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(News Focus) AIIB launch to create new biz opportunities in construction, steel, IT sectors

All Headlines 11:30 June 29, 2015

By Lee Joon-seung

SEJONG, June 29 (Yonhap) -- The launch of a China-led infrastructure development bank is expected to create new business opportunities for South Korean companies in such areas as construction, iron and steel and information technology (IT) and promote region-wide growth, observers said Monday.

The Asian Infrastructure Investment Bank (AIIB), with 57 founding members, is expected to better meet the demand for investment in the rapidly growing region that is estimated at $730 billion annually until 2020. This is far higher than the average $236 billion invested annually in the regional infrastructure in the 2004-2013 period.

"If projected investment targets are met, this translates into a significant boost in work that is good news for South Korea, which will be the fifth-largest stakeholder in the AIIB," a local market watcher said. He pointed out that new opportunities will be appreciated in the iron and steel, construction and IT sectors, where South Korean companies enjoy global competitiveness. The potential for more work comes at a time when slower growth at home is making it harder for local companies to win large-scale projects.

More and more economists have said that the "new normal" for South Korea's economy is around 3 percent annual growth, down from higher numbers in the past.

The Beijing-based bank will start with an authorized capital of $100 billion, with South Korea to contribute $3.74 billion. The country will have a 3.81 percent stake in the bank, placing it after China, India, Russia and Germany. In percentage terms, Seoul's stake in the Asian Development Bank (ADB) is larger at 5.06 percent, although in that institution, South Korea is the eighth-largest stakeholder.

Choi Hee-nam, deputy minister of international affairs at the finance ministry, said that China has shown considerable energy in moving forward with future projects.

"Unlike other multilateral development banks (MDB) that take two to three years to authorize work, AIIB may be able to finance its first endeavor by the start of 2016," the senior official said.

He said that while more negotiations are needed, if South Korea secures a standing manager post by winning the backing of other countries, or takes one of the vice governor slots, its influence within the organization should increase, which would be good news for companies.

South Korean companies have said that China's ambitious plan to implement the so-called One Belt, One Road program to bolster connectivity among Eurasian countries by setting up 21st-century land and maritime "Silk Roads" can create considerable infrastructure work down the line.

Reflecting such burgeoning opportunities, South Korea's government has said it set up various task forces made up of policymakers and private sector experts to take full advantage of future opportunities.

China is South Korea's largest export market and a key destination for outbound investment.

South Korea-China relations have grown by leaps and bounds in the past few years with the official signing of a free trade agreement, and the announcement by both sides that two-way ties have now become a "strategic" partnership. South Korea has also become, within a short period of time, a leading overseas center for China yuan trading, after it won a renminbi-qualified foreign institutional investor quota late last year.

Besides pure infrastructure work, the AIIB is expected to support its various projects by providing financial and guarantee services as well as technical assistance. Such services can offer business opportunities to local firms in these areas down the line.

Another way that the AIIB's launch can benefit South Korea and the Korean Peninsula as a whole is by investing money into projects supporting North Korea, and nudging the communist country to become a more responsible member of the international community.

"Although the AIIB is mainly tasked with infrastructure building among its member states, it can technically invest in projects in North Korea if there is extensive understanding," said a government official, who declined to be identified.

North Korea, which is not part of the ADB or International Bank for Reconstruction and Development, was barred from joining the AIIB even though reports indicated it showed interest in doing so.

The official pointed out that countries that are members of the Greater Tumen Initiative (GTI) are all AIIB members. South Korea, China, Russia and Mongolia set up the GTI to develop the part of Northeast Asia that encompasses parts of China, Russia and North Korea.

"If the AIIB provides funding for roads, railways and other infrastructure work, it would be natural for South Korean companies to play a role," the official said.

This view was echoed by Sejong University China trade professor Lee Moon-ki, who said that the AIIB can be used to push North Korea to carry out reforms and change.


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