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South Korea may lose AIIB vice president seat amid dispute with China

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South Korea may lose AIIB vice president seat amid dispute with China

Opinions expressed inthis piece are those of the author and do not represent the views of S&PGlobal Market Intelligence.

South Korean media outlets are abuzz at the news that thecountry's vice president seat at the China-led Asian Infrastructure Investment Bank (AIIB) could bedemoted, and they have speculated that the move is linked to South Korearousing China's ire after the announcement of a new U.S. anti-missile system tobe installed in the former.

The U.S. and South Korea on July 8 unveiled a joint plan todeploy an anti-missile defense unit against threats from North Korea. Thisprovoked China's wrath, which considers the anti-missile system a securitythreat.

"China has expressed strong dissatisfactionwith and firm opposition to the decision," a spokesperson from the ChineseForeign Ministry said at a July 8 press conference in Beijing. The U.S. andSouth Korea should cease deploying the anti-missile system and refrain fromdestabilizing the region, he said.

China, South Korea's largest trading partner, is expected toprepare retaliatory measures, which may partly be economic moves.

Local media outlets have speculated that the vice presidentand chief risk officer position at the AIIB, currently held by a South Koreannational, will be demoted to a director-general position, as a response to theanti-missile system. South Korea holds the fifth-largest stake in thedevelopment bank with a shareholding of 3.81%, behind China, India, Russia andGermany.

But the man currently in the chief risk officer position ishimself dogged by controversy. Hong Ky-ttack, who his posts at the multilateralfinancing institution in February, took a leave of absence in June, and did not participatein the bank's inaugural annual meeting.

Hong gave an interview at the end of May accusing the South Koreangovernment of excessive involvement in Korea Development Bank, where he was previously chairmanand CEO.

Hong said he was excluded by high-ranking governmentofficials during the decision making regarding the injection of public funds torescue an ailing domestic shipbuilder in 2015, noting that the bank was pressedby government officials to carry out their will.

Hong could not immediately be reached by S&P GlobalMarket Intelligence for comment.

Considering the recent disagreement over the anti-missilesystem, China is unlikely to accept the appointment of another Korean nationalto a senior management position if Hong does step down after his leave ofabsence, as he is widely expected to do.

Yoo Il-ho, South Korea's deputy prime minister and financeminister, said June 29 at a National Assembly session that Hong's leave ofabsence was a personal decision, and was made without government input.However, there are few who take Yoo's comments seriously.

The AIIB has five positions with the rank of vice president— corporate secretary, chief risk officer, chief investment officer, chiefpolicy and strategy officer and chief administration officer. It currently hasa job vacancy listed on its website for a vice president for finance. The banksaid July 8 that it is also recruiting a director general in charge of riskmanagement, reporting directly to the president.

It is not clear whether AIIB is adding an extra vicepresident position with this job posting for a vice president for finance tothe current five seats, or if the bank is looking to downgrade the chief riskofficer position to director general.

"What I can confirm at this moment is Hong is takinglong leave. So we need a person who will make up for his absence," SongLi-yan, a representative at the AIIB, told S&P Global Market Intelligence.He declined to comment on the potential reshuffling within senior managementranks.

Additionally, the AIIB announced June 13 the appointment ofits first CFO in Thierry de Longuemar, who is set to leave his post of vicepresident at the Asian Development Bank in September.

De Longuemar, a French national, could potentially take upthe position of vice president in charge of finance at the AIIB after assumingthe post of CFO, and the current recruitment process may just be a formality.