Japan expressed doubts over the credibility of China’s planned development bank as European nations sought to join a new institution that could weaken the clout of the almost 50-year-old Asian Development Bank, dominated by Japan and the U.S.
“Will this bank be able to ensure fair governance?” Chief Cabinet Secretary Yoshihide Suga told reporters when asked about the Chinese-led Asian Infrastructure Investment Bank on Tuesday. “Will it lend without regard to the sustainability of loans and end up inflicting losses on other creditors?” He reiterated that Japan would maintain a cautious stance on signing up.
The UK said last week it would seek to become one of the founding members of the AIIB, a decision that was welcomed by China and met with unease by the U.S. France, Germany and Italy will follow suit, the German Finance Ministry said. Australia has signaled it may reverse a decision not to join the bank.
The trend is a blow to Prime Minister Shinzo Abe, who is seeking to carve out a bigger role for Japan on the global stage and bolster security ties with the U.S. and other governments amid a territorial dispute with China. He renewed Japan’s bid for a permanent seat on the United Nations Security Council in a speech Monday given alongside Secretary General Ban Ki Moon, who was visiting Japan.
The U.S has no plans to join the Chinese-led bank, White House spokesman Josh Earnest said, while U.S. Treasury Secretary Jack Lew said anyone that “lends their name” to the bank should ensure governance is “appropriate.”
“Washington and Tokyo simply worry that China will be able to expand its influence in the region at their expense,” said Jeff Kingston, professor of Asian studies at Temple University Japan.
Japan has held the presidency of the Manila-based ADB, which aims to reduce poverty, since it was founded in 1966 and shares roughly equal voting rights with the U.S. The current president, Takehiko Nakao, was nominated to the post by the Japanese government in 2013, while his predecessor, Haruhiko Kuroda, is now governor of the Bank of Japan.
The $50 billion AIIB, proposed by Chinese President Xi Jinping during a visit to Indonesia in 2013, will initially be less than a third the size of the ADB, which had $153 billion in capital as of the end of 2014. The ADB has 67 members compared with almost 30 countries that have said they will participate in the AIIB, the Xinhua news service reported on its website Tuesday.
As the wrangling over China’s plans continues, the ADB plans to combine internal funds enabling it to expand lending operations in its developing member countries to between $15 billion and $18 billion annually from 2017 compared with the current $13 billion.
Japan does not have accurate information about the governance of the AIIB, and other countries are probably in a similar position, Japanese Finance Minister Taro Aso told reporters March 17. He added that signing a memorandum of understanding would allow them to leave if their requirements were not met.
“By joining without negotiating good governance standards, the U.K., and apparently other European nations, demonstrated that when it comes to China their wallets are their guide,” said Thomas Wright, a fellow and director of the Project on International Order and Strategy at the Brookings Institution. “It’s a blow to U.S. and Japanese efforts to get Europe to move beyond commercial opportunities and take a strategic approach to Asia.”
Kingston of Temple University Japan said “zero-sum” thinking was wrong-headed. “It is eminently sensible and beneficial for democratic nations to participate because it will help improve governance and transparency,” he said by e-mail. “The infrastructural needs of the region are massive and the added resources of the AIIB can only help.”
Japan and the U.S. are the two biggest shareholders of the ADB with 15.7 percent and 15.6 percent respectively. The two countries have a combined voting power of 26 percent, compared with 5.47 percent for China, according to the ADB website.
“It is not accurate to say Japan has too much influence at ADB,” president Nakao said in comments forwarded by the bank in an e-mail. “We need broad support from the resident board of 12 Executive Directors selected from 67 member countries.”
He added that the ADB was prepared to share its expertise on environmental and social impacts, and on fair and open procurement procedures with the AIIB.
Last week’s move by the U.K. -- and the negative response from the U.S. -- could bolster China and embolden other U.S. allies to sign up for the new bank, according to Philippa Brant, a Research Associate at the Lowy Institute in Sydney.
“The Abbott government was concerned about managing its alliance relationship with the United States,” she said in an e-mail. “The U.S.’s clumsy response, particularly to the U.K.’s announcement, has buoyed China, who can point to the United States as the one seemingly out of step with countries in the Asian region.”