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06/12/2016

US frets as major EU powers join new China-led ‘World Bank’

Development Policy

US frets as major EU powers join new China-led ‘World Bank’

China is investing heavily in the European countries worst hit by the economic crisis. [ThomasPieterse/Flickr]

The United States has urged countries to think twice before signing up to a new China-led Asian development bank that Washington sees as a rival to the World Bank, after Germany, France and Italy followed Britain in saying they would join.

Berlin, Paris and Rome said in a joint statement Tuesday (17 March) that they want “to become founding members of the Asian Infrastructure Investment Bank (AIIB)”.

German Finance Minister Wolfgang Schäuble announced at a joint news conference with visiting Chinese Vice Premier Ma Kai that Germany, Europe’s biggest economy and a major trade partner of Beijing, would be a founding member of the AIIB.

The concerted move by US allies to participate in Beijing’s flagship economic outreach project is a diplomatic blow to the United States and its efforts to counter the fast-growing economic and diplomatic influence of China.

Europe’s participation reflects the eagerness to partner with China’s economy, the world’s second largest, and comes amid prickly trade negotiations between Brussels and Washington.

Frustration at slow IMF reforms

European Union and Asian governments are frustrated that the US Congress has held up a reform of voting rights in the International Monetary Fund that would give China and other emerging powers more say in global economic governance.

Washington insists it has not actively discouraged countries from joining the new bank, but it has questioned whether the Asian Infrastructure Investment Bank (AIIB) will have sufficient standards of governance and environmental and social safeguards.

“I hope before the final commitments are made anyone who lends their name to this organisation will make sure that the governance is appropriate,” Treasury Secretary Jack Lew told U.S. lawmakers.

In a joint statement, the foreign and finance ministers of Germany, France and Italy appeared to brush aside these concerns saying they would work to ensure the new institution “follows the best standards and practices in terms of governance, safeguards, debt and procurement policies”.

Chinese media take victory lap

Chinese state media took a victory lap on Wednesday (18 March), gloating over the decision.

“Welcome Germany! Welcome France! Welcome Italy!” said a commentary published by the government’s Xinhua news agency, describing the United States as “petulant and cynical”.

Calling the triple decision a “brave yet rational move”, Xinhua said it contained a stark message for the Americans.

Washington was “trying to forge an anti-AIIB front” among its allies, the commentary said, but “sour grapes over the AIIB makes America look isolated and hypocritical”.

“As more and more Western countries mull over joining the China-led lending body, the US will feel lonelier if it continues to be a holdout,” it added.

“So Washington, what are you waiting for?”

China touts the $50 billion institution as a tool for financing regional development alongside other lenders such as the World Bank and the Japan-led, Manila-based Asian Development Bank (ADB).

The state-run China Daily insisted in an editorial that even though the new bank was proposed by and headquartered in Beijing, that “does not mean it is Chinese, or an instrument of Chinese soft power”.

It sought to take the moral high ground over the latest developments.

‘US obstructionism’

“US obstructionism has been less than effective this time because it has failed to see that Washington and Beijing have no reason to stand against each other on a matter such as this,” it added.

“Washington has been urging Beijing to act like a ‘responsible’ power. The AIIB is Beijing’s latest answer to that call.”

The Global Times newspaper, affiliated with Communist Party mouthpiece People’s Daily, portrayed the European decisions as a clear victory for Beijing.

“Many analysts believe that the current situation proves the US lacks the ability to contain a rising China,” it said in an editorial.

“As China has won the race around the AIIB, it has also gained some important rights for the future.”

But it also warned against carrying anti-Washington taunts too far.

“An approach that sets the US as an adversary is contrary to China’s doctrine.”

Background

The World Bank is a United Nations financial institution that provides loans to developing countries for capital programs.

The World Bank's official goal is the reduction of poverty and the achievement of the UN's Millennium Development Goals targets for 2015.

According to its internal rules, all decisions by the World Bank must be guided by a commitment to the promotion of foreign investment and international trade and to the facilitation of capital investment.