China’s “Great Leap Outward”: The AIIB in Context

Abstract

The Asian Infrastructure Investment Bank (AIIB), along with the creation of other institutions such as the New Development Bank, (NDB), the Contingency Reserve Fund and the Silk Road Fund, are major initiatives for China although they will play a complementary role with existing institutions that manage capital exports. There is a tendency to see the AIIB as having two key roles: as a leading agency for implementation of the “Belt and Road” vision expounded by Xi Jinping and as an instrument of “soft power” delivering “public goods” which address the region’s infrastructure financing requirement. However, AIIB can only really be understood when placed in the context of the economic circumstances that confront China at home and abroad. Partly out of necessity and partly out of opportunity, Beijing is now laying the foundations for the next stage of China’s rise. However, the logic of the “great leap outward”, along with the ability to execute, is undermined if the financial surpluses go into reverse due to deterioration in the domestic economy. Xi Jinping’s strategy is not without its risks.