13 March 2015
Last updated at 04:39
Joining the AIIB would help the UK and Asia invest and grow together, UK Chancellor George Osborne said
Britain says it wants to become a “prospective founding member” of a new China-backed bank that could rival the likes of the World Bank.
The UK would be the first big Western economy to apply to become a prospective member of the institution.
Launched in Beijing last year, it is called the Asian Infrastructure Investment Bank (AIIB).
Its aim is to lend money to regional infrastructure projects, however, it has raised concerns in the US.
There are worries around the new institution’s ability to meet the level of transparency and governance that other multilateral institutions, such as the World Bank and the Asian Development Bank (ADB), need to reach.
There are also concerns that the AIIB’s lending decisions could be used by China to promote its own interests.
Once operational, the AIIB would aim to boost investment across the Asian region in areas including agriculture, transportation and energy.
Some 21 nations came together last year to sign a memorandum for the bank’s establishment, including Singapore, India and Thailand.
UK Chancellor George Osborne said the UK had “actively promoted closer political and economic engagement with the Asia-Pacific region” and that joining the AIIB at the founding stage would create “an unrivalled opportunity for the UK and Asia to invest and grow together”.
In reaction to the British announcement, the White House issued a statement saying: “This is the UK’s sovereign decision. We hope and expect that the UK will use its voice to push for adoption of high standards.”
In November last year, Australia’s Prime Minister Tony Abbott offered lukewarm support to the AIIB, but said its actions must be transparent.
Speaking in Beijing last year, Mr Abbott said Australia would only sign up to “a genuinely multilateral body”
US President Barack Obama, who met Mr Abbott on the sidelines of a Beijing summit last year, agreed the bank had to be transparent, accountable and truly multilateral.
“Those are the same rules by which the World Bank or IMF (International Monetary Fund) or Asian Development Bank or any other international institution needs to abide by,” Mr Obama said at the time.
Control and money
The 21 founding member countries of the AIIB have agreed the basic parameters that would determine the capital structure of the new bank would be relative gross domestic product.
Banking experts have estimated that, if taken at face value, this would give China a 67% shareholding in the new bank.
When asked if Britain would seek assurances before it signed on as a member that no one country would be able to unilaterally control the AIIB, economist David Kuo told the BBC that the UK “wouldn’t have a great deal of say in the matter”.
“He who pays the piper calls the tune,” he said. “The UK could try and negotiate a power to veto projects but it is unlikely to get it,” Mr Kuo, who is from investment advisers The Motley Fool, said.
The UK was caught between the US on the West and China in the East, he added.
“It hopes that it can exert force from within, rather than put pressure from the outside – but [the UK] is only one voice in a crowd of many.”
With regard to the competition the AIIB would give the ADB or World Bank, Mr Kuo said there were plenty of infrastructure projects in Asia that needed funding.
“The existing sources of money can’t do everything. So every little helps.”