The Obama administration, to its embarrassment, has been spurned by Western allies flocking to a China-led Asian development bank, defying White House pleas to stand back. In a surprise announcement last week, Britain said it would become the first Western nation to join the Asian Infrastructure Investment Bank, a potential rival to the American-led World Bank.
On Tuesday, Germany, France and Italy announced that they would also join the bank, and Australia and South Korea are expected to follow.
Their decisions were proof that even Europe’s biggest economies, founders with the United States of the postwar global economic order, cannot resist the newest gold rush — into China, the world’s second-largest economy and a major export and investment market.
Funding the new bank is another effort by China to become an even more dominant influence in the region. The Americans worry that China could establish a parallel economic order that could weaken the World Bank and its affiliates and erode already strained international lending standards of transparency, creditworthiness, environmental sustainability, and concern for labor and human rights that took decades to put in place.
The British decision, in particular, is an affront to the United States. Britain has said the decision is in its national interest. With Russian money drying up because of Ukraine-related sanctions and a drop in oil revenue, the chancellor of the Exchequer, George Osborne, has courted Chinese investment in nuclear power plants in Britain. He said the City of London, a world financial center known for loose regulations, would become the base for the first clearinghouse for the yuan outside Asia, The Guardian reported.
By rushing to partner with China, which has one of the most opaque, most state-driven and least regulated economies, Prime Minister David Cameron of Britain may hope to resist an American push for controls on speculative trading and preserve London’s freewheeling ways despite the risk to global financial stability. He faces re-election on May 7 and is making economic growth the centerpiece of the campaign.
There is also no doubt about Asia’s need for more roads, bridges and other projects that the new bank is intended to underwrite. China has the world’s largest foreign reserves (an estimated $4 trillion) and is eager to invest it overseas. However, Washington and its allies should have handled the challenge better.
In significant ways, this is a problem of America’s own making. The United States has urged China to exercise more leadership, but the top posts at the International Monetary Fund, the World Bank and the Asian Development Bank have been restricted to Europeans, Americans and the Japanese. Congress bears considerable blame for refusing to pass legislation to shift voting power more fairly among I.M.F. member states, including China. China’s move to create the new development bank is part of the price being paid for that obstruction.
President Obama has also mishandled the issue. The American position of opposing the new bank until China accepts certain principles of governance and lending would have been more effective if the administration had worked with its allies to produce a set of common principles that could then be negotiated with the Chinese.
Instead, it seems to have no coherent plan for dealing with the new bank. American and European officials say they are still pushing China to adopt international standards, with Britain and Germany demanding senior positions on the bank’s board. But achieving that goal will most likely be harder when the Western allies are in a free-for-all dash to join China’s new venture.
