China bank wins favour amid US fear

China received critical support from the International Monetary Fund and the Asian Development Bank yesterday for its plans to create of a new Chinese-led multilateral lender, adding to a growing wave of endorsements that worry the United States.

Leaders of the IMF and ADB, speaking at a conference in Beijing, said they look forward to continuing discussions with the Asian Infrastructure Investment Bank (AIIB), a $50 billion lender which will be funded mainly by China.

But the AIIB, which was first tendered by China in 2013 to finance the construction of roads, ports and other critical infrastructure, is seen by some as a potential rival to long-established international financial institutions, and a backdoor way for China to increase its strategic clout.

Some see it as an attempt to erode US and Japanese influence over institutions such as the World Bank and Asian Development Bank.

The US, concerned about China’s growing diplomatic clout, has urged countries to think twice about signing up. It has even questioned whether the AIIB will have sufficient governance standards and environmental and social safeguards in place.

But some 27 countries have already signed up to participate in the AIIB, as it will provide project loans to developing countries, China’s Finance Minister Lou Jiwei said on Saturday. An additional 21 governments, including those of India, New Zealand and Thailand, have expressed interest in membership.

Early opposition to the AIIB from some Western countries partially dissolved after the UK pledged to join this month, with France, Germany and Italy swiftly following suit. But the US and its close allies Japan, South Korea and Australia have refrained from the process.

Meanwhile, China’s finance minister said the proposed Chinese-led Asian regional bank will complement, rather than compete with, established international lenders such as the World Bank, state media reported.

The AIIB is slated to begin operations by the end of this year.

Iran has postponed nuclear talks, Benjamin Netanyahu has won another term as prime minister of Israel and Russia has used Cam Ranh Bay to refuel planes to spy against the United States. These are embarrassments — but minor ones — for US President Barack Obama compared to the humiliation he is currently suffering from China. Washington’s closest friends are running from Mr Obama’s pleas and ignoring his warnings in order to join Beijing’s fledgling Asian Infrastructure Investment Bank (AIIB).

Almost every step the US has pursued on the AIIB has been negative. It has fought the idea of the bank, Beijing’s leadership and the format of the project. Mr Obama and his administration claim the bank will be unstable, its tactics not dependable and its leadership unstable. Unfortunately for him, few have taken notice. Many countries have simply signed on to the Chinese-led AIIB. Others have paid their respects to Mr Obama, and apologised before leaving him in the lurch. At press time, Japan was making preparations to join about three other countries in signing up for the AIIB.

The Chinese-led investment bank grew out of talks initiated in October 2013 during a visit to Indonesia by Chinese President Xi Jinping. Obviously, Beijing has wasted little time in moving the project from concept to reality. Last week, with 32 countries on board, and others about to sign up, the official Chinese news agency carried an exuberant editorial. It featured what China called “a petulant and cynical Washington”.

That is not unfair. Mr Obama’s administration proclaimed even before it took office in 2009 that it would turn America’s attention towards Asia. Previous governments under Mr Obama’s successors had claimed the same. But Mr Obama has done about the same as former presidents Bush and Clinton. In many ways he has done less. Sending US officials to Thailand to excoriate the military regime has predictably backfired. Both the president and those officials would have known that would happen, if only they had turned Washington’s attention to Asia as they promised.

The Obama administration has treated the AIIB project in much the same way. Instead of honestly confronting its concerns, it has tried to undermine. Everyone knows the US fears losing the clout it has held during nearly 70 years of the World Bank and the International Monetary Fund.

But rather than address this serious subject, Mr Obama and his underlings have chosen to argue there might be corruption, or China might use the AIIB to help its own diplomatic goals — as if America has never done such a thing with the World Bank.

Mr Obama is correct. Beijing might use the AIIB with ill intentions, it might manipulate its methods and means. This, of course, is exactly why the US should have been an early joiner at the AIIB application line, to keep an active eye on such possibilities. So Britain, France, Germany, Australia, South Korea and now Japan will help to guide and guard this new development bank, while the irritated US government watches.

It remains to be seen if the AIIB can live up to its goal of becoming the major Asian player in financing development. Certainly it could; China has cash resources most countries can only dream of. It will put up seed money of US$50 billion — half of the set-up fund. India, to be called a founding member, will put up much of the rest.

The US may be sceptical, and its scepticism could be well grounded. Unfortunately it has chosen to remain aloof rather than to participate.

Almost every step the US has pursued on the bank has been negative.