China and U.S. strong-arm Korea

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China and U.S. strong-arm Korea

The United States has expressed deep concern over the possibility that Korea will participate in establishing the Asia Infrastructure Investment Bank (AIIB), a project led by China that could lead to conflicts among the three countries.

The Chinese government has requested that Korean announce its decision to join the project when President Xi Jinping visits Seoul on July 3, putting more pressure on Korea to make a decision.

According to the government and financial authorities yesterday, when Chinese Foreign Minister Wang Yi was in Seoul to meet President Park Geun-hye in May, he asked her to release a joint statement with Xi saying Korea has decided to join the AIIB.

The Chinese government reportedly made the same request of Hyun Oh-seok, Korea’s deputy prime minister for the economy, on June 4.

Early this month, Washington told the U.S. Embassy in Seoul it is deeply concerned that Korea might join the AIIB.

The U.S. government said China is highly likely to use the bank for political purposes, and if Korea joins, its credibility as a U.S. ally might be affected, it said.

The Blue House and economic and financial authorities are aware of the diplomatic repercusions and are discussing measures to deal with them.

Since last month, Park’s top economic aides have gathered several times in the west annex of the Blue House for closed door meetings on the issue.

The AIIB will be a new financial institution planned by China to rival the World Bank and the Asian Development Bank, which are dominated by Western countries and Japan, with an aim to create a new financial order centered on China. China plans to supply half of the capital needed for the new financial institution, estimated to be between $50 billion and $100 billion.

Countries that have been asked to participate are mostly China-friendly nations, including the Asean countries, Pakistan and Sri Lanka. The United States, Japan and India are not involved.

Since Korea has only a very small stake in major international financial institutions such as the World Bank and ADB, the country needs to strengthen its status globally, which it wants to do by joining the AIIB. Some critics say Korea first needs to establish a bank for payment and liquidation of the Chinese yuan in the country. Park has a long-term plan to create a bank for Northeast Asia, too.

However, some have said that if Korea joins the AIIB, it will play second fiddle to China. To own a greater stake, Korea would need to put up more money.

The United States hasn’t publicly stated its disapproval of the AIIB. However, since it has been confirmed that it is opposed to Korea’s participation, chances are higher of a Washington-Beijing clash over the issue. Korea’s participation would have significant political implications for both countries, since it is a long-time ally of the United States.

“The United States, although it showed some concern, had taken no position on Korea’s joining,” said a government official on condition of anonymity. “But it changed its stance quickly in June. Korea is in a difficult situation, because taking sides with one can worsen ties with the other.”

The Blue House is reportedly contemplating whether it should mention the AIIB in the joint statement that will be issued by Park and Xi during his upcoming visit.

BY Park jin-seok [ssh@joongang.co.kr]




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