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I
3 European Powers Say They Will Join China-Led Bank
BRUSSELS — Ignoring direct pleas from the Obama administration, Europe’s biggest economies have declared their desire to become founding members of a new Chinese-led Asian investment bank that the United States views as rival to the World Bank and other institutions set up at the height of American power after
World War II.
The announcement on Tuesday by
Germany, France and Italy that they would follow Britain and join the Chinese-led venture delivered a stinging rebuke to Washington from some of its closest allies. It also called into question whether the World Bank and the International Monetary Fund, which grew out of a multination conference in
Bretton Woods, N.H., in 1944 and established an economic pecking order that lasted 70 years, will find their influence diminished.
The announcement by
Germany, Europe’s largest economy, came only six days after Secretary of State John Kerry asked his German counterpart, Frank Walter-Steinmeier, to resist the Chinese overtures until the Chinese agreed to a number of conditions about transparency and governing of the new entity. But Germany came to the same conclusion that Britain did: China is such a large export and investment market for them that they could not afford to stay on the sidelines.
American officials have fumed that China never approached the Group of 7 — the consortium of economic powers that the United States has led — but rather decided to pick off individual members, setting a deadline of the end of March for them to make a decision whether to join the new organization, the Asian Infrastructure Investment Bank, which many refer to by its initials, the A.I.I.B. China, in turn, has long chafed at the idea that the World Bank’s president is traditionally an American, and that France appoints the head of the I.M.F.
“This has been a power struggle,” one senior European official said. “And we have moved from the world of 1945.”
In Washington, Jennifer Psaki, the State Department spokeswoman, declined to criticize the countries that announced they would seek to participate, but expressed reservations. “It is up to each country to make their own decision about whether they will join,” Ms. Psaki said, “but it will be important for prospective members of the A.I.I.B. to push for the adoption of those same high standards that other international institutions abide by, including strong board oversight and safeguards.”
The European decision is bound to help efforts by Xi Jinping, China’s president and Communist Party chief, to reshape the global balance of power, starting with the institutions that underpin it.
Mr. Xi’s predecessors chose to join some of those institutions, including the World Trade Organization, and work from within to amend some of their rules more to China’s liking. But, with the new bank, China appears to be ramping up previously halting efforts to also build new, Sino-centric institutions from scratch. China’s control of the bank, however, will face constraints. Britain has insisted on a senior post on its board, and Germany will do the same.
China has worked steadily for years to break what it regards as an unfair grip by the United States on global political and financial institutions and to set up rival structures more responsive to Chinese demands for a voice in international affairs commensurate with its status as the world’s second-biggest economy.
“China is shaping an alternative universe and getting America’s European allies to support it,” said Theresa Fallon, a China expert at the
European Institute for Asian Studies, a Brussels research group.
The United States lobbied its allies not to join the new China-based bank. The United States has argued that he bank at best duplicates, at worst undermines, the role of the Washington-based World Bank and the Asian Development Bank, which has its headquarters in the Philippines, a close American ally at odds with Beijing over the South China Sea. The I.M.F., which manages financial crises, is less directly affected.
Ms. Fallon said she expected that South Korea, another close American ally, would also sign up for the new Chinese bank and that “in the end only Japan won’t say yes.” China, she said, is offering a “whole economic and political package that provides an alternative to the creaking international structures shaped by the U.S. in the postwar period.”
Western officials and anticorruption groups have long criticized China’s lending practices, particularly for infrastructure projects in Africa involving Chinese companies, saying they foster corruption and undercut efforts by the World Bank and I.M.F. to link loans to demands for good governing. China rejects such complaints, pointing to its success in building roads and railway lines quickly in countries bereft of Western capital.
In an apparent reference to such concerns, France, Germany and Italy, in a statement declaring their eagerness to join the Asian Infrastructure Investment Bank, said they were “keen to work with the A.I.I.B. founding members to establish an institution that follows the best standards and practices in terms of governance, safeguards, debt and procurement policies.”
Snubbing the bank would have angered Beijing, but aside from earning Chinese good will it was not immediately clear what European countries will gain by joining other than the right to endorse and help finance infrastructure projects that, in many case, are likely to be dominated by Chinese, not European, construction companies.
Europe’s defiance of pressure from Washington over the Chinese-led bank does not signal a major rupture, according to analysts. But, they say, it does add friction at a time when the marquee project of trans-Atlantic solidarity, a proposed free trade deal, has lost much of its momentum in face of fierce hostility from European politicians and activists opposed to American-style capitalism.
