A View from Japan

Shihoko Goto

When he assumed office for the second time nearly seven years ago, Prime Minister Abe Shinzo made clear that Southeast Asia would not simply remain critical for Japan’s economic interests, but that strengthening diplomatic as well as security relations with the region would be critical in the future as well. Abe was quick to demonstrate Japan’s strategic interest in bolstering its relations with Southeast Asia as he targeted the Philippines, Vietnam, and Indonesia as among his first countries to visit in 2013. Moreover, he made a point to visit all 10 ASEAN member countries before going to neighboring China or South Korea, each of which posed problems for hosting him. Unlike the testy relations with its immediate neighbors, most Southeast Asian nations have continued to view Japan favorably, and that favorability has been the foundation upon which Japan has enhanced its security ties in Southeast Asia amid the growing Chinese military threat on the one hand and persisting uncertainties about US commitment to Asia on the other. But as Tokyo itself looks to bolster economic relations with China, the vision for Japan’s geopolitical foothold in the region too is evolving. Rather than take a winner-take-all approach to developing markets in Southeast Asia where it competes head-on with China, Tokyo is looking for a more conciliatory approach to growth whereby it can partner with Beijing in regional projects of mutual interest. Although specific projects have yet to be identified, this approach adds a new twist to Abe’s focus on Southeast Asia, previously seen as at odds with China’s.

Japan’s expanding expectations for Southeast Asia

Japan has been Southeast Asia’s steadfast investor since the late 1970s, with the private sector leading the way to seek new opportunities for growth. Today, there are about 83,000 Japanese corporate expatriates in the region, up 32 percent from 2012, while the number in China fell 16 percent to 70,000, according to the Japanese Ministry of Foreign Affairs. There are, in fact, more Japanese executives in Southeast Asia than in any other region in the world, including the United States and Europe. Anticipation of a slowdown in Chinese growth prospects, coupled with heightened political tensions between Beijing and Tokyo, particularly after the 2012 nationalization of the Senkaku/Diaoyu islands in the East China Sea, have contributed to the allure of ASEAN nations for Japanese investments. So, while China’s pace of FDI expansion exceeds that of any other country, including Japan, Tokyo remains the dominant investor in the region, accounting for about one-fifth of total spending on new projects in Southeast Asia, compared to 14 percent from China. With Japanese public sector capital supporting corporate interests, Tokyo has been the de facto provider of consistent, reliable development assistance that China’s Belt and Road Initiative (BRI) is only now beginning to challenge. In fact, Tokyo’s biggest problem may actually be that it had not been as good as it could have been in making clear its position as the region’s leading provider of infrastructure and business investments.

As Japan looks to make clear its leading role as a provider of financial assistance and growth opportunities in the region, the Abe administration has focused on promoting itself as the provider of quality infrastructure, i.e., while it may not be able to undercut China in terms of price or speed in providing assistance, projects financed by Japan’s public and private sectors would be guaranteed in their safety, reliability, and adherence to stringent environmental standards and labor rules. In addition, Japanese projects would offer technical assistance and encourage development of local labor as part of the package, and be financed in a way that would be sustainable to local governments.

Japan’s success in promoting its brand of quality infrastructure development has as much to do with capitalizing on wariness and fatigue about China’s offerings as with taking advantage of the assets Japan has. The unsustainable debt repayment for Sri Lanka’s Hambantota Port project led Colombo to make a deal with Beijing for a debt-equity swap, and granting a 99-year lease on the port has become the cautionary tale for developing countries to depend on Chinese financing. Worries about falling into a debt trap have spurred other neighboring countries also to question leaning to assistance from Beijing. Malaysia’s prime minister Mahathir Mohamad, for instance, has been vocal in his concern toward depending too heavily on Chinese capital, arguing that it is a new form of colonialism. Mahathir has not shied away from sharing his concerns about Chinese money with fellow Southeast Asian leaders, including Filipino president Rodrigo Duterte. The Malaysian statesman warned Duterte that borrowing heavily from China will ultimately lead the indebted nation to be under the control of its lender. Yet, Mahathir has now cut a deal with China to lower the debt obligation and go forward with the railroad initiative.
Japanese capital, on the other hand, has been relatively unscathed by such concerns about debt traps, even if there have been criticisms about meeting the obligations of tied loans through its development assistance packages.

In fact, Tokyo has been able to leverage increased criticism against Chinese lending practices by increasing the allure of its own new initiatives, expanding from the first Mekong-Japan summit meeting first held in 2008. Last year, Tokyo moved forward with projects that would assist infrastructure development in addition to enhancing trade relations with the five countries around the Mekong River, namely Thailand, Vietnam, Laos, Cambodia, and Myanmar. Certainly, the plan is of benefit to Japan as much as to the five Southeast Asian nations. A Kyodo News NNA survey in January found that nearly 36 percent of Japanese companies see Vietnam as the single most attractive country in which to invest given its strategic location, production capabilities, high growth prospects, and large consumer market.

