Germany, France, Italy and UK will join China's Asian Infrastructure Investment Bank

All it took was $50 billion and the possible trillions to follow to get participation from the main European allies of the United States. China has a large economy and $4 trillion in reserves.

In the ADB (Asian Development Bank), China is a major capital provider but has a tiny share of the voting power (5.47%, compared with 15.7 and 15.6 percent for Japan and the US, respectively). And the US has thus far dragged its heels on implementing a 2010 deal that would give China and other developing nations a larger voice in the World Bank and IMF. The formation of the AIIB and BRICS bank may represent a loss in international influence for the US and its allies, but it’s a loss that is, in some respects, overdue.

The World Bank and ADB are more focused on poverty reduction and concessional lending than infrastructure investment, and Asia has a huge unmet demand for infrastructure investment. In an often-cited 2010 report, the ADB estimated that developing Asian countries need to invest US$8 trillion between 2010 to 2020 to meet infrastructure needs. However, the ADB lends only $10 billion annually for infrastructure. Theoretically, the AIIB could complement rather than compete with the ADB and World Bank in Asia.

Germany, France and Italy followed the U.K.’s lead in applying to join a China-led international development bank, lending the weight of Europe’s largest economies to the project despite U.S. opposition.

Europe’s four top powers have now broken ranks with Washington in moving to become founding members of the Asian Infrastructure Investment Bank. The decision is expected to spur other U.S. allies to back the potential challenger to the World Bank and the Asian Development Bank, where Washington has significant influence.

Tuesday’s decision, announced by German Finance Minister Wolfgang Schäuble after a meeting with Chinese Vice Premier Ma Kai in Berlin, underscored the willingness of traditional U.S. allies to split with Washington on policy to curry favor in Beijing. The readiness of the U.K.—one of the U.S.’s closest allies—to defy Washington with its decision last week to join helped to clear the way for other Western economies to follow suit, a European diplomat said.

China launched the AIIB in October—one in a series of moves to boost its regional and global influence—and invited other countries to join as founding members by March 31. Endowed with an initial capitalization of $50 billion, the bank would have a mandate to finance infrastructure projects around the world.

European officials also say that moving quickly to join the bank could benefit their economies. The British government has said it wanted to become the main European destination for Chinese investments, and China is Germany’s fourth-largest trading partner, accounting for 7% of Germany’s exports.

“This is basically about money,” said Ted Truman, a senior fellow at the Peterson Institute for International Economics and former assistant secretary of the U.S. Treasury. “The Europeans figure they can affect the changes from the inside, and still get some of the contracts.”

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