Home > Opinion > Columns

Korea should join the AIIB

Published: 10 Nov. 2014, 23:01

A signing ceremony for a memorandum of understanding (MOU) on the establishment of the Asian Infrastructure Investment Bank (AIIB) took place Oct. 24 in Beijing with 21 participating countries. Proposed by the Chinese government to finance infrastructure development in Asia such as roads and railways, the bank was seeded with $50 billion from China and plans to expand to $100 billion in capitalization in the future. Along with the World Bank and Asia Development Bank, led by the United States and Japan, the AIIB is expected to focus on developing countries.

Despite China’s diplomatic efforts, the AIIB faces some constraints right from the start. Countries that are capable of contributing funds such as the United States, Japan, Korea and Australia are not participating, while countries that want to receive benefits represent the majority of signatories to the MOU.

In particular, China tried to persuade Korea to join the program. Although Chinese President Xi Jinping made the request personally during his visit to Korea in July, Korea has demurred, and Beijing does not hide its displeasure. Until now, China had counted on Korea’s participation by saying that the AIIB is crucial to realizing the Park Geun-hye government’s plans for the Northeast Asia Peace and Cooperation Initiative, Eurasia Initiative and new Silk Road project. Taking into account the status of Korean construction companies in the region, many in China believed that Korea would decide to participate.

On the surface, the Korean government said it could not join the program because of the governing structure and safeguard issues of the AIIB. It said the plan for China’s 50 percent stake in the bank and the proposed system of operations involving a management board were not in line with international practices with regard to transparency and fairness. It also said the safeguards fall short of international environmental, labor and gender equality standards.

The real reason behind Korea’s decision, however, lies in the opposition of the United States. In July, Washington expressed deep concern about Korea’s possible participation in the AIIB. It warned that is highly likely China will use the AIIB politically and Korea’s participation would affect the trust built up between the two countries as allies. In other words, the United States was sending a message that the AIIB is China’s challenge to U.S. hegemony in the global financial system and allies of the United States, including Korea, must not participate.

The Chinese government strongly opposes that view, saying its plan to contribute 50 percent of the bank’s capitalization is not final. Jin Liqun, who will head the bank, said China is willing to lower its stake to 30 percent or less under the international norm if the size of the fund grows sufficiently through participation by the United States, Korea and Japan. He also stressed repeatedly that the voting system, operation of the governing body and safeguards will respect international standards.

China also is disagrees with Washington’s interpretation that the bank represents a challenge to the United States. Beijing insists that for the mutual prosperity of China and other Asian countries, there is an urgent need to build roads and railway networks to connect Southeast Asia, China, Central Asia, the Middle East and Europe, and that was why Xi presented the idea of the construction of the Silk Road Economic Belt and the 21st Century Maritime Silk Road. But China alone cannot underwrite the enormous expenses for the projects and the AIIB was proposed, China explained.

An estimated $8 trillion will be required for the infrastructure projects of Asia from 2010-20, and the Asia Development Bank is not capable of funding all the projects that are needed because it has only $10 billion available for investment annually. Therefore, the launch of the AIIB to specialize in infrastructure construction appeared to be a natural development.

And the AIIB will be an organization that complements the World Bank and Asia Development Bank. That is why World Bank Group President Jim Yong Kim welcomed the plan for the AIIB and warned against political interpretation of the program.

The Korean government should become more broad-minded. Competition between the United States and China in economic development and infrastructure construction should be encouraged, as long as it is doesn’t turn into an economic arms race. Cooperating with both the United States and China with a “win-win” attitude is appropriate. Linking a military alliance with economic development and cooperation is a move that goes against the flow of the times.

President Park Geun-hye will sit down for a summit with Chinese President Xi Jinping on Monday. The meeting will take place at a delicate time, with Korea facing such issues as possible U.S. deployment of a Terminal High Altitude Area Defense (THAAD) missile unit, North Korea’s nuclear development and stalled six-party talks and frozen inter-Korean relations. Park must think about Korea’s national interests with a cool head when she responds to Xi’s invitation to participate in the AIIB.

Translation by the Korea JoongAng Daily staff

*The author is a political science professor at Yonsei University.

by Moon Chung-in