US attacks London’s ‘constant accomodation’ of China

The Obama administration accused the UK of a “constant accommodation” of China after Britain decided to join a new China-led financial institution that could rival the World Bank.

The rare rebuke of one of the US’s closest allies came as Britain prepared to announce that it will become a founding member of the $50bn Asian Infrastructure Investment Bank, making it the first country in the G7 group of leading economies to join an institution launched by China last October.

Thursday’s reprimand was a rare breach in the “special relationship” that has been a backbone of western policy for decades. It also underlined US concerns over China’s efforts to establish a new generation of international development banks that could challenge Washington-based global institutions. The US has been lobbying other allies not to join the AIIB.

Relations between Washington and David Cameron’s government have become strained, with senior US officials criticising Britain over falling defence spending, which could soon go below the Nato target of 2 per cent of gross domestic product.

A senior US administration official told the Financial Times that the British decision was taken after “virtually no consultation with the US” and at a time when the G7 had been discussing how to approach the new bank.

“We are wary about a trend toward constant accommodation of China, which is not the best way to engage a rising power,” the US official said.

British officials were publicly restrained in criticising China over its handling of Hong Kong’s pro-democracy protests while Mr Cameron has made it clear he has no further plans to meet the Dalai Lama, Tibet’s spiritual leader — after a 2012 meeting that prompted a furious response from Beijing.

While Beijing has long been suspicious about US influence over the World Bank and International Monetary Fund, China also believes that the US and Japan have too much control over the Manila-based Asian Development Bank. In addition to the AIIB, China is the driving force behind last year’s creation of a Brics development bank and is promoting a $40bn Silk Road Fund to finance economic integration with Central Asia.

The Obama administration has said it is not opposed to the AIIB but US officials fear it could become an instrument of Chinese foreign policy if Beijing ends up having veto power over the bank’s decisions.

The UK Treasury denied that Britain had acted out of the blue, saying there had been “at least a month of extensive consultation” at a G7 level, including with Jack Lew, US Treasury secretary.

George Osborne, UK chancellor of the exchequer, was unrepentant, arguing that Britain should be in at the start of the new bank, ensuring that it operates in a transparent way. He believes it fills an important gap in providing finance for infrastructure for Asia.

“Joining the AIIB at the founding stage will create an unrivalled opportunity for the UK and Asia to invest and grow together,” Mr Osborne said. He expects other western countries, which have been making positive noises privately about the new bank, to become involved.

Beijing launched the AIIB in October with the backing of 20 other countries but Japan, South Korea and Australia —US allies in the region — did not become founding members. There has been a strong debate within the Australian cabinet about whether to join, after US pressure to stay on the sidelines.

Mr Osborne’s decision reflects London’s desire to pursue commercial relations with China aggressively, even at the expense of antagonising Washington.

The UK has been keen to establish the City of London as a platform for overseas business in the Chinese currency as it starts to play a bigger role in the global economy.

Source: FT