Guang Niu / Reuters Chinese Navy submarines and warships take part in an international fleet review to celebrate the 60th anniversary of the founding of the People's Liberation Army Navy in Qingdao, Shandong province, April 23, 2009.

Beware China's Grand Strategy

How Obama Can Set the Right Red Lines

Last month 57 nations applied to become founding members of China’s newest creation: the Beijing-based Asian Infrastructure Investment Bank (AIIB). Ostensibly designed to help finance projects that sate Asia’s expanding appetite for infrastructure, the AIIB has left Washington struggling over how to respond. Some applaud China for assuming greater international responsibility and wielding soft power to aid Asia’s growth. Some oppose the move as undermining the U.S.-led economic order and using aid as a tool to advance China’s strategic agenda.

In an article for Foreign Affairs, “Who’s Afraid of the AIIB?” Phillip Lipscy makes a detailed case for the former. He argues that the United States’ principal concern—that the AIIB will undermine existing international lenders and their standards—is misplaced. China, he argues, is more of a status quo power when it comes to international institutions than many think. Further, development aid is a “highly competitive and fragmented policy area” and donors, he believes, are unlikely to devote resources to any institution that narrowly pursues its own interests and is unaccountable to its stakeholders. In any event, he writes, China is already able to “undercut the quality and conditions of existing aid agencies…more expediently through bilateral aid and overseas activities of its state-owned enterprises.” Washington, Lipscy concludes, should embrace the AIIB and even join the institution to shape its policies and practices from the inside.

Lipscy admirably addresses the question of U.S. participation in the AIIB and its impact on international lending standards, but security strategist see such issues as tactical questions that pale in comparison to the broader strategic ones. China is now operating beyond the reach of a U.S. veto, capable of reshaping the international order unilaterally. The AIIB will grant China a virtuous cycle of benefits, expanding its political and economic leverage across Asia and aiding its efforts to elevate the yuan as an international reserve currency. And it is China’s own companies, with unrivaled experience building

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