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South Korea seeks to join China-led development bank

Chinese Finance Minister Lou Jiwei (C) attends a signing ceremony for the Asian Infrastructure Investment Bank at the Great Hall of the People in Beijing on October 24, 2014

South Korea announced Thursday it would seek membership of the Chinese-backed Asian Infrastructure Investment Bank (AIIB), despite US opposition to the new multinational lender which Washington sees as a threat to the World Bank.

Joining the AIIB as a founder member would strengthen South Korea's influence in the international banking sector and help domestic firms participate in large-scale regional infrastructure projects, a finance ministry statement said.

The question of joining the bank had posed something of a quandary for Seoul, which had to balance competing pressure from its main military ally, the United States, and its largest trading partner, China.

The ministry said the decision to sign up as a founder member came after China had addressed a number of outstanding governance issues regarding the new lender.

China is expected to foot the bulk of the initial $50 billion needed to get the bank started, with donations from other members set to increase the size of the overall fund to more than $100 billion.

China touts the institution as a tool for financing regional development alongside other lenders such as the US-based World Bank and the Japan-led, Manila-based Asian Development Bank (ADB).

President Barack Obama's administration has been waging an intense but low-profile lobbying campaign against the new bank, with officials suggesting it would lower international development standards.

Critics say Washington's opposition is simply down to concerns that the AIIB will undermine the institutions over which it holds more sway.

The United States wields a veto on major decisions made by both the IMF and the World Bank, and has a lock on selecting the president of the World Bank.

Whatever the motivation, the argument over the AIIB is one the United States appears to be losing.

South Korea's decision came a week after France, Germany and Italy all said they were planning to join Britain in seeking membership, and Australia is believed to be close to a similar decision.

The move by the European powers was seen as easing South Korea's decision to ignore Washington's urgings to spurn the new bank.

But there could be a silver-lining for the US, in that Seoul may feel that by siding with China over the AIIB, it can now agree to the proposed deployment of a US missile defence system in South Korea that Beijing opposes.

Washington insists the Terminal High-Altitude Area Defence (THAAD) system is a necessary deterrent to North Korea's ballistic missile ambitions, while China argues that its deployment will undermine stability on the divided Korean peninsula.