Peace move, or just business? Israel, Iran join China’s fund

At Beijing’s invitation, both Tehran and Jerusalem in a single week became members of the Asian Infrastructure Investment Bank

Members of a delegation to the Israel-China Economic Summit at the Knesset in May 2014 (photo credit: Courtesy)
Members of a delegation to the Israel-China Economic Summit at the Knesset in May 2014 (photo credit: Courtesy)

Just a few days ago, Israel joined a new major investment fund — the China-based Asian Infrastructure Investment Bank (AIIB) — and on Wednesday, China announced that Iran would be joining the bank as well.

It’s all part of China’s “Live and let live” policy, according to China Analyst Sam Chester of Clarity Capital. “China’s approach to the Middle East has been defined by what I would call an omnidirectional friendship policy. They work with everyone, and try to give each country they work with the feeling that they are a great friend. Israel and China have a close relationship, as do Saudi Arabia and China, Egypt and China, Iran and China, etc.”

The AIIB is designed to be an investment vehicle that will push infrastructure development throughout Asia, an Asian (and China-sponsored) alternative to established international financing organizations like the World Bank and the Asian Development Bank. “The Chinese weren’t necessarily going to go ahead with this, but they felt they had no choice,” said Chester. “The US was dragging its feet on promised quota reforms” that would have given developing countries more shares in deciding how the International Monetary Fund and the World Bank allocates loans. Those reforms were supposed to be implemented in 2010, but the US, which dominates the institutions, has failed to follow through. “As a result, China decided to act on its own,” added Chester.

One reason that China was hesitant to move forward with the project,  Chester went on, was because of the strong objections expressed by the US, which leaned on its allies to stay away from the project. “Media analysts were saying last week that Israel announced its membership in the AIIB as a ‘poke in the eye’ to the US for its deal on Iran’s nuclear program, but the issue is more complicated than that.” Israel is actually a rather latecomer to the project, which already included most of Asia (except for Japan, so far), including staunch US allies Australia and South Korea.

“The dam really broke in early March, when the UK signed up,” explained the analyst. “Now, the rest of Europe is eager to join. Even Taiwan” — which China still to some extent views as its rival for the title of “the real China” — has applied to join. “Israel, which already has extensive economic relations with China, decided that if it was good enough for London, it was good enough for Jerusalem.”

Beijing also waited until now to formally invite Iran, even though it was clear that China’s strategic ally — which has many resources Beijing needs, and with whom China does a lot of business — was going to be invited to join, Chester added. “With the nuclear program framework announced, Beijing decided that the time was right to bring Iran into the AIIB.”

With Iran now in the same club — taken in as a founding member — will China have to perform fancy diplomatic footwork to keep Israel and its archenemy from each others’ throats? There’s no reason the two countries can’t peacefully cooperate in the context of the China-run project, with Beijing acting as the sort of “responsible adult” to ensure order.

“The truth is that both Iran and Israel have a great deal to gain from this fund,” said Chester. “The Chinese have long been active in Iran, building infrastructure projects like dams, electrical plants, and more. Israel is also interested in infrastructure projects, like the Red Sea-Dead Sea canal and the railroad linking Ashdod and Eilat. Better water management and transportation are in everyone’s interest.

“There was no objection from Iran last week when Israel applied to join — and Tehran did not condition its joining on the AIIB’s rejecting Jerusalem as a member,” went on Chester. “It should be noted that both countries are members of the World Bank and other multilateral institutions, and they basically ignore each other in those forums.”

Iran, of course, would be unlikely to convince the US and Europe to ban Israel from the World Bank. But that they didn’t try to persuade China to keep Israel out of the Beijing-sponsored project is also significant, claimed the analyst. “We can’t really say how things are going to work in the AIIB, because no rules have been published yet. But it’s clear that China believes it is going to work — and it does not believe that the tension between Israel and Iran is going to have a negative impact on the project.”

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