The China-backed Asian Infrastructure Investment Bank hasn’t opened its doors for business yet, but already it has strained relations between the United States and its closest ally, the United Kingdom, which shocked Washington by announcing that it had applied to become a founding member, the first western country to do so.
France, Germany and Italy have now followed suit, the Financial Times reported.
The US, which has opposed the AIIB since it was first mooted in 2013, was extremely unhappy with the British decision.
The newspaper quoted one American official as saying, “We are wary about a trend toward constant accommodation of China.”
The idea of an Asian infrastructure bank was first publicly raised by President Xi Jinping when he visited Indonesia in October 2013.
US opposition ostensibly is not to the concept of such a bank but rather out of concern that it would not adopt sufficiently high standards of governance as well as environmental and social safeguards.
The need for Asian infrastructure financing is undisputed, with Jim Yong Kim, the American who heads the World Bank, putting it at US$1 trillion a year – a need that is largely unmet at present.
Kim has welcomed the appearance of the AIIB and has said he is willing to work with any new organization.
The Asian Development Bank, too, said in a statement that it was prepared to consider “appropriate collaboration in areas of common priorities”.
The ADB is dominated by Japan, much as the World Bank is dominated by the United States.
China is unhappy that countries that dominate the existing global financial architecture have been slow to accord it a role that would better reflect its new status as the world’s second-largest economy.
New institutions backed by China, such as the AIIB, are seen by some as an attempt to challenge the existing architecture, a charge that Beijing denies.
A Chinese Foreign Ministry spokesman, Hong Lei, said the AIIB was not meant to undermine existing institutions but to “cooperate with and complement existing multilateral development banks” and would follow “the principles of openness, inclusiveness, transparency, responsibility and fairness”.
The White House issued a statement voicing hope “that the UK will use its voice to push for adoption of high standards”.
Right on cue, a spokesman for Prime Minister David Cameron said Britain wanted to be a founding member so as to help shape governance of the new institution.
Moreover, he said, the country reserves the right to pull out of the bank if its standards are not met.
The US dispute with China over AIIB reflects deep-seated concerns in Washington that Beijing may undermine American influence – and leadership – in the region.
President Barack Obama said in his State of the Union address in January that China wants to “write the rules” for the world’s fastest-growing region, putting the US at a disadvantage.
China is sponsoring more than just the AIIB.
In November, Beijing announced it was putting US$40 billion into the Silk Road Fund, set up to improve connectivity along the Silk Road Economic Belt, which is meant to connect China and Europe and will involve the construction of roads, railways and pipelines, among other infrastructure.
Last year, China co-sponsored the US$100 billion New Development Bank, headquartered in Shanghai, with the other BRICS countries – Brazil, India, Russia and South Africa.
It is also talking about setting up a development bank for the Shanghai Cooperation Organization, along with Russia and four Central Asian states.
These projects are interconnected.
The AIIB could well finance infrastructure projects to promote connectivity from Xi’an through western China to Central Asia, Russia and on to Europe, ending in Venice.
In October, China and 20 other countries held a signing ceremony in Beijing formally setting up the AIIB.
Xi said authorized capital will be US$100 billion, with initial contributions amounting to about US$50 billion. This compares with the ADB’s capital of US$175 billion. China is believed to be prepared to put up US$50 billion on its own.
The original group did not include any US allies. Australia, which had been expected to join, was lobbied intensely by Secretary of State John Kerry and Obama himself before backing out.
However, now that Britain has signed on, chances are that Australia and possibly other countries close to the United States will do so as well.
Actually, membership by countries such as Britain and Australia is likely to enhance the adoption of high standards by the bank.
There is little point in the United States remaining opposed.
In the end, the United States, perhaps along with Japan, is likely to find itself isolated on this issue as countries jump on the Chinese bandwagon, which is unstoppable.
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