Could the Asian Infrastructure Investment Bank (AIIB) suffer collateral damage from China’s territorial claims in the South China Sea? The risk is clearly there.
The AIIB plans to make its first loan as early as the middle of this year.
That’s about the same time a UN arbitration tribunal in The Hague is expected to rule on the Philippines’ appeal against Chinese territorial claims to virtually the entire South China Sea.
Should China reject arbitration and/or the standing of established international fora for South China Sea dispute resolution — China risks painful blow back.
Given the political cover of such precedent, AIIB borrowers could feel emboldened to renege on AIIB loan repayments. China could then find itself lacking international political support in enforcing penalties, having itself rejected respected forms of multilateral dispute resolution.
For decades, China’s been the recipient of large-scale inward investment. As a result, China could write — and capriciously change — rules. But in coming years, China increasingly will be on the other side of the ledger.
That’s because China’s multi-decade accumulation of a US$3 trillion reserve hoard is now economically destabilizing.