France, Germany, Italy to join China-led $50bn infrastructure bank
France, Germany and Italy have confirmed they’ll join China’s new Asian Infrastructure Investment Bank (AIIB). Participation in the rival to the US-led World Bank is seen as a setback for the Obama administration.
The three European countries on Tuesday confirmed in a statement they intend „to become founding members of the Asian Infrastructure Investment Bank,” according to AFP.
„We want to bring our long experience… to help the bank build a solid reputation,” said German Finance Minister Wolfgang Schaeuble, speaking also for Italy and France at a joint press conference with Chinese Deputy-Premier Ma Kai on Tuesday in Berlin. He added that the three countries want to make a contribution to the positive development of the Asian economy, in which German companies were actively taking part.
Chinese Foreign Ministry spokesman Hong Lei welcomed the decision, saying „the AIIB is an open and inclusive multilateral investment institution.”
„Participation by countries outside the region will intensify the extensive representatives of the AIIB,” he added.
The decision of the three European countries 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.
http://rt.com/business/241365-china-bank-eu-usa/
The ‘Indispensable Nation’? US Partners Hop in Bed with China
Cracks in America’s global hegemony clearly visible as junior US partners back the China-led Asian Infrastructure Investment Bank
It remains uncertain whether the Chinese-led AIIB initiative will complement or compete with the World Bank and Asian Development Bank (ADB) to meet Asia’s capital investment needs. What is clear, however, is China’s willingness to challenge America’s long-established strategy of institutionalising power in a rules-based order.
America’s stated concerns with the AIIB are that it replicates existing global financial institutions, but lacks their transparency and accountability standards. Pressuring key allies to reject the AIIB has failed, with the British Government announcing its intention to be the ‘first major Western country’ to join and influence the bank’s design and development. The US has accused the UK of ‘constant accommodation’ of China over a range of issues and ‘virtually no consultation with the US’ in this case. Australia nevertheless looks set to follow the UK decision as it moves towards signing a free trade deal later this year.
American disquiet stems from more fundamental concerns than AIIB governance, and goes to the heart of its future regional and international engagement.
A defining feature of American global strategy since 1945 has been building the architecture of global governance, including the Bretton Woods financial institutions, to facilitate its own international power. An example is the World Bank, which continues to weight the US vote heaviest at 16.42%, while China’s vote is weighted third at only 4.91%. Such disparities are replicated in the Asian Development Bank and IMF.
China resents the rigidity in global financial institutions for distorting its growing economic significance, which has now become a basis for challenging the legitimacy of the American-led international order. A recurrent theme of US regional policy is to strengthen a ‘rules-based order’ and enforce Chinese compliance with it. The case of the AIIB shows that China now seeks to define this order for itself, with the battle for influence in Asia increasingly fought through rules and institutions.
The AIIB choice encapsulates the dilemma facing the US-Australian alliance as a new Sino-US equilibrium is contested in coming years and decades.
In a recent Lowy Institute Analysis. Alan Dupont identified Australian defence strategy in equivalent terms, but warned that: ‘Maintaining and propagating a rules-based liberal, democratic order will be far more difficult in a world where Pax Americana is fraying at the edges.’ There could be no clearer demonstration than America’s closest allies supporting a key element of a Sino-regional financial order at the expense of US leadership.
A US tactic for influencing international institutions has been to remain outside their formal constraints to increase its ability to develop them in line with US interests – what former US State Department legal advisor Harold Koh described as a ‘flying buttress mentality.’ A US official criticised the UK decision to sign up too readily on the basis that ‘large economies can have more influence by staying on the outside and trying to shape the standards it adopts.’
This approach presumes that other countries will recognise US support as indispensible – whether as a member, or through its external backing. The case of the AIIB reveals however that the perception of US power in Asia has receded such that its consent is no longer necessary to the success of a major regional institution. Choosing to conspicuously obstruct the AIIB has served only to accentuate the weakness of America’s status as arbiter of regional order.
For the US to maximise its leverage through a rules-based order it must accept the evolution of global finance to encompass the reality of growing Chinese power. Importantly, China continues to engage with existing global financial institutions even as it fosters parallel alternatives. The 2015 US National Security Strategy recognised the need to reform the World Bank and IMF to ‘make them more effective and representative.’ No such reforms have been forthcoming however, with the US Congress refusing to relinquish power that was crystallised in a previous era.
American failure to reform global architecture cannot be repackaged as an obligation on Australia to uphold obsolete rules, and thereby risk financial and political isolation in its own region. The ‘switch’ in Australian Government policy probably owes more to the fraught nature of the choice than any supposed improvement in the Chinese proposal.
The lesson is that there are limits to prolonging US power through international law and institutions. If Washington fails to adapt it will ultimately be China demanding fidelity to its rules-based order.
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