Australia said to approve negotiations to join China-led bank AIIB

[CANBERRA] Australian Prime Minister Tony Abbott's cabinet approved negotiations to join China's development bank, according to a government official who asked not to be identified as the decision hasn't been made public.

Australia will sign a memorandum of understanding to start negotiations to sign up to the US$50 billion Asian Infrastructure Investment Bank, the source said.

The decision risks annoying Australia's most important ally, the US, which has expressed unease with the AIIB as it could weaken the importance of the Asian Development Bank, dominated by Japan and the US. Those concerns have been exacerbated this month after some European nations said they want to join the institution, part of Chinese President Xi Jinping's push to expand his nation's influence in Asia.

India, Vietnam, Singapore and Thailand were among 21 nations to sign a memorandum for the bank's establishment last year. This month the UK said it would seek to become one of the founding members of the AIIB, while the German Finance Ministry said France, Germany and Italy will follow suit.

Their agreement to China's plan has caused concern in Japan, which holds the presidency of the Asian Development Bank and shares roughly equal voting rights with the US Chief Cabinet Secretary Yoshihide Suga last week questioned whether the AIIB would be able to ensure fair governance and be capable of sustainable lending.

The US has no plans to join the Chinese-led bank, White House spokesman Josh Earnest said, while US Treasury Secretary Jack Lew said anyone that "lends their name" to the bank should ensure governance is "appropriate." The Abbott government said in November the bank would have to be multilateral, with transparent governance, before it would consider joining.

Foreign Minister Julie Bishop said in a March 16 interview with Sky News that Australia still had issues concerning the bank's governance arrangements. Those included China's proposal to hold a 49 per cent stake in the bank when similar organizations would have 20 per cent holding from a shareholder at most, and concern the nation could use funds from the institution to boost its military.

Mr Abbott told reporters in Canberra today the fundamental issue was "would major decisions be made by the board and is it going to be a multilateral institution rather than one that's controlled by any one country." Australia's National Security Committee has approved investing in the bank and discussed figures ranging from hundreds of millions of dollars to A$3 billion (S$3.23) billion), the Sydney Morning Herald reported March 20, without citing sources. The paper reported yesterday that the cabinet had signed off on the memorandum, which is yet to be formally announced.

BLOOMBERG