Japan, South Korea invited to China's AIIB

The flags of Japan, China and South Korea. Japan and South Korea have been approached by China to become founding members of the Asian Infrastructure Investment Bank. Photo by: futureatlas.com / CC BY

The process of establishing a China-led regional development bank is speeding up, and Beijing is now actively courting other countries to become founding members.

Chinese officials have been reportedly meeting and consulting with several Asia-Pacific nations over the past few months to set up the still tentatively named Asian Infrastructure Investment Bank. So far we have learned that South Korea, Malaysia and longtime regional development leader Japan have all been approached — yet so far only Mongolia expressed its firm commitment to join by signing a memorandum of understanding last April.

“We didn’t decide yet whether to join or not. There are only discussions. No official agreements yet,” Kayoung Hong, deputy director of financial cooperation at South Korea’s Ministry of Strategy and Finance, told Devex. “But yes, we are considering it.”

A Japanese government official, who spoke under condition of anonymity, echoed this sentiment, adding that Japan has also received China’s invitation and explanation about the establishment of the new multilateral development bank. Japan, though, has yet to decide and make a clear statement on the matter.

“We got the explanation once only in Tokyo. As far as I know, we haven’t got any further information whether they will go to Tokyo [again] and give further details,” the Japanese official told Devex. “We are just carefully analyzing the subject explained to us.”

Hong revealed that up to 20 countries met in Shanghai on June 10 for the third round of meetings about the new development bank, with a fourth meeting scheduled for late July. This development opens up a new angle, contrary to reports in May suggesting that China had snubbed Japan and the U.S. — the two biggest shareholders of the Asian Development Bank, until now the only regional multilateral development institution — in its plans to create the AIIB.

The idea of a China-led development bank for Asia was first floated by Chinese President Xi Jinping in late 2013 as a solution to address the huge financing gap in regional infrastructure demands, with over $800 billion needed annually for the next decade. Some of the details about the new bank include a $50 billion initial capital base — with a second option of $100 billion — with operations expected to start as early as 2015.

Growing concerns

Asked about the pros and cons of joining — or not joining — the AIIB, both Japanese and South Korean officials gave similar answers.

Hong explained that Seoul is looking at different concerns including governance, capital issues and international relations.

“We think governance should be more heightened in an international institution,” she said.

This highlights China’s capacity — or the lack of — to operate and not just establish AIIB. Despite the inherent good intentions of the bank, China will be under intense scrutiny if it doesn’t do anything about its track record of disregarding international standards on labor, environment and safeguards.

The Japanese government official agreed, saying that they “wonder whether AIIB can meet the sort of international standards like governance and safeguards which is already established in a multilateral development bank.” The official also wondered if the institution is truly necessary when ADB is there carrying out infrastructure development programs for the region.

“We’re just concerned with several points [including] whether we need AIIB in addition to ADB which already plays a central role in the infrastructure development in the region,” the official explained.

This is why right now Japan is “still not persuaded whether we need AIIB in addition to ADB [and] whether this will fulfill the demand for infrastructure development [in the region].”

What do you think? Will China get Japan, South Korea and other top donors to join its new development bank for Asia? Please let us know by sending an email to news@devex.com or leaving a comment below.

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About the author

  • Lean 2

    Lean Alfred Santos

    Lean Alfred Santos is a former 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. He previously covered Philippine and international business and economic news, sports and politics.