With Plan to Join China-Led Bank, Britain Opens Door for Others

http://www.nytimes.com/2015/03/14/world/asia/asian-infrastructure-investment-bank-britain-china.html

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BEIJING — A surprise decision this week by Britain to join China’s new development bank for Asia, despite opposition from the Obama administration, will almost certainly encourage other American allies to become members, particularly Australia and South Korea, analysts said Friday.

Britain’s announcement Thursday that it intends to join the Asian Infrastructure Investment Bank, which China is largely funding in hopes of becoming the dominant influence in Asian affairs, has bolstered the fledgling bank’s reputation even before it begins operations, the analysts said.

Britain said it wanted the new bank — which would provide financing for transportation, telecommunications and energy projects in developing countries across Asia — to address concerns about environmental standards and other lending safeguards before signing the final membership documents.

But the chancellor of the Exchequer, George Osborne, made it clear Thursday that Britain was intent on joining, calling it “an unrivaled opportunity for the U.K. and Asia to invest and grow together.”

Membership by Britain, America’s closest ally and the first would-be member from the Group of 7 leading economies, would be a major step toward China’s goal of making the bank, which President Xi Jinping inaugurated last October, a global financial institution rivaling the World Bank.

The Chinese Finance Ministry warmly welcomed the British announcement, saying on its website on Friday that if all went well, Britain would formally become a “prospective founding member” of the bank by the end of March.

Washington has expressed reservations about the new institution, on the grounds that it would not meet environmental standards, procurement requirements and other safeguards adopted by the World Bank, the International Monetary Fund and the Asian Development Bank for their lending projects.

But fundamentally, Washington views the Chinese venture as a deliberate challenge to those postwar institutions, which are led by the United States and, to a lesser extent, Japan, and the Obama administration has put pressure on allies not to participate.

The National Security Council in Washington implicitly criticized Britain’s decision, in an indication that Prime Minister David Cameron’s conservative government had forged ahead with little if any consultation with the United States.

“This is the U.K.’s sovereign decision,” a spokesman at the National Security Council said. “We hope and expect that the U.K. will use its voice to push for the adoption of high standards.”

South Korea and Australia, both of which count China as their largest trading partner, have seriously considered membership but have held back, largely because of forceful warnings from Washington, including a specific appeal to Australia by President Obama. Peter Drysdale, a professor of economics at Australian National University who has advised Australian governments, said the British decision would probably lead Australia to join.

“I think it will play into the decision by Australia which should be made over the next few weeks,” Mr. Drysdale said Friday. He added that Australia, with its close economic ties to China, had more reason to join the bank than Britain and other European countries had.

Prime Minister Tony Abbott’s government decided against Australian membership late last year, citing national security considerations. In the weeks leading up to that decision, Mr. Obama spoke to Mr. Abbott and urged him against joining, a senior member of the Australian government said. Recently, however, the government has indicated that it is reconsidering.

In South Korea, Britain’s announcement is likely to reignite the government’s internal debate about the merits of membership, said Hahm Chaibong, president of the Asan Institute for Policy Studies in Seoul.

“It will give a lot of ammunition to those who have been pushing for it,” Mr. Hahm said. “The ministries of trade and finance have been for it. The United States has been unremittingly negative.”

Having South Korea as a founding member would be a considerable coup for Beijing. Mr. Xi has been wooing President Park Geun-hye, who must balance the security that the United States provides to South Korea against the relatively new economic clout of China.

Mr. Drysdale said British membership would most likely amount to a persuasive case for major European countries to join. The head of the European Union Chamber of Commerce in China, Jörg Wuttke, agreed, saying, “If Britain walks through that door, others will follow swiftly. I am sure Luxembourg and the French are next.”

A senior official at the Manila-based Asian Development Bank, which to the frustration of China has always been led by its rival Japan, said that American “intransigence” on the issue was futile. “This horse is out of the barn,” said the official, who did not want to be identified for fear of offending the bank’s member countries.

“The United States can’t scold the Aussies and the Koreans anymore,” the official said. “The Australians want to be associated with this. They are practical people, why shouldn’t they be involved?”