France, Germany, Italy to join China-led infrastructure bank

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Sovereign wealth fund China Investment Corp was created in 2007 with $200 billion to make better use of China's colossal foreign exchange reserves, which amounted to $3.73 trillion this March

Sovereign wealth fund China Investment Corp was created in 2007 with $200 billion to make better use of China's colossal foreign exchange reserves, which amounted to $3.73 trillion this March (AFP Photo/Str)

Paris (AFP) - France, Germany and Italy on Tuesday announced plans to join the Chinese-led development bank AIIB, drawing concern in Washington which views the institution with scepticism.

The three European countries want "to become founding members of the Asian Infrastructure Investment Bank (AIIB)", they said in a statement.

The $50 billion (47 billion euro) AIIB has been feted by Beijing as a way of financing regional development, but it is seen as a potential rival to US-based institutions such as the World Bank.

Washington, Tokyo and Seoul have declined to become founding members -- but within a week, Europe's four biggest economies have signalled plans to join.

Britain on Thursday announced its ambitions to be the first Western country to join the bank, in a move to bolster relations with China.

Responding to reports of European interest in the bank, Chinese foreign ministry spokesman Hong Lei said: "We welcome countries to join the AIIB as prospective founding members."

"The AIIB is an open and inclusive multilateral investment institution," the spokesman said, adding that "participation by countries outside the region will intensify the extensive representativeness of the AIIB."

China and 20 other countries signed a memorandum of understanding to establish the Beijing-headquartered bank in October.

At a joint press conference with Chinese Vice Premier Ma Kai on Tuesday in Berlin, German Finance Minister Wolfgang Schaeuble said his country along with Italy and France "want to bring our long experience... to help the bank build a solid reputation".

"We want to make a contribution to the positive development of the Asian economy, in which German companies are actively taking part," he said.

- US warns on standards -

But Europe's move was met with a warning of caution from the United States.

Treasury Secretary Jacob Lew said Washington's main concern was whether the bank would "adhere to the kind of high standards that the international financial institutions have developed".

"Will it protect the rights of workers, the environment, will it deal with corruption issues appropriately?

"Our point all along has been that anyone joining needs to ask those questions at the outset and I hope before the final commitments are made anyone who lends their name to this organisation will make sure that the governance is appropriate," Lew told Congress.

Europeans believe that by being inside the AIIB they will be better able to ensure governance standards are high.

"Germany also wants that the AIIB attains the high standards of the World Bank and other regional financial institutions," a source close to the German government told AFP.

"We are acting on the principle that we can do that best with constructive cooperation in the elaboration of these standards," added the source.

- Credibility at risk -

Meanwhile, Treasury Secretary Lew also warned US lawmakers that a refusal to approve International Monetary Fund governance reforms and a quota increase put US credibility at risk and were encouraging the new creation of new multilateral lenders like the AIIB.

For more than two years the US Congress has prevented from taking effect IMF reforms agreed in 2010 that would give more weight to emerging-market powers like China and double the Fund's permanent financial resources.

"Our international credibility and influence are being threatened," said Lew.

The US is the only member country with veto power over major IMF decisions.

Lew noted that the reform delay was pushing emerging-market powers to create their own parallel multilateral financial institutions. The BRICS -- Brazil, Russia, India, China and South Africa -- announced their own development bank in 2014, and China recently led the launch of a separate institution, the Asian Infrastructure Investment Bank.

"The IMF reforms will help convince emerging economies to remain anchored in the multilateral system that the United States helped design and continues to lead," Lew said.