France, Germany and Italy on Tuesday joined the U.K. in signing onto the Chinese-led Asian Infrastructure Investment Bank (AIIB), brushing off Washington's reservations about the burgeoning institution and leaving the U.S. on the sidelines of yet another Chinese challenge to the global financial architecture.
Tuesday’s decision followed a surprise announcement by the U.K. last week that it would join the $50 billion development bank, which is meant as a small-scale complement to the Western-dominated World Bank. Analysts now believe Washington’s efforts to keep heavyweight allies outside the bank — a stance it argued would give them leverage to bargain for greater influence and higher lending standards, like those of the World Bank — have all but collapsed.
“I think Europe is suggesting that this doesn’t make any sense for them," said Peter Hakim, the president emeritus of the think tank Inter-American Dialogue. “They're saying, 'We’re borrowing from China, it’s already a major trading partner, so why shouldn’t we join with them on this?'”
The AIIB is designed as another complementary fund to the World Bank, akin to the Japanese-led Asian Development Bank, that could help patch the massive infrastructure gaps in rapidly growing Asia. The World Bank cannot come close to providing the estimated $700 billion the continent will require annually to build roads, expand water supply and wire vast swathes of land for Internet access. Hundreds of billions more would be needed to remedy poverty and meet ambitious emissions-reduction goals.
But the bank is also the latest in a spate of development banks launched by emerging powers like China who are seeking to spread their soft power by doling out sought-after loans and who resent the outsize — and, many say, outdated — influence that the U.S. and Europe still have in the world’s pre-eminent lending institutions: the World Bank and International Monetary Fund (IMF).
Leaders of emerging economies like the BRICS — Brazil, Russia, China, India and South Africa — have a litany of grievances against these institutions: that their loans impose austerity measures which cripple long-term growth and mold developing economies into necolonial commodities markets for the West; and that the U.S. and Europe have lost all credibility since the global financial crisis of 2008, when economic turmoil and imprudent financial planning in the West sent shock waves through the less industrialized world.
Barack Obama’s administration has recognized that the world's second-largest economy deserves proportionate influence in the so-called Bretton Woods institutions, which are named after the New Hampshire town where they were set up in 1944. The U.S. and other IMF stakeholders struck a landmark deal in 2010 that apportions more voting power to countries like China while preserving the American veto. But U.S. lawmakers, who have final say on the matter, have thus far refused to rubber-stamp the deal.
“New players are challenging U.S. leadership in the multilateral system,” Treasury Secretary Jack Lew warned Congress on Tuesday, in a prepared statement on IMF reform that happened to coincide with the AIIB developments. "Our international credibility and influence are being threatened.”
Hakim agreed. “In order for the U.S. to retain its influence, it has to begin to yield and modernize these institutions. They have to be more representative of the world in 2015, rather than the 1940s,” he said.
The AIIB has taken on added significance in Washington as a focal point of the burgeoning U.S.-China contest for influence in Asia — Obama’s so-called pivot east. Prior to this week, the bank had already managed to secure membership for most Asian countries, with only China’s foremost regional rival Japan and the staunchest American allies in the region, South Korea and Australia, holding out. But experts now believe the latter two, who count China as their biggest trading partners, are likely to follow Europe’s lead.
Analysts believe the decision to join the bank signals that the U.K., and now France, Germany and Italy, are more interested in planting their flags in the burgeoning economic powerhouse of Beijing than they are in taking sides in this geopolitical rift.
“There will be times when we take a different approach,” a spokesman for Prime Minister David Cameron told reporters, downplaying any affront to Washington. “We think that it’s in the U.K.’s national interest.”
The Treasury Department did not respond to Al Jazeera's request for a comment. But on Tuesday, U.S. Assistant Secretary of State for East Asian Pacific Affairs Daniel Russel reiterated Washington’s line that its reluctance about the AIIB was about concerns the fund might not meet the high standards for operation set by the World Bank, including environmental and other lending safeguards.
"Our messaging to the Chinese consistently has been to welcome investment in infrastructure but to seek unmistakable evidence that this bank ... takes as its starting point the high watermark of what other multilateral development banks have done in terms of governance," he said.
Kevin Gallagher, the director of the Global Economic Governance Initiative at Boston University, said he felt this approach was “wrong-headed.” He noted that when Washington helped establish the World Bank at Bretton Woods, there were no such guarantees about lending practices before the major players had already signaled support for the initiative. The U.K. has expressed similar concerns, but it signed on anyway.
“If we were at the table, we could put all those things on the table,” he said. Instead, the U.S. is allowing itself to be “left behind by what amounts to nothing less than a global Marshall plan the Chinese are starting to put together.”