After years of toeing the American line in international economic affairs, Britain is starting to drift eastwards. In a rare break with Washington, the UK applied today to join the Asian Infrastructure Investment Bank (AIIB), China’s answer to the US-dominated World Bank.
China proposed the $50bn (£33bn) fund for state-led infrastructure development projects across Asia last year. So far twenty-six nations have applied to join as founder members, but Britain is the only Western nation to do so. Aren’t we special?
China has welcomed the decision, probably because it’s a real publicity coup to lure one of America’s key allies to its camp. Beijing will have a roughly 67% stake in the AIIB, which rivals the World Bank and its regional subsidiary, the Asian Development Bank (ADB).
As chancellor George Osborne alluded to today, the benefit is largely in terms of soft power. ‘Forging links between the UK and Asian economies to give our companies the best opportunity to work and invest in the world’s fastest growing markets is a key part of our long term economic plan’, he said, clearly somewhat pleased with himself.
Of course, it’s not easy to quantify the value to business of ‘forging links’ at a state level. It clearly won’t affect formal trading arrangements, which are governed by the EU. Could it translate to a Chinese official looking more favourably on a British firm’s investment proposal, though, or even just to better networking opportunities for British firms?
Possibly. The fact is that many UK firms do a lot of business in Asia (Standard Chartered, Prudential and HSBC come to mind), and they’ll only do more as time goes on. It works the other way too. The Fosun conglomerate recently bought into Thomas Cook, for instance, while China’s richest man Wang Jianlin told the BBC that Britain is his favourite place to invest.
Given how important these ties are, surely membership of an organisation like AIIB can’t hurt. Or can it?
A transatlantic spat
The Americans are not happy. International financial institutions are their turf, after all. The US is widely considered to have exerted pressure on allies Japan, Australia and South Korea not to join, and it’s likely it tried with the UK too.
US National Security Council spokesman Patrick Ventrell said America had concerns that the AIIB wouldn’t meet the ‘high standards of the World Bank and the regional development banks’ when it comes to governance, a veiled way of saying it will be in Beijing’s pocket.
An unnamed US official put it more bluntly. ‘We are wary about a trend toward constant accommodation of China, which is not the best way to engage a rising power,’ the official told the FT, perhaps forgetting that this is exactly how Britain dealt with the United States when it was a rising economic power.
American jealousy is unlikely, however, to harm the transatlantic trading relationship. The ties are too strong, and the US and Britain are still mostly on the same page when it comes to international economic and financial policy. This is niggle rather than a rift. Besides, as a member the UK will have at least the chance to influence the AIIB (read: China), which the US might eventually come to welcome.
This is perhaps a subtle realignment of Britain’s position politically between the two superpowers, as China’s power increases. It’s not causing big problems now, but there’s always the risk that trying to please both sides might eventually end up offending both - and that would be bad for business.