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France, Germany and Italy Say They’ll Join China-Led Bank France, Germany and Italy Say They’ll Join China-Led Bank in Rebuff to U.S.
(about 3 hours later)
PARIS — In a challenge to the American-led world financial order, some of the United States’ crucial European allies said on Tuesday that they would join a new development bank for Asia that is largely funded by China and that Washington views as a rival to the World Bank. BRUSSELS — Tilting toward China in a blow to Washington’s domination of international financial institutions, Europe’s biggest economies have declared their desire to become founding members of a new Chinese-led Asian investment bank that the United States views as rival to existing lenders set up at the height of American power following World War II.
The French, German and Italian governments, in a joint statement, announced “their intention to become prospective founding members of the Asian Infrastructure Investment Bank,” known as the A.I.I.B. The announcement on Tuesday by Germany, France and Italy that they would follow Britain in breaking ranks with Washington and join the Chinese-led venture delivered a stinging rebuff to Washington from some of its closest allies.
The three nations are following the lead of Prime Minister David Cameron’s Conservative-led government in Britain, which last week announced its own decision to join. It also helped efforts by Xi Jinping, China’s president and Communist Party chief, to reshape the global balance of power and the institutions that underpin it.
The three governments said that the bank, working with existing institutions, “could play an important role to provide funds for addressing the large infrastructure needs in Asia,” and that it would “promote economic and social development in the region and contribute to global growth.” China has worked steadily for years to break what it regards as an unfair grip by the United States on global political and financial institutions and to set up rival structures more responsive to Chinese demands for a voice in international affairs commensurate with its status as the world’s second-biggest economy.
The bank was initially proposed by President Xi Jinping of China with a mission of helping to fund infrastructure projects in poor Asian countries, something the World Bank and the Asian Development Bank already do. China has pledged a large part of the initial $50 billion of capital, and Beijing hopes the institution will contribute to the expansion of its power base in Asia, even as its growing might, economic and military, reshapes the political dynamics of the region. “China is shaping an alternative universe and getting America’s European allies to support it,” Theresa Fallon, a China expert at the European Institute for Asian Studies, a Brussels research group, said. “They are entering the big league now and think that with lending comes power.”
Washington had been lobbying against the participation of its allies, fearing that the rise of the Chinese-led lender would erode the institutions, such as the World Bank and the International Monetary Fund, that were created to shepherd the world economy after World War II under American leadership. The United States lobbied its allies not to join the new China-based bank, the Asian Infrastructure Investment Bank, or A.I.I.B. The U.S. sees the rival bank as duplicating and perhaps undermining the role of the Washington-based World Bank and International Monetary Fund, and also the Asian Development Bank, which has its headquarters in the Philippines, a close American ally at odds with Beijing over the South China Sea.
In their statement on Tuesday, the three newest European members said they were “keen to work with the A.I.I.B. founding members to establish an institution that follows the best standards and practices in terms of governance, safeguards, debt and procurement policies.” Ms. Fallon said she expected that South Korea, another close American ally, to also sign up for the new Chinese bank and that “in the end only Japan won’t say yes.” China, she said, is offering a “whole economic and political package that provides an alternative to the creaking international structures shaped by the U.S. in the postwar period.”
Before the announcement on Tuesday, the bank had more than 25 members, almost all from developing countries in Asia and the Middle East. Australia, Japan and South Korea have so far refused to join, but the entry of influential European countries could encourage other allies to participate, analysts have said. Western officials and anticorruption groups have criticized China's lending practices, particularly for infrastructure projects in Africa involving Chinese companies, saying they foster corruption and undercut efforts by the World Bank and I.M.F. to link loans to demands for good governance. China rejects such complaints, pointing to its success in building roads and railway lines quickly in countries bereft of Western capital.
When asked to comment on the countries’ statement, Hong Lei, the Chinese Foreign Ministry spokesman, said he welcomed their willingness to become founding members. In an apparent reference to such concerns, France, Germany and Italy, in a statement declaring their eagerness to join the Asian Infrastructure Investment Bank, said they were “keen to work with the A.I.I.B. founding members to establish an institution that follows the best standards and practices in terms of governance, safeguards, debt and procurement policies.”
“The active participation of countries both inside and outside of the region will make the Asian Infrastructure Investment Bank more broadly representative,” he said. Martin Schulz, the president of the European Parliament, sounded the same cautionary note in remarks on Tuesday during a visit to Beijing. He welcomed the three countries’ decision to join and urged other members of the 28-nation European Union to follow. But he stressed that the new bank must not deviate from established lending rules.
