How Europe and US stumbled into spat over China-led bank

BRUSSELS/LONDON: Sometime geopolitical shifts happen by accident rather than design.

Historians may record March 2015 as the moment when China’s chequebook diplomacy came of age, giving the world’s number two economy a greater role in shaping global economic governance at the expense of the United States and the international financial institutions it has dominated since World War Two.

This month European governments chose, in an illcoordinated scramble for advantage, to join a nascent, Chinese-led Asian Infrastructure Investment Bank (AIIB) in defiance of Washington’s misgivings.

British finance minister George Osborne, gleeful at having seized first-mover advantage, stressed the opportunities for British business in a pre-election budget speech to parliament last week.

“We have decided to become the first major western nation to be a prospective founding member of the new Asian Infrastructure Investment Bank, because we think you should be present at the creation of these new international institutions,” he said after rebuffing a telephone plea from US Treasury Secretary Jack Lew to hold off.

The move by Washington’s close ally set off an avalanche. Irked that London had stolen a march, Germany, France and Italy announced that they too would participate. Luxembourg and Switzerland quickly followed suit.

The trail of transatlantic

We have decided to become the first major western nation to be a prospective founding member of the new Asian Infrastructure Investment Bank, because we think you should be present at the creation of these new international institutions.

George Osborne, British finance minister

and intra-European diplomatic exchanges points to fumbling, mixed signals and tactical differences rather than to any grand plan by Europe to tilt to Asia.

That is nevertheless the way it is seen by some in Washington and Beijing.

As recounted to Reuters by officials in Europe, the United States and China who spoke on condition of anonymity because of the sensitivity of the subject, the episode reveals the paucity of strategic dialogue among what used to be called ‘the West’.

It also highlights how the main European Union powers sideline their common foreign and security policy when national commercial interests are at stake.

China’s official Xinhua news agency reflected Beijing’s delight.

“The joining of Germany, France, Italy as well as Britain, the AIIB’s maiden G7 member and a seasoned ally, has opened a decisive crack in the anti-AIIB front forged by America,” it said in a commentary.

“Sour grapes over the AIIB makes America look isolated and hypocritical,” it said.

Of the main US allies in Asia, Australia appears close to joining, though no formal decision has been made, and Japan and South Korea are considering the possibility.

“The Americans are starting to look very mean-spirited with their criticism,” said a Beijing-based Asian diplomat. “This is not a battle they are winning. Even their closest allies in Asia are starting to fall in line.”

In Europe as in Washington, China’s launch of a new institution to channel a fraction of its massive currency reserves into infrastructure investments in Asia posed a political conundrum and provoked turf disputes.

Western countries had long urged Beijing to recycle some of its trade surplus into building transport, energy and telecommunications networks in developing nations, but they wanted it to use the World Bank and the Asian Development Bank, dominated by the United States and Japan.

China, angered that the US Congress has not ratified a 2010 agreement to increase its voting share and that of other emerging economies in the International Monetary Fund, chose to go its own way instead. — Reuters