

“Key to enabling effective support for infrastructure development in the region is ensuring that the AIIB is well-established as a high-quality and well-functioning international organisation. That is why the United Kingdom has taken such a strong role in supporting the AIIB.” (Hansard, 2015c, col 191).

In addition, the Earl confirms that it is indeed in the British interest to be involved in the bank’s operations from the start and in this way enable it to be shaped in according to a model of high standard governance:

“There is significant advantage in being involved from the beginning. Working to shape the bank in the British interest and ensuring that it follows the model and learning of other established institutions will help the new bank to meet the highest governance standards for an international institution.” (Hansard, 2015c, col 191).

Greg Hands echoes the views of his colleges concerning how Britain is in a good position to influence AIIB operations from the start of it’s establishment:

“There is a significant advantage to being there from the start. We have been able to help shape the bank in the British interest. Importantly, that includes ensuring that it will meet the best international governance standards.” (Hansard, 2015a, col 1)

Interestingly, even though this remark was made 2015-10-19, which is before the statements made by the Earl of Courtown October the 27th and by James Duddridge on November the 2th, Greg Hands claims that they have already succeeded in shaping the bank according to British interests. The other two statements seem however to imply that this is still a work in progress, using words as “ensuring” and “working” in present tense. This could be explained by

differing views within the party on the degree of influence that has been made, or simply by different communications strategies from different MPs.

At the same debate in 2015-10-19, Greg Hands again emphasizes in another statement the importance for the UK to be on board from the beginning and points out that UK was the first European country to sign up for the bank membership:

“However, the UK being there from the beginning, or near the beginning — we were the first European country in the bank — and with significant presence, will make it more likely that we will be of influence.” (Hansard, 2015a, col 7).

Greg Hands also reveals that the US attitude towards the project has in fact softened since it’s initial warnings:

“The US was initially a little sceptical about joining the AIIB, but its tone softened in recent months, and at the recent Chinese state visit to the US, a joint statement said: - Both sides acknowledge that for new and future institutions to be significant contributors to the international financial architecture, these institutions, like the existing international financial institutions, are to be…operated…with the existing high environmental and governance standards.” (Hansard, 2015a, col 9)

The statement above could firstly be aimed as a reassuring reply to a previous doubt regarding the US position, Greg Hands likely wishes to confirm that the UK’s important ally is starting to support or at least accept the idea of AIIB, provided the existing rules and regulations for financial institutions are abided by. Secondly, this change in US rhetoric can have been used as further support to bolster the argument for UK to joining AIIB.

In a news article from The Guardian, a spokesman for the British prime minister is quoted dismissing US criticism by saying:

“There will be times when we take a different approach…We think it’s in the UK’s national interest.” (Branigan, 2015b)

In Reuters, a further direct replie to US opposition is given, this time by George Osborne:

“We have decided to become the first major western nation to be a prospective founding member of the new Asian Infrastructure Investment Bank, because we think you should be present at the creation of these new international institutions” (Taylor & Williams, 2015)

The above replies suggest a desired focus to the benefits of the bank for UK and deemphasizing of US opposition. It could also reflect a belief that US need not to worry, since UK is involved in the starting process of creating this new regime.

In the previous mentioned speech at Beijing University by foreign secretary Philip Hammond, he continues on the subject of sharing UK experience in developing Asian infrastructure, and here the emphasized expertise is the experience of financial regulation and governance:

“…signing the Articles of Association here in Beijing at the end of June, allowing us to support Asia’s economic development and to share our experience of International Financial Institution regulation in developing the governance model for the AIIB.” (Hammond, 2015).

In the article “With UK's move to join China-led bank, will Australia and the EU follow suit?” from the 16th of March 2015, Lisa Cornish and Alys Francis from Devex writes that The United Kingdom’s decision to join a China-led Asian Infrastructure Investment Bank likely will trigger a snowball effect with “holdouts” like Australia and the rest of European Union following the same path. In a quote in the article from a representative from the British Treasury, the importance of acting on an opportunity to influence the governance and regulations process is repeated:

“…by taking this decision early on the U.K. is leading the way in influencing the AIIB’s founding processes to ensure that international best practice on safeguards and governance is met,” (Cornish & Francis, 2015).

