UK support for China-backed Asia bank prompts US concern

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UK support for China-backed Asia bank prompts US concern

The US has expressed concern over the UK's bid to become a founding member of a Chinese-backed development bank.

The UK is the first big Western economy to apply for membership of the Asian Infrastructure Investment Bank (AIIB).

The US has raised questions over the bank's commitment to international standards on governance.

"There will be times when we take a different approach," a spokesperson for Prime Minister David Cameron said about the rare rebuke from the US.

The AIIB, which was created in October by 21 countries, led by China, will fund Asian energy, transport and infrastructure projects.

The UK insisted it would demand the bank adhere to strict banking and oversight procedures.

"We think that it's in the UK's national interest," said Mr Cameron's spokesperson.

'Not normal'
Pippa Malmgren, a former economic advisor to US President George W Bush, told the BBC that the public chastisement from the US indicates the move might have come as a surprise.

"It's not normal for the United States to be publically scolding the British," she said, adding that the US's focus on domestic affairs at the moment could have led to the oversight.

Chinese construction site
However, Mr Cameron's spokesperon said UK Chancellor George Osborne did discuss the measure with his US counterpart before announcing the move.

In a statement announcing the UK's intention to join the bank, Mr Osborne said that joining the AIIB at the founding stage would create "an unrivalled opportunity for the UK and Asia to invest and grow together".

The hope is that investment in the bank will give British companies an opportunity to invest in the world's fastest growing markets.

But the US sees the Chinese effort as a ploy to dilute US control of the banking system, and has persuaded regional allies such as Australia, South Korea and Japan to stay out of the bank.

In response to the move, US National Security Council spokesman Patrick Ventrell said: "We believe any new multilateral institution should incorporate the high standards of the World Bank and the regional development banks."

"Based on many discussions, we have concerns about whether the AIIB will meet these high standards, particularly related to governance, and environmental and social safeguards," he added.


Analysis: Linda Yueh, BBC chief business correspondent
It's a tricky task to align oneself with both China and the US. The Americans are apparently unhappy with the UK, while China has welcomed the British application.

It may be a pragmatic move, but it's hard not to offend one side or another.

I suspect this will be the first of many decisions to be taken by countries such as the UK to position themselves between the new economic superpower and the existing one.

The trick will be to come away with economic advantage at minimal political cost. We'll find out if this one will pay off for the UK.

Why does the UK want to join a China-led bank?


'No consultation'
Some 21 nations came together last year to sign a memorandum for the bank's establishment, including Singapore, India and Thailand.

But in November last year, Australia's Prime Minister Tony Abbott offered lukewarm support to the AIIB and said its actions must be transparent.

US President Barack Obama, who met Mr Abbott on the sidelines of a Beijing summit last year, agreed the bank had to be transparent, accountable and truly multilateral.

"Those are the same rules by which the World Bank or IMF (International Monetary Fund) or Asian Development Bank or any other international institution needs to abide by," Mr Obama said at the time.

The Financial Times (FT) newspaper reported on Thursday that US officials had complained about the British move.

The report cited an unnamed senior US administration official as saying the British decision was taken after "virtually no consultation with the US".

"We are wary about a trend toward constant accommodation of China," the newspaper quoted the US official as saying.

However, in response to the UK announcement, World Bank president Jim Yong Kim told a news conference he supported the goals of the AIIB.

"From the perspective simply of the need for more infrastructure spending, there's no doubt that from our perspective, we welcome the entry of the Asian Infrastructure Investment Bank," he said.

Offence
The founding member countries of the AIIB have agreed the basic parameters that would determine the capital structure of the new bank would be relative gross domestic product.

Banking experts have estimated that, if taken at face value, this would give China a 67% shareholding in the new bank.

That's significantly different than the Asia Development Bank, which has a similar structure to the World Bank and has been in existence 1966. There, the majority stakes are controlled by Japan and the US.

Tony Abbott poses with Chinese President Xi Jinping at the Apec summit banquet in Beijing - 10 November 2014
Speaking in Beijing last year, Mr Abbott said Australia would only sign up to "a genuinely multilateral body"
When asked if Britain would seek assurances before it signed on as a member that no one country would be able to unilaterally control the AIIB, economist David Kuo told the BBC that the UK "wouldn't have a great deal of say in the matter".

"He who pays the piper calls the tune," he said. "The UK could try and negotiate a power to veto projects but it is unlikely to get it," Mr Kuo, who is from investment advisers The Motley Fool, said.

The UK was caught between the US on the West and China in the East, he added.

"It hopes that it can exert force from within, rather than put pressure from the outside - but [the UK] is only one voice in a crowd of many."

With regard to the competition the AIIB would give the ADB or World Bank, Mr Kuo said there were plenty of infrastructure projects in Asia that needed funding.

