A potential dynamic duo

Koreans perceive themselves to be stuck between the Bretton Woods financial system the United States created after the Second World War and an emerging new financial order centered on the Asia Infrastructure Investment Bank (AIIB), led by China and joined by a host of major countries.

On the one hand, Korea has benefited greatly from the global trade system that developed thanks to the Bretton Woods system and a close alliance with the United States. Yong Kim, a Korean, is president of the World Bank. At the same time, China has become the dominant economic power in Asia and Korea’s most important trading partner.

The attraction of the AIIB, as a possible source for funding infrastructure projects of value to Korean companies, is simply irresistible.

But could it be that what Koreans see as a tragic choice between the U.S. and Chinese camps is really more a lack of imagination than a true dilemma? Could it be that Korea, rather than being a passive player in a geopolitical shakedown, can serve as a key nation in defining what exactly the AIIB will be and keep it on a positive track as it develops?

After all, Korea is the only nation to move from a developing nation to developed nation in the past 50 years and has increasing clout in both camps.

The key to this puzzle is the special status of Korea as home of the Green Climate Fund (GCF). This new financial institution has the potential to change the nature of development by making impact on the climate the primary concern of economic growth.

Although GCF is still in its early stages, it could evolve into the center of a new financial cluster that complements the World Bank and IMF. The GCF could perhaps even push the World Bank and IMF in a healthier and more sustainable direction.

The essential question, looking forward, is how Korea can help define and negotiate the relationship between the GCF and emerging AIIB, perhaps parallel the relationship between the World Bank and IMF. Granted, with the country’s close economic cooperation with China and the deep cultural ties between the two nations, Korea is uniquely positioned to lead such a transition. But the transformation to a green economy will not happen if Koreans wait for others to make proposals first. Korea must provide the vision for a GCF-AIIB relationship and formulate a concrete plan of action.

Much of the criticism of AIIB is related to the lack of standards for the acceptable environmental impact of infrastructure projects led by China in the developing world. The concern is legitimate and many Chinese readily admit that although their country’s development model for highways, ports and railways has brought millions out of poverty and into middle class lives and can be exported to developing and even developed nations, the standards employed for environmental impact have been low.

However, it is not appropriate to dismiss China as an environmentally backwards nation.

Although China suffers from terrific problems related to water pollution, yellow dust and microparticles, and those problems have an impact on all of Asia, China has the potential to be a positive model for the creation of large-scale infrastructures for solar and wind power. China leads the world in renewable energy investment and has invested in wind power and solar power on a scale unrivaled anywhere else.

Whether or not China makes the necessary green transition may well depend on the relationship between the AIIB and GCF. Future cooperation between the GCF and AIIB will determine the priorities for both institutions as they evolve. Because the green growth model that emerges from this discourse will not be one aimed at wealthy countries like Germany or Finland, but at countries that are only starting to expand economically, its impact is potentially immense.

Also, the international community must accept a few basic facts about the AIIB. There is no chance that archaic “containment” politics can succeed in limiting China’s economic impact in the world. China is not just a country; China is home to one in five people on Earth. AIIB policies will have a profound impact on Chinese and global development whether the United States and Japan join or not. We have no choice but to roll up our sleeves and get to work with the Chinese as they plot out their own future and the future of the world’s economy.

Finally, as the AIIB and GCF develop as mature global institutions, I hope their policies will reflect traditional Chinese and Korean economic principles. Traditionally, Korea and China made long-term economic plans 100-200 years with an emphasis on agriculture and ecological sustainability. That perspective on economics has been overshadowed by a speculative trend in recent years and environmental impact has been ignored.

Perhaps the AIIB and GCF can bring back something of the great tradition of sustainable development that defined the economies of the Qing and Joseon dynasties.

*The author is an associate professor at the College of International Studies, Kyung Hee University.

by Emanuel Pastreich