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On Mar. 27, the South Korean government decided to join the China-led Asia Infrastructure Investment Bank (AIIB), suggesting that the real tug-of-war between participating countries over shares in the bank and other economic advantages is about to begin.

Along with China, India, and other countries that have already signed MOUs to participate in the establishment of the bank, South Korea will also be joining in negotiations about the final agreement, which is supposed to be announced this June. During the negotiations, key issues including the share in the bank, the composition of the board of directors, and the appointment of the bank president will be discussed.

The negotiations that take place over the next months are likely to determine how much of a role South Korea will play in the bank.

In contrast with the World Bank and the Asian Development Bank, which were spearheaded by the US and Japan, China has taken the lead in creating the Asia Infrastructure Investment Bank.

The South Korean government has emphasized that it is acting with the national interest in mind. By emphasizing the economic advantage, the government hopes to avoid creating a diplomatic rift with the US, which has not announced plans to participate in the bank.

Economically speaking, this is a golden opportunity. The Ministry of Strategy and Finance estimates that there will be US$730 billion of demand for infrastructure investment in Asia every year through 2020. The bank is designed to provide funds for constructing a wide range of infrastructure in Asian countries, including roads, ports, power plants, houses, communication, and water lines.

If the South Korean government has a voice in the bank, South Korean companies will have not a few opportunities to win contracts. This is why economic organizations have welcomed the news.

In order to reap satisfactory economic rewards, however, there are quite a few hurdles that must be cleared. The most important of these is securing shares in the bank.

As has been seen in other examples of international organizations, a country’s voting rights are determined by how great of a share they hold. With the Asian Development Bank, for example, in which Japan holds the greatest share (15.7%), Japan has always chosen the president, and it is also thought to have used its influence to help domestic companies win a large number of infrastructure construction contracts.

Choi Hoe-nam, chief of international economy for the Ministry of Strategy and Finance, may have had these circumstances in mind when he told reporters on Mar. 27 that South Korea would “secure as great a share as possible in accordance with its economic standing.” Choi held the press conference at BEXCO, Convention Center in Busan, where the annual convention of the Inter-American Development Bank (IDB) is taking place.

Thus far, a total of 36 countries have joined the bank or announced that they will be joining. The question of how the shares will be distributed is still being negotiated.

“GDP size will probably be the biggest factor, but other conditions will be considered as well,” said a source from the Ministry of Strategy and Finance.

When determining shares for the World Bank, for example, size of the economy (GDP) accounted for 75%, financial contribution for 20%, and development contribution for 5%. Some experts believe that South Korea will secure around a 5% or 6% share in the bank.

While China is likely to have the biggest share, the exact size of that share is still up for debate. As the number of participating countries increases, the majority opinion is that China will be unable to secure a 50% share.

When asked about China’s share in the bank, one senior official at the Ministry of Foreign Affairs said, “According to a simple calculation, I think it will be in the mid-30% range.”

During the three months of discussion, South Korea could find itself in an extremely uncomfortable position, some experts believe.

“This is South Korea’s dilemma. If it emphasizes the role of Asia too much to help it get a larger share, it could damage its relations with Europe. If on the other hand it joins with Europe to emphasize transparent control structure (in regard to the board of directors and the appointment of the president), it could complicate its relations with China,” said Jee Man-soo, a researcher in the Macroeconomic and International Finance Division of the Korea Institute of Finance.

The decision is also expected to affect South Korea’s relations with North Korea and the US. Since North Korea is not a member of the World Bank or the Asian Development Bank, it cannot join the new bank directly, but it can receive investment. If the South Korean government actively participates in infrastructure investment allotted for North Korea, it could be a positive signal for inter-Korean relations.

The US is still a tough nut to crack. While the pressure on the South Korean government about joining the bank was eased by the decision of the UK and other European countries to participate, there are still various concerns because of the special relationship between South Korea and the US.

While the opposition New Politics Alliance for Democracy (NPAD) welcomed the announcement, the party is also worried that the South Korean government may try to appease the US by making concessions about THAAD (Terminal High Altitude Area Defense).

“I’m concerned that the abrupt decision to join the China-led bank may be an attempt to make the deployment of THAAD, which the US desires, an accomplished fact. It may be an attempt to maintain balance by giving the US one thing and China another,” said Ju Seung-yong, a member of the party’s supreme council.

By Kim So-youn and Kim Ji-hoon, staff reporters

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