Seoul’s decision on whether to join China-led AIIB looming this month

Lou Jiwei, left, during a speech at a signing ceremony, Oct. 24, 2014. (Xinhua/Yonhap News)

If decision to join is announced, next question would be determining S. Korea’s share in the investment bank

South Korea’s share in the Asian Infrastructure Investment Bank (AIIB) and the organization’s governing structure are emerging as potential issues as the deadline looms for Seoul’s decision on whether to join.

China has suggested South Korea state whether it plans to become a founding AIIB member by the end of this month, while the South Korean government plans to make an announcement as soon as this week, sources in the Ministry of Strategy and Finance and elsewhere in the administration said on Mar. 22. The AIIB is an international financial organization proposed by China for infrastructure investment in Asia.

So far, Seoul has only indicated that it is “considering” joining. But numerous international news outlets have reported that it is leaning toward a positive decision and discussing the necessary conditions - including the matter of its share in the organization.

Stern opposition from the US had previously been a diplomatic obstacle to Seoul’s entry into the AIIB framework. But with major economies like the United Kingdom, France, Germany, and Italy already having announced plans to join, and Australia and Japan considering participation, some of the burden for the South Korean government has been lifted.

While the main question for the moment is whether South Korea will join, a tug-of-war between members over the benefits is poised to begin as soon as the decision is made. If Seoul does announce plans to join within the month, it would be able to sit down at the table with other countries that have signed memoranda of understanding (MOU) and forge out a deal on the agreement text to be announced in June. That table is where such key matters as the distribution of shares and the appointment of a governor are to be discussed in earnest.

The concern for South Korea and the European members is that the organization will have too much of a China focus. The AIIB was launched in Oct. under Chinese leadership, with 21 countries, including India and Pakistan, signing MOUs for its establishment. With China and India holding respective shares of 50% and around 19%, the current framework is likely to leave Beijing running away with the decision-making process. Shares and voting rights for other participant countries are to be decided by a combination of GDP and investment amounts.

Chinese Finance Minister Lou Jiwei announced last year that shares in the AIIB would be determined by the number of nations participating.

“There is no need for China to have a 50% share,” he said at the time.

Jee Man-soo, a research in the Macroeconomic and International Finance Division of the Korea Institute of Finance office of, said China “should not be allowed a share of half simply because it put up half the money.”

“Personally, I think it should be encouraged to hold only enough of a share that it would be able to exercise veto powers,” Jee said.

In the case of the Asian Development Bank, Japan is seen as having a disproportionate influence despite holding a 15.7% share to the US’s 15.6% in 2013.

“My understanding is that China was originally going to give South Korea a 5% share, and that won’t do,” Jee said. “We need to say we’ll pay more [in investments] and get as large a share as we can.”

Some sources have indicated that South Korea requested the AIIB vice governorship or secretariat to secure its own influence, although Seoul has denied the reports.

　

By Kim So-youn, staff reporter

　

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