While heavily dependent on the United States for security, especially since the crisis in Ukraine erupted last year, European countries, Ms. Fallon said, “tend to take the U.S. for granted” while “China is very good at lobbying them and promising them things.” But she said Washington had been unwise to expend diplomatic and political capital over the Chinese-led bank when it was clear that even staunch allies like Britain wanted to join it.
The new bank was initially proposed by President Xi to help
fund infrastructure projects in poor Asian countries, something the World Bank and the Asian Development Bank already do. China has pledged a large part of the initial $50 billion of capital, and Beijing hopes the institution will contribute to the expansion of its power base in Asia, even as its growing might, economic and military, reshapes the political dynamics of the region and beyond.
Since taking over leadership of the Chinese Communist Party in 2012, Mr. Xi has steadily expanded a longstanding Chinese policy of seeking political influence through lending and investment, putting his weight behind an ambitious plan to build maritime and land links between China and Europe that span the Eurasian continent. China began the plan after a 2011 call by Hillary Rodham Clinton, who was then secretary of state, for a “new silk road” to help Afghanistan’s economy.
Miffed that Washington had appropriated a term China considers an inseparable part of its own heritage, Mr. Xi in 2013 put forward his own “silk road” plan. This was initially called the “
Silk Road Economic Belt” but, since expanded and shorn of any echoes of the American proposal, is now known in China as the “Belt and Road” scheme, said Ms. Fallon, who has studied the evolution of China’s minutely calibrated nomenclature.
China’s first signaled its desire to set up its own alternative structures as its economy took off in the 1990s. In 1996, in Shanghai, it established a security grouping comprising China, Russia, Kazakhstan, Kyrgyzstan and Tajikistan.
The body, since joined by Uzbekistan and known as the Shanghai Cooperation Council, has Chinese and Russian as its working language instead of English, the lingua franca of most international organizations set up under the auspices of the United States.
Under Mr. Xi, Beijing has also put itself at the center of a four-year-old grouping of 16 Eastern and Central European countries, promising investment to the region in a push for economic and political influence that has raised eyebrows in Brussels, the headquarters of the European Union.
Some see the venture as an attempt to divide the European Union and circumvent the bloc’s rigid rules and standards. Eleven of the nations courted by China in Eastern and Central Europe belong to the union.
But China has voiced annoyance at what it derides as “Cold War thinking” that divides the world into fixed camps, promoting its efforts to win friends and also contracts in formerly communist Eastern Europe and elsewhere as part of a “win-win strategy” beneficial to all.
Commenting in Beijing on the decision by European countries to join the new investment bank, a Foreign Ministry spokesman, Hong Lei, said China “wants to work together with all parties to set up a mutually beneficial, professional infrastructure investment and financing platform to contribute to regional infrastructure and economic development.”
While China has risen over the last decades to become the second-largest economy — or even the largest, by some measures — it is still sidelined at the international level by the reluctance of developed nations to relinquish their privileged places.
In one such case, the United States and its partners at the International Monetary Fund agreed in 2010 to give emerging nations an expanded role in the institution. Congress has so far refused to sign on.
Speaking on Tuesday in Washington, Treasury Secretary Jacob J. Lew said it was “urgent that we address prior unmet commitments, which have grown to levels that raise significant questions about U.S. credibility and leadership in the multilateral system.”
Failure to do so, he added, could “result in a loss of U.S. shareholding, at a time when new players are challenging U.S. leadership in the multilateral system.”
By ANDREW HIGGINS and DAVID E. SANGER
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II
Asian Infrastructure Investment Bank: France, Germany and Italy said to join
A senior US diplomat said it was up to individual countries to decide on joining a new China-led lending body, as media reports said France, Germany and Italy have agreed to follow Britain’s lead and join the Asian Infrastructure Investment Bank (AIIB).
A growing number of close allies were ignoring Washington’s pressure to stay out of the institution, the Financial Times reported, in a setback for US foreign policy.
In China the state-owned Xinhua news agency said South Korea, Switzerland and Luxembourg were also considering joining.
The Financial Times, quoting European officials, said the decision by the four countries to become members of the AIIB was a blow for Washington, which has questioned if the new bank will have high standards of governance and environmental and social safeguards.
The bank is also seen as contributing to the spread of China’s “soft power” in the region, possibly at the expense of the United States.
On Tuesday Washington’s top diplomat for east Asia signalled that the concerns about the AIIB remained but the decision on whether to join was up to individual nations.
“Our messaging to the Chinese consistently has been to welcome investment in infrastructure but to seek unmistakable evidence that this bank … takes as its starting point the high watermark of what other multilateral development banks have done in terms of governance,” US regional assistant secretary of state Daniel Russel said in Seoul.
