Rush by leading nations to join China-sponsored AIIB accelerates

Tokyo

THE scramble by leading nations outside the region to join the Asian Infrastructure Investment Bank (AIIB) is intensifying, with Australia likely to announce a decision as early as this week to begin entry negotiations in a growing show of international support for the Beijing-based institution.

Leading Western European players including France, Germany and Italy rushed to declare an interest after Britain "jumped the gun" last week in becoming the first Western nation to join talks on the AIIB - pleasing China but angering some European Union members.

Critically, Japan may see no alternative but to join the "stampede" too, sources told The Business Times, while emphasising that the US is softening what appeared to be its initial refusal to join, and that South Korea also cannot afford to stay out.

But despite the momentum the AIIB has achieved in a very short time, highly placed officials at the Asian Development Bank (ADB) in Manila - which is most threatened by the advent of the AIIB - told BT that the China-sponsored initiative still faces potentially major obstacles.

One of these is that national parliaments in the more than 30 countries which have signed a memorandum of understanding on joining entry negotiations could refuse to give budgetary ratification to finance their countries' shareholding in the public body while serious governance issues are still at stake in the AIIB.

Another potential problem is that civil society organisations in prospective member governments outside Asia could mount a powerful lobby against entry, and even China could find itself the target of their ire. The "Chinese may not know what hit them", one senior ADB official told BT.

Governance issues extend far beyond concerns that the AIIB might not observe the same environmental standards and other societal safeguards that most existing multilateral development banks do.

There are fears that the bank could serve to further China's national interests in and beyond Asia, by having the bank headquartered in Beijing and headed by a Chinese president. It could also award the lion's share of multi-billion-dollar infrastructure projects to Chinese enterprises.

China is also planning to dispense with the practice followed by other multilateral development banks of having resident "executive directors" at the AIIB to monitor projects constantly on behalf of shareholder governments.

Chinese officials in general have maintained silence in public on such matters - largely because they are fearful of "being criticised" by Communist Party heads in Beijing if they speak out of turn, one senior Chinese academic told BT.

But some Chinese sources in close touch with events insist that efforts will be made to accommodate the concerns of non-Asian countries. "They have no choice," said Xing-Guang Ling, a member of the AIIB Joint Research Group in Tokyo, last Friday. "Developing countries also want to see a debate on these issues."

Another member of the group, ex-Japanese diplomat Makoto Taniguchi, said that "China should be more balanced and give the presidency to another country, not necessarily Japan". But he added that "if Japan wants influence, it should join. We cannot afford to (simply) oppose" the AIIB.

The Joint Research Group, comprising academics and former diplomats, presented proposals last week to Japanese Prime Minister Shinzo Abe's government, calling on Japan to join the list of countries committed to joining talks before the deadline of March 31 set by Beijing expires.

Cooperation on the AIIB could serve to create a better atmosphere between China and Japan, strengthening regional cooperation and even helping to soften China's attitude on the issue of the Senkaku Islands in the East China Sea, said Mr Taniguchi, a former Japanese ambassador to the UN.

While a plethora of Asian nations (including Singapore) expressed early interest in joining AIIB talks, Japan (along with the US) was a prominent standout. But last Friday, Japanese Finance Minister Taro Aso said that Japan could consider joining if governance issues and the problem of debt sustainability in borrowing countries are addressed.

The US has been presented as being an implacable opponent of the AIIB - which is seen as threatening the postwar architecture of multilateral financial institutions that were created principally under the guidance of the US. However, a senior US diplomat, who did not wish to be identified, told BT that "we are going to get the Europeans involved, and eventually the United States in some capacity, I'm sure".

In their Tokyo briefing, both Mr Ling and Mr Taniguchi drew attention to the fact that, in a speech at the end of last month, US undersecretary of state for political affairs Wendy Sherman had effectively given official endorsement to the AIIB.

The US "welcomes new initiatives such as the China-proposed Asian International Infrastructure Bank, provided its founding documents and practices uphold the high standards of other development institutions", she said on Feb 27.

Australia's Treasurer Joe Hockey said last week that Canberra has been considering joining the AIIB. "There is a lot of merit in it but we want to be sure there are proper governance procedures," he was reported as saying.

South Korea's Ministry of Finance, meanwhile, said in a statement that Seoul would make a decision on whether to join the bank "through close consultation with major countries", and after considering economic advantages and disadvantages.

UK Chancellor of the Exchequer George Osborne's decision to announce Britain's entry to talks on the AIIB has, meanwhile, undermined the joint position of leading European nations in seeking assurances from China that governance standards would be met, a German diplomat who did not wish to be identified, told BT.

Washington was also taken off-guard by Britain's move, which some sources suggested to BT might have been motivated by a desire to have a prospective AIIB regional office located in London and by a desire to attract renminbi financing business to the City of London.

Despite a breaking of ranks among potential non-Asian members of the AIIB, sources say few countries can afford to stay out of entry talks given the potential financial clout of the bank, which is expected to draw mainly on foreign currency holdings in China to finance its business.

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