Summery of aspect Regime Development In this aspect, there are two arguments being repeated; firstly it is considered important to be involved in the founding process from the start, providing the benefit of influence as early as possible. Secondly, making sure that the bank functions with high-quality governance seems to be a priority and an area where the government considers UK having substantial expertise to offer. The emphasise given to governance might have been used as a reassuring reply to voiced concerns over AIIB's transparency and standards, and at the same time hint that UK will attempt to drive AIIB in the same direction of norms and operations as Bretton Woods institutions and ADB.

Considering the concept of regimes, it can in this case involve all of the previously mentioned ‘sets of principles, norms, rules and decision-making procedures’. Although the focus leans towards ‘decision-making procedures’ with the repeated statements on governance, it is not clearly defined what concepts as "British interests", "high quality" actually comprise. What does seem clear however, is the fact that the argumentation reveals an aspiration to shape the AIIB regime, no matter it’s exact definition, towards a direction favoured by the British conservative government, developing it in a similar way to other international financial institutions that the British are accustomed to.

According to the liberal institutionalist thinking as mentioned previously, states are most likely to invest resources and join an institution if it creates opportunities for the achievement of mutual interests, as well as a credible rule-based system. Having the background of working with Bretton Woods institutions, Britain might then regard the opportunity of regime-influence in AIIB as both a precondition of its own participation and a convincing assurance, giving AIIB internationally recognised credibility that allows other western states to join as well. The endorsement of major European states such as UK helps in alleviate concerns that AIIB is used simply as an extended arm of Chinese ambition (Domínguez, 2015) As the membership increases, so does the bank’s ability to fulfil its goal of developing infrastructure and in turn grant benefits for it’s participants. A larger amount of members could also create more incentive for compliance, as the voting shares are divided more evenly.

6. Concluding discussion This thesis has made an attempt to explain the reasoning behind the United Kingdom’s decision to join the Asian Infrastructure Investment Bank, put in a context of liberal theory. a) AIIB is able to offer possibilities and benefits that UK might have been searching for a long time. UK sees the potential of emerging economies, particularly Asian emerging economies. Already being a influential actor in global trade and finance, the country had likely previously been interested in expanding their part in the development of these markets, but failed to find a great opportunity. AIIB then functions as the perfect entry to these emerging markets. On the other hand, UK also wants to keep its openness to global markets and their provided investments as well as expand its international business influence in geographical areas that lacked British representation and involvement , rather than being limited to western and developed markets. As in the trend of globalization, countries and regions benefit from international trading and specialization. Limited access to the global market in general and emerging markets in particular means limited opportunities for economic growth and development. Being left out by Asian markets is certainly not described as in UKs best interest. After being hard-hit by the 2008 financial crisis, UK suffered from a bad economic growth (Jacques, 2015), therefore, UK was at the time in need of seeking a boost to its economic recovery. This is where AIIB showed promise for UK, as the wide expertise of business and finance in the British community could be put to use abroad to facilitate job opportunities and economic return. By using AIIB as a way to enable British companies more job opportunities from foreign projects and at the same time build needed infrastructure through Chinese FDI, the UK government could hope to secure domestic support for the at the time upcoming EU- referendum and future general election. This support in turn safeguards the support for economic globalization from the population. b) Joining AIIB has the ability to strengthen the UK-China bond on an economic- rather than political level. Since China is a major shareholder in AIIB and also the initiator behind the institution, by signing up as a member of this bank arguably leads to UK having closer ties with China. It is 33

clear that this is also a major part of the Cameron government’s calculation in making the decision; China has the resources to deliver much needed FDI to UK and sits on possible large trade deals that can benefit British companies and institutions. All that is required is a ‘push’ in the right direction for the UK-China relationship and these economic benefits can all be realized. For UK, becoming a part of AIIB is no doubt such a push. It is a stark signal that Britain desires to be closer tied to China, yet also a stark contrast to the policy direction adopted just years prior to the announcement and represents the ambiguity in Cameron’s China-policy. The British Foreign Office hailed their policy as consistent and the China-bond as a relationship that matters, but the change of focus regarding China suggest incoherence and a shift from liberal values of democracy and human rights to liberal values of commercial and economical rationality. By effectively siding with China on an issue of international economic governance and development rather than US, Britain proves that it does not fear possible repercussions from US, despite the rare public rebuke. Considering the long standing ties existing between UK- US, a substantial backlash is unlikely, yet the fact that UK chose this direction implies a British willingness to not only put economic interests ahead of other values, but also to contribute to an ongoing shift in the balance of power between US and China. It is possible that the conservative government simply made a clear separation of economy and politics in dealing with China and that this is a suitable perspective on the case. Judging from previous ‘failures’ with a political focus on China’s domestic issues, they change focus towards direct and indirect economic ties and cooperation. Politics then assumes a background role, as in the wish to influence the regime within AIIB.

