Defying U.S., European allies say they'll join China-led bank

BERLIN/WASHINGTON (Reuters) - Germany, France and Italy said on Tuesday they would join a new China-led Asian investment bank after close ally Britain defied U.S. pressure to become a founder member of a venture seen in Washington as a rival to the World Bank.

The concerted move to participate in Beijing's flagship economic outreach project was a diplomatic blow to the United States, reflecting European eagerness to partner with China's fast-growing economy, the world's second largest.

It comes amid prickly trade negotiations between Brussels and Washington, and at a time when EU and Asian governments are frustrated that the U.S. Congress has held up a reform of voting rights in the International Monetary Fund due to give China and other emerging powers more say in global economic governance.

German Finance Minister Wolfgang Schaeuble made the announcement at a joint news conference with visiting Chinese Vice Premier Ma Kai, at which no questions were allowed. He said Germany, Europe's biggest economy and a major trade partner of Beijing, would be a founding member of the Asian Infrastructure Investment Bank.

A joint statement by the foreign and finance ministers of Germany, France and Italy said they would work to ensure the new institution "follows the best standards and practices in terms of governance, safeguards, debt and procurement policies".

The AIIB was launched in Beijing last year to spur investment in Asia in transportation, energy, telecommunications and other infrastructure. It was seen as a rival to the Western-dominated World Bank and the Asian Development Bank.

A spokeswoman for the executive European Commission endorsed member states' participation in the AIIB as a way of tackling global investment needs and as an opportunity for EU companies.

Washington has questioned whether the AIIB will have high standards of governance and environmental and social safeguards.

The new bank is seen as a key vector to spread Chinese "soft power" in the region, possibly at the expense of the United States. The World Bank is traditionally run by a U.S. nominee and Washington also has the most influence at the IMF.

U.S. Treasury Secretary Jack Lew warned the Republican-dominated Congress that China and other rising powers were challenging American leadership in global financial institutions and he urged lawmakers to swiftly ratify stalled reform of the IMF to help preserve U.S. influence.

The adjustment of shares and voting rights in the IMF was brokered by Britain at a Group of 20 summit in 2010. European countries ratified it long ago.

Lew said the U.S. delay "is causing other countries, including some of our allies, to question our commitment to the IMF and other multilateral institutions ... Our international credibility and influence are being threatened," he said in prepared testimony.

"HIGH WATERMARK"

China said earlier this year a total of 26 countries had been included as AIIB founder members, mostly from Asia and the Middle East. It plans to finalise the articles of agreement by the end of the year.

China's state-owned Xinhua news agency said South Korea, Switzerland and Luxembourg were also considering joining.

Chinese foreign ministry spokesman Hong Lei would not comment on which countries had applied, and repeated that the bank would be "open, inclusive, transparent and responsible".

Washington's top diplomat for east Asia signalled on Tuesday that concerns about the AIIB remained, but the decision on whether to join was up to individual nations.

"Our messaging to the Chinese consistently has been to welcome investment in infrastructure but to seek unmistakable evidence that this bank ... takes as its starting point the high watermark of what other multilateral development banks have done in terms of governance," U.S. Assistant Secretary of State for East Asian and Pacific Affairs Daniel Russel said in Seoul.

"Every government can make its own decision about whether the way to achieve that goal is by joining before the articles of agreement are clarified or by waiting to see what the evidence looks like as the bank starts to operate."

A government official in India, one of the countries that has joined, said the members of the AIIB would meet in Almaty, Kazakhstan, on March 29-31 to discuss the articles of agreement.

China has said March 31 is the deadline for accepting founder-members into the organisation.

Japan, Australia and South Korea remain notable regional absentees from the AIIB. Australian Prime Minister Tony Abbott said at the weekend he would make a final decision on membership soon.

South Korea has said it is still in discussions with China and other countries about its possible participation.

Japan, China's main regional rival, has the biggest shareholding in the Asian Development Bank (ADB) along with the United States. By convention, the Manila-based bank is headed by a Japanese.

Japan is unlikely to join the AIIB, but ADB head Takehiko Nakao told the Nikkei Asian Review that the two institutions were in discussions and could work together.

"We've begun sharing our experience and know-how," Nakao was quoted as saying. "Once the AIIB has actually been established, it's conceivable that we would cooperate."

(Additional reporting by Yann Le Guernigou and Marine Pennetier in PARIS, Erik Kirschbaum in BERLIN, James Mackenzie in ROME, Ju-min Park in SEOUL, Michael Martina and Ben Blanchard in BEIJING, Manoj Kumar in NEW DELHI and Leika Kihara in TOKYO; Writing by Paul Taylor; Editing by Raju Gopalakrishnan and Gareth Jones)