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China, US Inch Closer on Asia Fund as Deadline Approaches


FILE - Chinese President Xi Jinping, center, shows the way to the guests who attended the signing ceremony of the Asian Infrastructure Investment Bank at the Great Hall of the People in Beijing, Oct. 24, 2014.

FILE - Chinese President Xi Jinping, center, shows the way to the guests who attended the signing ceremony of the Asian Infrastructure Investment Bank at the Great Hall of the People in Beijing, Oct. 24, 2014.

China has set the end of March as a deadline for countries to become founding members of a new multi-billion dollar Beijing-led development bank. As the date approaches, a growing number of U.S. allies in Europe and Asia have jumped on board or are considering signing up.

Even Washington, which has discouraged countries from joining, is talking more about cooperation.

The international community has long urged China to play a bigger role in global affairs, but when Beijing announced last year it was establishing the Asia Infrastructure Investment Bank or AIIB, the United States was skeptical.

It urged countries to flesh out details about how the new fund’s standards would address environmental and social safeguard concerns before joining.

Tipping point

But when Britain signed up earlier this month, others followed, noting the best way to shape those concerns was from the inside and not from the sidelines.

In Europe, key allies such as Germany, France and Italy have joined. In Asia, South Korea is considering and Australia has agreed to push forward with negotiations. China says the fund already has 27 prospective founding members and it expects more to join before the deadline.

Some have called the shift of key allies an embarrassment and a U.S.policy failure.

Asia analyst Alejandro Reyes said Washington’s response was a reflection of outdated thinking.

“Not participating in the AIIB is like being on the playground and all the children are playing a game and you’re there, you really need to be in the game, but just because people are not playing with your ball or whatever, you’re going to sit in the corner,” said Reyes.

Political roadblocks

Analysts said it was unlikely that Washington would join before the March 31 deadline. Even if it wanted to, politics were clearly a factor, said Robert Kahn, a senior fellow at the Council on Foreign Relations.

The U.S. was concerned about how the AIIB may be trying to replace institutions such as the World Bank and Asian Development Bank and that makes Washington hesitant, he said.

“In a world with better politics, the U.S. would be joining this institution, but because of the environment on the Hill, the United States is not only not in a position where it could join this institution and get it approved by Congress,” said Kahn. "It can’t get even basic reform in the IMF through in a way that would make the existing institutions more attractive to the rising powers.”

China and other developing nations have been seeking a bigger say in global economic governance, but reforms of voting rights at the International Monetary Fund that would make that happen have been stalled in Congress since 2010. That delay has led China and other countries to look elsewhere and consider creating their own institutions.

Massive demand

Asia has a massive demand for infrastructure. The U.S./Japan led Asian Development Bank estimates around $800 billion annually, and since that bank can only meet a portion of those needs, there is plenty of room for the AIIB to help.

Officials at the IMF, World Bank and Asia Development Bank say they are already looking for ways to cooperate with the AIIB.

U.S. officials say they welcome new multilateral institutions that would incorporate the high standards the international community has collectively built. Washington is also encouraging the AIIB to work with the World Bank and Asian Development Bank to ensure high standards are maintained.

China has echoed those concerns, stressing that the fund will uphold high standards, but most of the operational details will not become clear until founding members hammer them out in the coming months.

Devil in the details

What Beijing has made clear so far, according to the state-run Xinhua news agency, is that unlike the power the United States holds in the World Bank to veto proposals, no member of the fund will have that right.

Tom Wright, director of the Project of International Order and Strategy at the Brookings Institution in Washington D.C. said it remained to be seen how China would assume its new leadership role and whether it would work together with existing institutions or go in a different direction.

“This is not the end, it really is just beginning and especially the beginning of a new chapter for China,” said Wright. “It set up this bank, it said it’s going to take a leadership position, but huge questions still hang over how it’s going to behave.”

China sees itself as uniquely positioned to carry out infrastructure projects in the region, but until now it has largely relied heavily on its own state-owned companies and labor when working overseas.

If international standards are adopted, as opposed to Chinese labor rules, that could mark a step forward, said Liu Li-gang, an economist at ANZ Banking Group . Liu said that with the establishment of the AIIB, China would have to take a multi-lateral approach.

“That means that whenever AIIB conducts a major infrastructure abroad, not only will Chinese companies bid for this type of project, that means perhaps that all member economies' firms can bid for that,” said Liu. “That will actually reduce Euro[pean] criticism and negative comments associated with Chinese investments abroad."

Beijing has said the AIIB is seeking to launch with at least $100 billion in funds, most from China.

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