Osborne calls U.S. Congress's China stance a 'tragedy'

By Jonathan Spicer

NEW YORK (Reuters) - Chancellor of the Exchequer George Osborne strongly criticised the U.S. Congress's approach to China during a visit to New York on Monday, calling its decision to oppose a greater Chinese role in the International Monetary Fund a "tragedy".

Britain had a rare diplomatic rift with the United States this year when it became the first Western nation to support China's Asian Infrastructure Investment Bank, which Washington sees as a rival to Western-led bodies such as the World Bank.

British Prime Minister David Cameron then gave a warm welcome to China's President Xi Jinping on a state visit to Britain. Domestic and foreign critics have accused Britain's government of prioritising short-term commercial gains over human rights and security issues.

Osborne -- who himself toured China earlier this year and is a strong contender to succeed Cameron as leader of Britain's Conservatives -- rebuffed this criticism at an event in New York and hit back at U.S. politicians he said wanted to isolate China.

"In my view it is overwhelmingly in our interests - in Britain's interests, in America's interests - to bring China into and bind China into a multilateral world," he told the Council on Foreign Relations, a U.S. think tank.

The U.S. Congress has so far not approved reforms agreed in 2010 that would put Brazil, China, India and Russia among the IMF's top 10 shareholders and give emerging markets more influence. The White House supports the move but Congress, controlled by Republicans, must also back it.

"It is a tragedy that an agreement reached across all the members of the IMF, including by the U.S. administration, is being blocked by one legislature in the world, the U.S. Congress," Osborne said.

Last month, China's vice finance minister said the world's second-biggest economy had urged the Congress to adopt the reforms as soon as possible.

Osborne also said the United States, Britain and other countries should focus on implementing a July deal on Iran's nuclear programme under which sanctions against Tehran will be lifted, rather than seek to unpick it as proposed by some Republican presidential candidates.

Last week Cameron won support from Britain's parliament to bomb Islamic State insurgents in Syria, after a defeat two years ago when he proposed air strikes on Syrian President Bashar al-Assad.

Osborne said this vote, combined with higher defence spending, showed how Britain was "reasserting itself on the world stage".

But neither Britain nor the United States should deploy ground troops to fight Islamic State, Osborne said. Instead they should seek Assad's departure and work with other Syrian leaders.

Osborne's visit to the United States came with the Federal Reserve preparing to raise interest rates, and he warned of potential ructions in emerging markets when this occurs.

"The exit from loose monetary policy in the United States and in Britain ... will pose some big challenges for the emerging markets. Although (the policy changes) have been quite well advertised and foreshadowed, that doesn't mean they are going to be particularly easy to deal with when they come."

(Writing by David Milliken; Editing by Mark Heinrich)