Canada Weighs Joining China-Led Bank Amid U.S., Japan Concerns

(Bloomberg) -- Canada is considering joining China’s planned infrastructure bank, a move that would leave the U.S. and Japan as the only Group of Seven holdouts as they continue to question the institution’s governance and environmental safeguards.

China has given countries until March 31 to sign up as founding members of the Asian Infrastructure Investment Bank. The U.K., France, Germany and Italy said this month they would seek to join, creating unease among U.S. and Japanese officials.

“Canada is currently looking at the initiative,” David Barnabe, a Finance Department spokesman in Ottawa, said in an e-mailed statement. Chinese officials have only broadly outlined the details of the institution, and “discussions among existing members relating to the Bank’s objectives, governance structure and operating modalities are underway,” with work “expected to take several months.”

The infrastructure bank’s growing membership is a sign of China’s increasing clout in international economic policy even as its expansion cools. At stake is a potential weakening of the influence of the Washington-based World Bank and the Manila-based Asian Development Bank, where Japan has held the presidency since the lender was founded in 1966.

While Canada will be reluctant to undermine ties with the U.S., its biggest trading partner, the fact that European countries have already “broken the ice” would make it easier for Canada to join China’s bank, said Domenico Lombardi, director of the global economy program at the Center for International Governance Innovation in Waterloo, Ontario.

“It’s consistent with Canada’s aim of forging closer ties with China,” he said in a phone interview.
U.S. Concern

U.S. Treasury Secretary Jacob J. Lew told lawmakers last week the administration is concerned that the AIIB may not adhere to the same standards as other international financial institutions.

“Will it protect the rights of workers, the environment, deal with corruption issues appropriately?” Lew said at a House Financial Services Committee hearing in Washington. “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 organization will make sure that the governance is appropriate.”

To lure countries to join, China has offered to forgo veto power at the new development bank, the Wall Street Journal reported this week.

Japan last week expressed doubts over the credibility of China’s planned bank. “Will this bank be able to ensure fair governance?” Chief Cabinet Secretary Yoshihide Suga told reporters. “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.

Original Article
Source: bloomberg.com/
Author:   Andrew Mayeda