China comes between special US-UK ties

China comes between special US-UK ties
The rare bilateral spat between Britain and the US was sparked by the former's recent decision to become a founding member of the China-backed Asian Infrastructure Investment Bank (AIIB). Above, the signing ceremony of the AIIB in Beijing last October.

The "special relationship" between Britain and the United States has sustained a significant blow, as senior US officials publicly criticised their British counterparts for bending to China's demands on the global stage and for indulging the Chinese with "constant accommodation".

But British officials shrugged off the rebuke by asserting that their country's policy towards China will continue to be dictated by "the United Kingdom's national interest".

The rare bilateral spat was sparked by Britain's recent decision to become a founding member of the China-backed Asian Infrastructure Investment Bank (AIIB). But it is part of a broader and more substantial dispute about the strategy key Western nations should adopt towards China's growing clout.

Last October, China inspired the creation of four new international financial institutions. The AIIB is one of these, as it is designed to supplement or act as an alternative to the Asian Development Bank (ADB) set up in 1966 and dominated by the US and Japan which between them control a third of the ADB's voting shares.

Beijing claims that, unlike the ADB, which focuses on poverty relief and is allegedly over-bureaucratic, the AIIB will be far more nimble, and will have the financial firepower to back large-scale infrastructure projects Asia needs.

But Washington views the AIIB as part of a broader Chinese attempt to create a Sino-centric global financial system to rival the Western-dominated institutions set up after World War II. The Americans also charge that the AIIB's alleged nimbleness will dilute efforts to ensure good governance in Asia and breed corruption.

British officials share the US assessment, but they argue that the dangers inherent in China's policies can be dealt with more effectively by joining China-inspired institutions and seeking to influence them from inside.

They also flatly deny US allegations that London's decision to join the AIIB was taken with "virtually no consultation with the US"; they point to months of private discussions on the matter.

"Washington simply doesn't like our decision, rather than our means of communications," a senior diplomat told The Straits Times on condition of anonymity.

Still, the US anger is palpable. "We believe any new multilateral institution should incorporate the high standards of the World Bank and the regional development banks," US National Security Council spokesman Patrick Ventrell said. "Large economies can have more influence by staying on the outside and trying to shape the standards it adopts than by getting on the inside," another senior but unnamed US official was quoted as telling London's Financial Times, in pointed remarks aimed at the British move.

China is clearly delighted that it enlisted a G-7 member-state.

"Britain, as an important developed country, applied to join the AIIB because it saw the great opportunities," Deputy Finance Minister Zhu Guangyao said.

The US is now worried that other key countries such as Australia and South Korea will be tempted to follow the British example.

Indeed, Australian Foreign Minister Julie Bishop said yesterday that Canberra has "considerable interest" in joining the AIIB.

But what annoys US officials most is Britain's claim that it is acting out of principles, when its main driver is largely economic.

British Finance Minister George Osborne has long ago identified China as his main ally in defending London's status as one of the world's top financial centres: two-thirds of all Chinese investments in Europe pass through London, and the British were the first Western government to issue a bond denominated in yuan last October.

US policymakers fear that this is why Britain's reaction to the recent political turmoil in its former colony Hong Kong has been so feeble, and why Britain has removed human rights concerns from its bilateral dialogue with China.

"We are wary about a trend towards constant accommodation of China, which is not the best way to engage a rising power," the US official who spoke to the Financial Times said.

Britain's decision to join the AIIB is not without its risks: If countries such as Australia or South Korea join later, but obtain some concessions on their voting rights within the new bank, Britain's haste would seem foolish.

But as far as Mr Osborne is concerned, all this is immaterial if the Chinese remember that when it comes to money, few countries are as welcoming or as accommodating as the British.

This article was first published on Mar 17, 2015.
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