China’s ‘world bank’ makes the U.S. balk

As top leaders met at a lush Bali resort in October 2013, President Xi Jinping of China described his vision for a new multinational, multibillion-dollar bank to finance roads, rails and power grids across Asia. Under Chinese stewardship, the bank would tackle the slow development in poor countries that was holding the region back from becoming the wealth centre of the world.

After the presentation, the U.S. Secretary of State, John Kerry, caught up with Mr. Xi in the corridor. “That’s a great idea,” Mr. Kerry said of the bank, according to Chinese and U.S. aides briefed on the encounter.

The enthusiasm didn’t last long, as the Obama administration began a rear-guard battle to minimise the bank’s influence. But the administration suffered a humiliating diplomatic defeat last spring when most of its closest allies, including Britain, Germany, Australia and South Korea, signed up for the bank. Altogether 57 countries have joined, leaving the United States and Japan on the outside. The calculation for joining is simple.

China, with its vast wealth and resources, rivals the United States at the global economic table. It was a position confirmed this week when the International Monetary Fund blessed the Chinese renminbi as one of the world’s elite currencies, alongside the dollar, euro, pound and yen.

While many countries had similar doubts as the United States, they figured they could shape the organisation from the inside. The Chinese-led institution, the Asian Infrastructure Investment Bank, is picking its first projects. The choices, which are expected to be announced in the coming months, will provide critical insight into how China plans to wield its power.

Either China is serious about taking a leadership role in the global economy and prioritising projects that broadly benefit Asia, or it has a more selfish mission and plans to use the bank to further its own ambitions. So far, China appears to be navigating between the two extremes. It is assuaging critics by compromising on touchy issues like board makeup, project oversight and procurement. But China is hardly yielding control, raising concerns about where the bank will land on major issues like climate change and labour rights. The bank, for example, is still weighing whether to approve coal-fired power plants.

China is taking direct aim at the current development regime, the Bretton Woods system established under U.S. leadership after World War II to help stabilise currencies and promote growth.

Beijing officials say they wantto take a faster approach than their counterparts at the World Bank, theInternational Monetary Fund and the Asian Development Bank.