US Isolated as China Gains European Allies for Development Bank

A file photo shows Chinese Finance Minister Lou Jiwei (L) giving a speech with the guests of the signing ceremony of the Asian Infrastructure Investment Bank in the Great Hall of the People in Beijing, China, on the 24th of October in 2014. The EU's four largest economies have backed the establishment of a Beijing-sponsored development bank, giving a triumph to China over US opposition. Photo: Takaki Yajima/EPA

By Lars Nicolaysen and Andreas Landwehr

BEIJING (DPA) — The United States appears to have manoeuvred itself into an isolated corner by opposing a Chinese-backed development bank that has now received support not only from France, Germany and Italy, but also from long-time US ally Britain.

The four largest members of the European Union have made clear their intention to be founding members of the Asian Infrastructure Investment Bank (AIIB), marking a major diplomatic coup for Beijing, which originated the idea.

Many details have yet to be ironed out, but the Europeans saw clear advantage of being in at the launch, rather than in the excluded and isolated position the US now finds itself in.

There is no doubt of the need for infrastructure investment in Asia, nor of China's position as a powerful investor, given that it holds the largest foreign exchange reserves in the world.

"The more countries that participate, the better," is the view expressed by Martin Schulz, the German politician who presides over the European Parliament, during a visit to Beijing.

The aim is for the development bank to invest in roads, ports, airports, energy provision and telecommunications in Asia, and European companies believe that participation in the bank will help open doors to business opportunities.

The initiative is part of a Chinese offensive, to make an "Asian dream" come true through the development of economic corridors, as President Xi Jinping has remarked in reference to his "Chinese dream" of a rejuvenated China.

China is to invest around 50 billion dollars in the new bank, which could in the end have assets of 100 billion dollars with the contributions of other members.

The US is opposed, seeing the AIIB as competing with the World Bank and the Asian Development Bank, and expressing concerns on whether its governance will be in line with established practice.

By contrast, China sees the current international financial system as dominated globally by the US and regionally by Japan.

Beijing is also frustrated at Washington's delays in implementing long-decided reforms to the International Monetary Fund that would give China and other developing countries a greater say.

Even though World Bank President Jim Yong Kim – a US appointee – publicly welcomed the new initiative, a White House official expressed the Obama administration's opposition.

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

The background is the contest between the US and China for influence in Asia and in establishing a new world order.

"Many analysts believe that the current situation proves the US lacks the ability to contain a rising China," according to a comment in the Global Times, an organ of the official Chinese People's Daily.

China's success in wooing key European and Asian nations means that it "has also gained some important rights for the future," it said.

Beijing would not turn the issues around the AIIB into a contest with the US, it said, as "an approach that sets the US as an adversary is contrary to China's doctrine." The newspaper expressed the hope that the US would a member of the new development bank one day.

Some Western analysts have also criticised the US approach. Attempts to undermine an institution that could improve the lives of Asians are "short-sighted," said Tom Miller of the independent Gavekal Dragonomics research group in Beijing.

But he also cautioned that Beijing had to reconsider its policies of providing cash to corrupt governments, citing cooperation with Zambia, Liberia, South Sudan and Myanmar as evidence of a policy that had backfired.

Chinese Foreign Ministry spokesman Hong Lei insisted the AIIB would learn from the "sound practice" of existing development banks.

Elizabeth Economy of the US Council on Foreign Relations think tank said: "If the AIIB does not do a better job than China's own development banks, it will be a stain not only on Beijing but also on all the other countries that are participating."

But if it did maintain the standards of the World Bank and ADB, "it will be a welcome addition to the world of development financing," she said.