AIIB shaping up, South Korea still undecided

Chinese President Xi Jinping delivers a lecture on July 4,2014 at Seoul National University. South Korea is one of the countries invited to become a member of China’s Asian Infrastructure Investment Bank. Photo by: Republic of Korea / CC BY-SA

China’s plans to set up the Asian Infrastructure Investment Bank next year are steaming ahead, with up to 21 countries having agreed — in principle — to join the institution as founding members, while others remain undecided.

Among the latter is South Korea, where negotiations with China have been progressing, but concerns over AIIB’s governance and capital structure are being hashed out.

“There are problems on governance and capital structures,” Kayoung Hong, deputy director of financial cooperation at the Ministry of Strategy and Finance in Seoul, told Devex. “[The issue on governance is that there’s] consensus internationally that the [memorandum of understanding] is dominated by one country.”

Hong added: “The issue on capital structures is [on the] share of countries. It is an issue because other countries want China to have a smaller share. [Currently], China will have about 50 percent or something.”

China’s foreign ministry released in September a statement claiming that up to 21 nations “are willing to become founding members” of the new multilateral bank, an initiative floated a year ago by Chinese President Xi Jinping to tackle glaring infrastructure development needs in Asia-Pacific, amounting to about $800 billion a year in the next decade. This is such a huge amount that even the combined resources of the World Bank and the Asian Development Bank cannot address.

Despite rumors that it fears regional competition from AIIB, ADB — at least officially — welcomes the arrival of the institution. Some development experts suggest, though, that AIIB may alter the status quo not just of the region’s development landscape, but also its political spheres of influence — with China sure to boost its footprint and thus counters Japan and the United States, coincidentally ABD’s two top shareholders.

Hong said that the South Korean government is still mulling whether or not to join the new development bank, and in any case the signing of a memorandum of understanding to become a member would have to be approved by the country’s national assembly — and this, she admitted “can be a problem.”

Among the countries have already signed up and will finalize their memorandums this week are Bangladesh and Sri Lanka. Australia is seriously considering becoming a member, while India, Malaysia, Nepal and Thailand are expected to sign the agreement to join very soon.

As a clear of sign of China’s leadership role within AIIB, most of the memorandum signing ceremonies will take place in Beijing. So far, China seems intent on its initial target of starting operations by the end of 2015, even if important details such as the host city — or country — have yet to be made public.

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About the author

  • Lean 2

    Lean Alfred Santos

    Lean Alfred Santos is a Devex development reporter focusing on the development community in Asia-Pacific, including major players such as the Asian Development Bank and the Asian Infrastructure Investment Bank. Prior to joining Devex, he covered Philippine and international business and economic news, sports and politics. Lean is based in Manila.

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