Support for a Chinese-led development bank is growing despite US opposition, with Australia indicating that it could join the UK and New Zealand as a founding member.
Analysts predicted that others would follow Britain’s surprise decision to put its weight behind the new $50bn ($34bn) institution, despite the US making its irritation clear in an unusual public rebuke.
“Now the US’s closest ally has been emboldened to do this, there’s very little reason for others not to, because the rubicon has been crossed. If you’re looking at South Korea and Australia, it’s a bit of a no-brainer,” said Stephen Spratt, a research fellow at the UK-based Institute of Development Studies .
The Asia Infrastructure Investment Bank (AIIB) , which is designed to provide funds to the Asia-Pacific region, is viewed with suspicion in Washington, where it is seen as a rival to the World Bank and a possible instrument of Chinese soft power in the region.
One US official told the Financial Times: “We are wary about a trend toward constant accommodation of China, which is not the best way to engage a rising power.”
But a spokesman for the British prime minister brushed aside US criticism, telling reporters: “There will be times when we take a different approach … We think that it’s in the UK’s national interest.”
In Australia, the country’s finance minister said the UK and New Zealand decisions reflected improvements in the governance structure China was proposing.
“This is something that will obviously be taken into account by the government over the next few weeks as we continue our dialogue with those people behind the bank,” Treasurer Joe Hockey said.
The US has reportedly lobbied Australia, South Korea and others to steer clear of the new institution. But 28 countries are planning to participate, with Indonesia also among those joining early enthusiasts such as India, Pakistan and Singapore. The deadline to become a founding member is the end of this month.
A Chinese foreign ministry spokesman, Hong Lei, said Beijing welcomed the UK decision, adding that the AIIB would complement existing development banks.
Zhao Changhui, a senior economist with the Export-Import Bank of China , said China proposed the AIIB because it understood the importance of infrastructure in light of its own development; it had a huge surplus while many countries in the region lacked the funds they needed for infrastructure; and it knew that restoring the health of the global economy would require large scale crossborder trade and investment.
But he added: “The founding of AIIB is a challenge to the US’s economical and political dominance. It’s also a challenge to the establishments controlled by the US, such as the World Bank.”
Some have suggested that AIIB is designed to compete with the US- and Japan-dominated Asia Development Bank (ADB).
“China has tonnes of dollars in reserves and this seems like a good use,” said Stephany Griffith-Jones, an expert on development banks at Columbia University in New York.
“There’s an estimated $1tn of need in infrastructure and sustainable development [in emerging and developing countries]. In a way, the more, the better … If countries are not happy [with the AIIB], they can still go to the World Bank or ADB.”
Among the unmet needs are an estimated 1.4 billion people without access to electricity, the billion without clean drinking water and 2.6 billion without access to sanitation.
Griffith-Jones added that British involvement would also allow the UK to help shape the institution – tbut given that China is providing most of the cash, it is unclear how much influence other countries will wield. She suggested that in terms of governance it might have been better if China were not providing quite so much of the funding.
Beijing is also a major player in the New Development Bank being set up by the BRICS nations – Brazil, Russia, India, China and South Africa – and is providing $40bn forthe new Silk Road Fund to improve connectivity across Asia.
The president of the World Bank, Jim Yong Kim, told a news conference: “From the perspective simply of the need for more infrastructure spending, there’s no doubt that from our perspective, we welcome the entry of the Asian Infrastructure Investment Bank.”
The White House national security council said the US agreed there was a pressing need to enhance infrastructure investment, but had concerns about whether the AIIB would meet “the high standards, particularly related to governance, and environmental and social safeguards” of the World Bank and regional development banks.
Spratt said: “People have been criticising the World Bank on exactly the same issues for decades and through all of that flak there’s been significant learning.
“The new multilateral organisations do have a lot to learn from the World Bank and regional development banks on the environmental and social side – but [the existing institutions] probably have quite a lot to learn from places like China in terms of how to deal with rapid infrastructure building and so on.”