“Every government can make its own decision about whether the way to achieve that goal is by joining before the articles of agreement are clarified or by waiting to see what the evidence looks like as the bank starts to operate.”
The AIIB was launched by Beijing in 2014 to spur investment in Asia in transportation, energy, telecommunications and other infrastructure. It is touted as a potential rival to the western-dominated World Bank and the Asian Development Bank.
China said earlier in 2015 that a total of 26 countries had been included as founder members, mostly from Asia and the Middle East. It plans to finalise the articles of agreement by the end of the year.
Japan, Australia and South Korea remain notable absentees in the region, though the Australian prime minister, Tony Abbott, said at the weekend he would make a final decision on AIIB membership soon.
South Korea has said it is still in discussions with China and other countries about its possible participation.
Japan, China’s main regional rival, has the biggest shareholding in the Asian Development Bank (ADB) along with the United States, and the Manila-based bank is headed by a Japanese, by convention.
Japan is unlikely to join the China-backed bank but the head of the ADB, Takehiko Nakao, told the Nikkei Asian Review that the two institutions were in discussions and could co-operate.
“We’ve begun sharing our experience and know-how,” Nakao was quoted as saying.
“Once the AIIB has actually been established it’s conceivable that we would co-operate.”
China has said nations can join as founder-members of the AIIB until 31 March, and that Japan was included in the invitation.
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III
France & Germany to join China-led $50bn infrastructure bank, along with Italy
The finance ministries of France and Germany have confirmed they’ll join China’s new Asian Infrastructure Investment Bank (AIIB), and Italy is expected to soon. Joining the rival to the US-led World Bank is seen as a setback for the Obama administration.
"The Ministry of Finance confirmed that France would join the AIIB bank," French daily Le Figaro
reported Tuesday.
Germany’s finance ministry said it was joining the bank, the BBC says, although Italy has yet to confirm the earlier report by the Financial Times (FT).
The decision comes after Britain last week became the first Western country to agree to become a founding member of the AIIB, FT reports. The UK government said the decision was in the country’s national interest, but it got a negative reaction from the United States.
The new China-led bank is expected to challenge the Washington-based World Bank, so the US is increasing pressure on its allies not to join the institution. The US’ concern is that the new investment bank might not have high standards of governance and environmental and social safeguards.
The new bank is expected to challenge the Western dominance of the US-led World Bank and IMF in global infrastructure projects, which experts believe will create healthy competition.
“Our messaging to the Chinese consistently has been to welcome investment in infrastructure but to seek unmistakable evidence that this bank… takes as its starting point the high watermark of what other multilateral development banks have done in terms of governance,” US Regional Assistant Secretary of State Daniel Russel said in Seoul, the Financial Times reports.Meanwhile, Chinese officials say the AIIB's operation and governance will be open, transparent, inclusive and responsible.
"It will draw experience from other multilateral development banks and avoid their detours so as to be more cost-effective and efficient,"Chinese Foreign Ministry spokesman Hong Lei was cited as saying by Xinhua news agency. He also added that the bank “will complement existing multilateral development banks and support the infrastructure and economic development in Asia.”
The three major financial institutions – the IMF, the World Bank and the Asia Development Bank will not be able to cope with the tremendous amount of work that needs to be done, investment advisor at Motley Fool David Kuo told RT.
“You shouldn’t politicize something like infrastructure. People have a right to communication and a right to uninterrupted power - these are all parts of the infrastructure projects that many countries are crying out for,” Kuo said. He hopes that there will be a certain amount of competition with the new China-led investment bank. Kuo suggests Germany, France and Italy have much to offer the Asian people, as they can bring expertise as well as money.
South Korea, Switzerland and Luxembourg were also considering joining the Asian Infrastructure Investment Bank, the Financial Times reported.
Australian Prime Minister Tony Abbott said he would make a final decision on AIIB membership soon. South Korea and other countries are in discussions with China over possible participation.
China’s main regional rival Japan said earlier this month that Asian countries including Japan have until March 31 to decide on becoming AIIB founding members.
"They told us they are considering. Whether Japan will join, we do not know. It is Japan's own decision,"Chinese Finance Minister Lou Jiwei said, according to the Xinhua news agency.
Nearly 30 countries have confirmed their participation in the AIIB, which is aimed at helping finance infrastructure projects across Asia and is expected to come into being this year.
The AIIB was formally launched by Chinese President Xi Jinping in 2014, and is expected to become a tool of a broader Chinese push for growing international power and economic significance.
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