“China wants to work together with all parties to set up a mutually beneficial, professional infrastructure investment and financing platform to contribute to regional infrastructure and economic development,” Mr. Hong said in Beijing. “Such new organizations must answer to the requirements of international standards,” Mr. Schulz said. “That is quite important.”
While the Chinese economy has grown over the past decades to become the second-largest in the world, after that of the United States, it is still sidelined at the international level by the reluctance of developed nations to relinquish their privileged places. In one case, the United States and its partners at the International Monetary Fund agreed in 2010 to give emerging nations like China an expanded role in the institution. The United States Congress has so far refused to sign on. Europe’s defiance of pressure from Washington over the Chinese-led bank does not signal a major rupture, according to analysts. But, they say, it does add friction at a time when the marquee project of trans-Atlantic solidarity, a proposed free trade deal, has lost much of its momentum in face of fierce hostility from European politicians and activists opposed to American-style capitalism.
Speaking in Washington on Tuesday about the importance of the I.M.F. and the World Bank and of American engagement in those institutions, Treasury Secretary Jacob J. Lew said it was “urgent that we address prior unmet commitments, which have grown to levels that raise significant questions about U.S. credibility and leadership in the multilateral system.” While heavily dependent on the United States for security, especially since the crisis in Ukraine erupted last year, European countries, Ms. Fallon said, “tend to take the U.S. for granted” while “China is very good at lobbying them and promising them things.” But she said Washington had been unwise to expend diplomatic and political capital over the Chinese-led bank when it was clear that even staunch allies like Britain wanted to join it.
The new bank was initially proposed by President Xi to help fund infrastructure projects in poor Asian countries, something the World Bank and the Asian Development Bank already do. China has pledged a large part of the initial $50 billion of capital, and Beijing hopes the institution will contribute to the expansion of its power base in Asia, even as its growing might, economic and military, reshapes the political dynamics of the region and beyond.
Since taking over leadership of the Chinese Communist Party in 2012, Mr. Xi has steadily expanded a longstanding Chinese policy of seeking political influence through lending and investment, putting his weight behind an ambitious plan to build maritime and land links between China and Europe that span the Eurasian continent. China began the plan after a 2011 call by Hillary Rodham Clinton, who was then secretary of state, for a “new silk road” to help Afghanistan’s economy.
Miffed that Washington had appropriated a term China considers an inseparable part of its own heritage, Mr. Xi in 2013 put forward his own “silk road” plan, initially called the “Silk Road Economic Belt” but, since expanded and shorn of any echoes of the American proposal, is now known in China as the “Belt and Road” scheme.
China’s first signaled its desire to set up its own alternative structures as its economy took off in the 1990s. In 1996, in Shanghai, it established a security grouping comprising China, Russia, Kazakhstan, Kyrgyzstan and Tajikistan.
The body, since joined by Uzbekistan and known as the Shanghai Cooperation Council, has Chinese and Russian as its working language instead of English, the lingua franca of most international organizations set up under the auspices of the United States.
Under Mr. Xi, Beijing has also put itself at the center of a new informal grouping of 16 east and central European countries, promising investment to the region in a push for economic and political influence that has raised eyebrows in Brussels, the headquarters of the European Union.
Some see the venture as an attempt to divide the European Union and circumvent the bloc’s rigid rules and standards. Eleven of the nations courted by China in east and Central Europe belong to the union.
But China has voiced annoyance at what it derides as “Cold War thinking” that divides the world into fixed camps, promoting its efforts to win friends and also contracts in formerly communist Eastern Europe and elsewhere as part of a “win-win strategy” beneficial to all.
Commenting in Beijing on the decision by European countries to join the new investment bank, a Foreign Ministry spokesman, Hong Lei, said China “wants to work together with all parties to set up a mutually beneficial, professional infrastructure investment and financing platform to contribute to regional infrastructure and economic development.”
While China has risen over the last decades to become the second-largest economy — or even the largest, by some measures — it is still sidelined at the international level by the reluctance of developed nations to relinquish their privileged places.
In one such case, the United States and its partners at the International Monetary Fund agreed in 2010 to give emerging nations an expanded role in the institution. Congress has so far refused to sign on.
Speaking in Washington on Tuesday, Treasury Secretary Jacob J. Lew said it was “urgent that we address prior unmet commitments, which have grown to levels that raise significant questions about U.S. credibility and leadership in the multilateral system.”
Failure to do so, he added, could “result in a loss of U.S. shareholding, at a time when new players are challenging U.S. leadership in the multilateral system.”Failure to do so, he added, could “result in a loss of U.S. shareholding, at a time when new players are challenging U.S. leadership in the multilateral system.”