"The existing sources of money can't do everything. So every little helps."
BBC News - UK support for China-backed Asia bank prompts US concern

Notwithstanding, what some want us to believe that the EU is healthy and kicking, it is not. The UK is the best example, where they are ready to sell their souls to stay afloat, so much so they are ready to offend their mentor and protector to include allowing them to strut around as a 'power'!

AIIB will be a challenge to the World Bank and the IMF as also ADB wherein the West will lose their clout over Asian economies and hence lose much of the leverage to remain as the arbiter of world's destiny.

Hard times for the West as Asia rises as the Crouching Tiger. What worries the West is the Hidden Dragon.

 

[AVERAGE INDIAN]

Australia indicates it could join UK, New Zealand as founding member of Asia Infrastructure Investment Bank, which Washington views with suspicion

Support for a Chinese-led development bank is growing despite US opposition, with Australia indicating that it could join the UK and New Zealand as a founding member.

Analysts predicted that others would follow Britain's surprise decision to put its weight behind the new $50bn institution, despite the US making its irritation clear in an unusual public rebuke.

"Now the US's closest ally has been emboldened to do this, there's very little reason for others not to, because the rubicon has been crossed. If you're looking at South Korea and Australia, it's a bit of a no-brainer," said Stephen Spratt, a research fellow at the UK-based Institute of Development Studies .

The Asia Infrastructure Investment Bank (AIIB) , which is designed to provide funds to the Asia-Pacific region, is viewed with suspicion in Washington, where it is seen as a rival to the World Bank and a possible instrument of Chinese soft power in the region.

One US official told the Financial Times: "We are wary about a trend toward constant accommodation of China, which is not the best way to engage a rising power."

But a spokesman for the British prime minister brushed aside US criticism, saying: "There will be times when we take a different approach "¦ We think that it's in the UK's national interest."

Australia's finance minister said the UK and New Zealand decisions reflected improvements in the governance structure China was proposing.

"This is something that will obviously be taken into account by the government over the next few weeks as we continue our dialogue with those people behind the bank," said Joe Hockey, the treasurer.

The US has reportedly lobbied Australia, South Korea and others to steer clear of the new institution. But 28 countries are planning to participate, with Indonesia also among those joining early enthusiasts such as India, Pakistan and Singapore. The deadline to become a founding member is the end of this month.

A Chinese foreign ministry spokesman, Hong Lei, said Beijing welcomed the UK decision, adding that the AIIB would complement existing development banks.

Zhao Changhui, a senior economist with the Export-Import Bank of China , said China had proposed the AIIB because it understood the importance of infrastructure in light of its own development; it had a huge surplus while many countries in the region lacked the funds they needed for infrastructure; and it knew that restoring the health of the global economy would require large scale cross-border trade and investment.

But he added: "The founding of AIIB is a challenge to the US's economical and political dominance. It's also a challenge to the establishments controlled by the US, such as the World Bank."

Some have suggested that AIIB is designed to compete with the US- and Japan-dominated Asia Development Bank (ADB).

"China has tonnes of dollars in reserves and this seems like a good use," said Stephany Griffith-Jones , an expert on development banks at Columbia University in New York.

"There's an estimated $1tn of need in infrastructure and sustainable development [in emerging and developing countries]. In a way, the more, the better "¦ If countries are not happy [with the AIIB], they can still go to the World Bank or ADB."

Among the unmet needs are an estimated 1.4 billion people without access to electricity, the billion without clean drinking water and 2.6 billion without access to sanitation.

Griffith-Jones added that British involvement would also allow the UK to help shape the institution – but given that China is providing most of the cash, it is unclear how much influence other countries will wield. She suggested that in terms of governance it might have been better if China were not providing quite so much of the funding.

Beijing is also a major player in the New Development Bank being set up by the Brics nations – Brazil, Russia, India, China and South Africa – and is providing $40bn for the new Silk Road Fund to improve connectivity across Asia.

The president of the World Bank, Jim Yong Kim, told a news conference: "From the perspective simply of the need for more infrastructure spending, there's no doubt that from our perspective, we welcome the entry of the Asian Infrastructure Investment Bank."

The White House national security council said the US agreed there was a pressing need to enhance infrastructure investment, but had concerns about whether the AIIB would meet "the high standards, particularly related to governance, and environmental and social safeguards" of the World Bank and regional development banks.

Spratt said: "People have been criticising the World Bank on exactly the same issues for decades and through all of that flak there's been significant learning.

"The new multilateral organisations do have a lot to learn from the World Bank and regional development banks on the environmental and social side – but [the existing institutions] probably have quite a lot to learn from places like China in terms of how to deal with rapid infrastructure building and so on."

Support for China-led development bank grows despite US opposition | World news | The Guardian