c) The desire to shape the AIIB regime according to British political and economical interests motivated UK to join early. By being involved in the bank’s founding process from the start, UK sees the opportunity to influence the regimes of the institution by using experiences from the WB, IMF and ADB, easing the process of participation by British companies but also the inclusion of other western countries. By including itself to the AIIB membership, UK adds credibility to the institution which was proven by the many other G7 members who followed in it’s footsteps, and this in turn likely serves to further British interests in the bank. As more European countries join, shaping AIIB into a model resembling other existing development banks

should become less complicated, as the combined voting shares then counter balances other countries. In fact, balancing Chinese and other one-party states voting power in this way might have been a motivating factor for joining early; instead of waiting for the bank’s operational framework being decided by states with less liberal reasoning. The total voting share of all AIIB’s European members amount to around 20%, though being less than China’s 26% (AIIB.org (b)) it is should be enough to give Europe considerable influence over decision- making. Britain having a share of 2,9 %, the third highest out of all non-regional members, after France’s 3,2% and Germany’s 4,1% (AIIB.org (b)) could give it good leverage in moving the process of regime development in a liberal direction. Being inside from the start also grants the chance to have a voice in the choice of key roles within the bank’s management, as proven by the fact that the former chief secretary in Cameron’s government now occupies one of five vice president positions in the bank (HM Treasury, 2016). It could also allow UK to have a head start in securing market share in the emerging Asian markets for British businesses and secure its financial sector’s dominant position.

In summery, UK joined AIIB firstly based on a liberal economic rationality and pragmatism in dealing with China and its attitude towards Asia in general. This was in contrast with it’s previous policy of human rights and democracy promotion towards China. Secondly by wanting to grasp on to an opportunity of boost in the domestic economic recovery since the financial crisis, securing British business- and finance representation and involvement in emerging Asian economies. UK chose to join as the first western European country due to a it’s wish to influence the bank in a western or internationally established and recognised fashion, giving legitimacy to the institution and thereby credibility to its own decision. The restrained response to US criticism suggests a recognition of a new reality where China is a major political player on the world stage that countries have to chose to either side with by ‘sacrificing’ certain ideological pressure in the diplomacy, or constrain and isolate with the risk of neglecting economic benefits and opportunities. The response could also reflect a more pragmatic liberal belief that cooperation instead of competition is the preferred way forward in areas of mutual interests, and that AIIB can with

the help of UK and other European countries serve as a supplementary institution to the existing ones in financing development.

The main contribution of this thesis is that it sheds more light on, and contributes to a better understanding of why this controversial decision from the UK government was taken. The motivations in the argumentation has been described and explained using qualitative content analysis through a theoretical lens of liberalism, connecting both commercial and economical ideas of interests with a desire and need to achieve these interests through a multilateral institutional framework of cooperation, and in that process also deliver much needed development to emerging economies. This theoretical and qualitative approach allows a precise explanation on it’s own to UK’s actions in this case. However because this is a qualitative research it can also function as a complementary piece to the quantitative-dominated previous research, since it elaborates on why a major ‘first-mover’ country joined, confirming to some degree the claimed network effects, as well as highlighting UK’s decision in a context of foreign policy towards China; another mentioned topic in the previous research.

7. Future research A possible limitation of this thesis is that it lacks a deeper longitudinal aspect of the process leading up to UK’s decision. A complementary study might in this case focus on aspects of soft power in ideational analysis of the diplomatic interactions between UK, USA and China during a longer period leading up to 2014 and 2015. An expanded study on the subject might also include more domestic factors within UK, such as deeper research on economic development and lobbying activities, preferably within a interdisciplinary approach of foreign policy analysis to give an even more comprehensive answer.

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