Finding a way between the BRI and the Indo-Pacific strategy

Until the recent rapprochement between Japan and China, it seemed that Tokyo was in lock-step with Washington in competing against Beijing head-on in providing development assistance to Southeast Asia from geopolitical calculations as much as for business opportunities. Certainly, Japan remains one of the few countries that has remained with the United States in not becoming a signatory to the Asian Infrastructure Investment Bank, at least for now. But one of the unintended consequences of the ongoing trade dispute between the United States and China has been to bring Tokyo and Beijing closer and motivate the two sides to cooperate further on issues of mutual interest on the economic front. That willingness to put aside political rivalries stemming from the persisting confrontation over the Senkaku Islands in the East China Sea would have been difficult to overcome had it not been for shared concerns about the impact of US tariffs on exports. Even if the ongoing trade dispute between Washington and Beijing is partially resolved, wariness of Washington continuing to threaten imposing punitive actions in the future as part of its longer-term strategy to reduce its trade deficits will persist. Meanwhile, as Tokyo is in the midst of negotiating a bilateral trade deal with the Trump administration that is focused on bringing down exports of Japanese automobiles in particular, the Abe government too remains ever concerned about the disruptive policies the United States could pursue that could hamper Japan’s own competitiveness. The end result has been that China and Japan now have a shared interest in hedging against the uncertainties posed by the United States and its unpredictable trade as well as broader economic policies.

To be sure, Tokyo remains committed to the Free and Open Indo-Pacific (FOIP) initiative (no longer called a strategy by Japan in order to assuage Chinese concerns) that has expanded in response to China’s ambitious BRI development strategy across Southeast and Central Asia as well as Africa. Indeed, at the latest two-plus-two security meeting between Foreign Minister Kono Taro and Defense Minister Iwaya Takeshi and their counterparts Secretary of State Mike Pompeo and acting Defense Secretary Patrick Shanahan, the two countries not only agreed to strengthen existing security relations but also to extend their defense cooperation to cyberattacks. In addition, they stressed “their shared concern that geopolitical competition and coercive attempts to undermine international rules, norms, and institutions present challenges to the Alliance and to the shared vision of a free and open Indo-Pacific.”

Yet at the same time, Japan is effectively hedging against the Indo-Pacific strategy as it looks to China as a partner to move forward with infrastructure development projects in Southeast Asia. One of the key developments of the summit meeting between Abe and Xi Jinping last October was that it did not simply end with the fact that the two leaders got together for the first time in seven years apart from meetings on the sidelines of international gatherings. The summit meeting also led to a bilateral agreement to work jointly on 50 infrastructure projects in Southeast Asia. So, it was not surprising that while Abe himself did not attend, he was represented by his special envoy Nikai Toshihiro at this week’s latest Belt and Road Forum in Beijing, who was warmly received by his Chinese counterparts. As secretary-general of the ruling Liberal Democratic Party, Nikai has close ties to the Japanese premier and has been a proponent of Japan joining the Asian Infrastructure Investment Bank in the future as well. Certainly, Nikai’s optimistic and ultimately pragmatic approach to partnering with China to ensure ASEAN prosperity reflects Abe’s own views, as the prime minister himself has stated that Japan would look into possibilities for Sino-Japanese economic cooperation on a case-by-case basis.

Looking ahead, Tokyo’s aspiration is not to be locked into a battle of ideologies and be forced to choose between the BRI or the FOIP. Rather, Japan’s vision would be to see both roadmaps for growth and opportunities in Southeast Asia be able to coexist. Tokyo’s argument in partnering with China on joint urban development projects in Thailand or infrastructure plans in Sri Lanka would be to ensure that China continues to follow the rule of law, provide manageable financing programs, and ensure environmental sustainability and technological transfer, which are all an integral part of Japan’s overseas development projects. Japan would thus provide the stamp of quality assurance to all of its joint operations with China. Ultimately, the biggest winner of such Sino-Japanese development projects would be the Southeast Asian client countries themselves, as they would be able to secure much-needed financing whilst being reassured of project sustainability under the Japanese seal of approval.

Japan as the third way for a liberal order

Japan partnering with China in Southeast Asia to ensure that international development standards are adhered to actually fits into the broader strategy that Tokyo is pursuing when it comes to promoting the international liberal order. After all, Japan played a pivotal role in keeping the Trans-Pacific Partnership free trade agreement intact and thrive even after US withdrawal from the mega-deal. Having since signed an economic partnership agreement with the EU, Tokyo is now at the forefront of promoting the value of free and open trade which is also a key part of the FOIP. Expectations for Japan to further that role are increasing, as TPP’s successor, CPTPP, is expected to expand in membership moving forward. Moreover, hopes for the United States to return to the multilateral trade agreement in the future remain, even if it is highly unlikely to become a reality under the Trump administration. At the same time, Tokyo has made clear that the door is open too for China to join the deal eventually, but entry would only be dependent on Beijing being willing to adopt practices that would allow it to be considered for membership.

Similarly, Tokyo is taking an increasingly pragmatic approach when it comes to providing development assistance to Southeast Asia. While it continues to be the most significant provider of foreign direct investment to ASEAN countries, Tokyo has made clear that it does not see the region as the battleground for clashes in development ideologies. Rather, it is prepared to work together with China as well as the United States, so long as its economic interests are protected under transparent and fair rules, and it can continue to invest securely in the region in a stable environment. In short, Tokyo remains committed to stability that would lead to the continued growth of Southeast Asia without being mired in the clash of ideology that would come by having to choose between the BRI and FOIP. That more flexible and non-dogmatic approach to development assistance perhaps best reflects the interests of Southeast Asian nations themselves, which would ultimately be the biggest beneficiaries if they are able to choose between the two competing systems without being forced to select one over the other.

#"Belt and Road" Initiative #CPTPP #East China Sea #free and open Indo-Pacific #Senkaku/Diaoyu Islands