South Korea sees gains for its infrastructure firms from joining AIIB

March 27
9:05 PM 2015

South Korea hopes its infrastructure companies will benefit from the country joining the China-backed Asian Infrastructure Investment Bank (AIIB), the finance ministry said on Friday.

Shares in some South Korean iron and steel products makers rose sharply, partly on hopes for new orders when the AIIB is operational and funding infrastructure projects, which is likely next year. Histeel Co (071090.KS) rose 14.8 percent and Hanil Iron & Steel (002220.KS) was up about 6 percent by the afternoon.

"(The government) expects our companies to win many orders in areas such as communications, energy and transportation, where they have strength," Song In-chang, head of the finance ministry's international finance bureau, told reporters.

Seoul announced on Thursday it would seek to join the AIIB as a founding member, the latest U.S. ally to do so despite Washington's misgivings. China is South Korea's biggest trading partner and the two countries are set to sign a free trade agreement in the first half of this year.

China has set March 31 as the deadline for joining the bank as a founder member, which will be capitalized at an initial $50 billion to provide project loans to developing nations.

China's finance ministry said on Friday that Luxembourg has been accepted as a founding member, taking the number to 28. According to Seoul, applications from six countries are pending - Britain, Germany, France, Italy, Switzerland and South Korea.

The AIIB has been seen as a significant and possibly historic setback to U.S. efforts to extend its influence in the Asia-Pacific region to balance China's growing financial clout and assertiveness.

The major absentees in the region from the bank are Australia and Japan. Australia has said it is close to joining, but Japan remains cautious.

"What is important is not the date but whether we can see what we have been asking (China) guaranteed," Finance Minister Taro Aso told reporters after a cabinet meeting on Friday.

Aso reiterated Japan's concerns relating to fair governance at the AIIB, establishment of the board of directors, debt sustainability and respect for social and environmental issues.

"Unless (China) clarifies these matters, which are not clear at all, Japan remains cautious," he said.

Song at the South Korean finance ministry said some of the concerns among prospective members had recently been resolved, such as giving the board of directors the power to decide on investment projects, instead of the management.

The Wall Street Journal reported this week that China had proposed to forgo veto power at the AIIB to attract more countries to join the new bank.

Chinese foreign ministry spokeswoman Hua Chunying has however dismissed the notion that Beijing sought - or gave up - veto power as an "impossible proposition".

Taiwan has also expressed interest in joining the AIIB, but has not so far been invited. "We should not look on from the sides, we should be actively involved," President Ma Ying-jeou said in an interview on Thursday with a local media group, according to the presidential office.

China considers Taiwan as a renegade province and has opposed its membership in international organizations if it confers any sovereignty on the island.

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