THE White House accused the UK last Thursday of a ‘constant accommodation’ of China after the British government decided to join a new China-led financial institution that could become a rival to the World Bank.

The rare rebuke of a close ally comes as Britain prepares to announce it will be a founding member of the $50bn Asian Infrastructure Investment Bank, making it the first G7 country to join an institution launched by China last year.

The reprimand is a rare breach in the ‘special relationship’ that has been a cornerstone of western policy for decades. It also underlines US concerns over China’s efforts to establish a new generation of international development banks that could challenge Washington-based institutions. The US is lobbying other allies not to join the AIIB.

Washington’s relations with David Cameron’s government have been strained in recent weeks, with US officials criticising the UK over falling defence spending, which could soon dip below Nato’s target of 2pc of gross domestic product.

A senior US administration official told the Financial Times that the British decision was taken after ‘virtually no consultation with the US’ and at a time when the G7 had been discussing how to approach the new bank.

“We are wary about a trend toward constant accommodation of China, which is not the best way to engage a rising power,” the US official said.

White House in rare criticism of close ally as Britain joins finance body launched by Beijing

British officials were publicly restrained in criticising China over its handling of Hong Kong’s pro-democracy protests while Mr Cameron has made it clear he has no plans to meet the Dalai Lama, Tibet’s spiritual leader - following a 2012 meeting that prompted a furious response from Beijing.

While Beijing has long been suspicious about US influence over the World Bank and International Monetary Fund, China also believes that the US and Japan have too much control over the Manila-based Asian Development Bank. In addition to the AIIB, China is the driving force behind the creation last year of the Brics development bank.

The Obama administration has said it is not opposed to the AIIB, but US officials fear it could become an instrument of Chinese foreign policy if Beijing ends up having veto power over its decisions.

The UK Treasury said George Osborne, chancellor of the exchequer, had discussed his intention with Jack Lew, his US counterpart. He was aware his decision would not be popular in Washington. Mr Osborne argues Britain should be in at the start of the bank to ensure it operates transparently.

The UK Treasury said George Osborne, chancellor of the exchequer, had discussed his intention to become a founding member of the new bank with Jack Lew, his US counterpart. Mr Osborne was aware his decision would not be popular with Washington.

Mr Osborne was unrepentant, arguing that Britain should be in at the start of the new bank, ensuring that it operates in a transparent way. He believes it fills an important gap in providing finance for infrastructure for Asia.

“Joining the AIIB at the founding stage will create an unrivalled opportunity for the UK and Asia to invest and grow together,” Mr Osborne said. He expects other western countries, which have been making positive noises privately about the new bank, to become involved.

Beijing launched the AIIB in October with the backing of 20 other countries, but Japan, South Korea and Australia - America’s key allies in the region - did not become founding members. There has been a strong debate with the Australian cabinet about whether to join, after US pressure to stay on the sidelines.

A decision by the major economies to join now would give up leverage they might have over the AIIB as it was being set up, the US official said: “Large economies can have more influence by staying on the outside and trying to shape the standards it adopts than by getting on the inside at a time when they can have no confidence that China will not retain veto powers.”

Mr Osborne’s decision reflects London’s desire to pursue commercial relations with China aggressively, even at the expense of antagonising Washington.

When Mr Osborne visited Beijing in 2013 he said he wanted to ‘change Britain’s attitude to China’; last October the chancellor hailed the British government’s sovereign renminbi bond issue, the first by a western government. It has been keen to establish the City of London as a platform for overseas business in the Chinese currency as it starts to play a bigger role in the global economy.

Last week the House of Commons foreign affairs committee said that the British government should press China harder to introduce political reforms in Hong Kong. The committee also said it was ‘profoundly disappointed’ at the ‘mild’ response of the government when its members were prevented from visiting Hong Kong in November during the protests.

Published in Dawn, Economic & Business March 16th , 2015

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