China-led Banking
South Korea will join the Asian Infrastructure Investment Bank, which aims to provide funds and consulting expertise to low-income countries to upgrade their social and industrial infrastructure. On Thursday the Korean government announced that it submitted its application to Beijing for a founding membership.
Welcoming South Korea's decision, China's finance ministry said that South Korea will become a founding member of the new regional lender by April 11 under the condition that existing members of the AIIB agree. So far, about 30 countries, including major European members like the U.K., Germany, and France, have signed up.
With participation, South Korea forecasts large benefits for local construction and telecommunications companies. “A China-led AIIB is expected to spur a huge demand for infrastructure work in Asia,” Ji Man-soo, a researcher at the Korea Institute of Finance, said, adding, “It will become easier for local Korean companies with extensive experience in construction, telecommunication, and transportation to meet affluent demand.”
The AIIB, widely viewed as a potential counterbalance to U.S.-led multilateral lenders such as the Asian Development Bank, is the first multilateral financial institution that Korea has joined as a founding member. Despite Washington’s concerns about Beijing's governance and influence in the new development fund, South Korea is likely to gain much benefit not only enhancing economic ties with China but also taking part in AIIB-funded infrastructure projects. Especially the government sees the massive amount of funds as crucial source to develop North Korea in case of unification.
Now the focus is on how to secure voting rights which will decide Korea's role in the bank. Though voting rights will be proportional to the contributions made, China is unlikely to demand veto power, though it will chip in as much as US$50 billion in initial capital, which would complete half of the donation for the starting fund.
As the fourth largest economy in Asia after China, India, and Japan, South Korea seeks an AIIB stake commensurate with its economic size and capability. Given that many multiple factors such as gross national income, per capita income, foreign reserve size, and trade volume play a part to make a confirmation, Seoul could not be assured of being the fourth-strongest influence. The Korean Finance Ministry said while some reservations still linger about the governance structure of the AIIB, progress has been made.