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KIEP Opinions: The Prospect of AIIB's Potential Investment in North Korea and Its Implications

2018-09-20, by Hyun Tai Lee, from Korea Institute for International Economic Policy (KIEP)

When considering the characteristics of the existing projects of the AIIB, if development investment projects actually commence in North Korea, the AIIB is likely to: 

① Support a "project preparation special fund" for exploring and investigating infrastructure projects in North Korea

② Co-finance sovereign-backed projects with other MDBs

③ Establish a "North Korean infrastructure development fund" to attract private capital both from home and abroad and invest this in North Korea

In light of the AIIB's emphasis on the participation of private capital, AIIB investment in North Korea can be expected to proceed in the manner of gradually increasing private investment through various channels of development funds. In addition, the AIIB's initial investment projects will likely be cross-border cooperation infrastructure projects in which AIIB member countries (Korea, China, Russia) and North Korea can all share common interests. On the other hand, it may be possible to invest in transportation infrastructure projects such as roads and railways in line with the "New Economic Map of the Korean Peninsula." We can also expect to see joint investments by the AIIB and private capital if investment conditions improve, as the risks associated with North Korean investment projects decrease and steady profits are generated.