With all the focus on trade wars and trade tariff responses, it has been interesting to see the increased activity in China/ Japan diplomacy. This has been particularly true for 2018, punctuated by the Japanese Prime Ministers on the 5th June, in Tokyo, stating that Japan is ready for cooperation with China’s BRI. More recently, Japan and China have pledged to establish a China/Japanese Public-Private Sector Committee on how to improve infrastructure in third countries. A more cynical person may be led to believe that Japan’s approach is to play the international engagement game within the same game plan used by China i.e. create a distraction while slipping under the radar with the real intent. This piece provides some context that is particularly relevant for Myanmar as reports highlight the US$4bn FDI by China over the last financial year. Furthermore both China and Japan have direct interests in special economic zones within the Union.
Japan has had a long and interesting history in infrastructure investment in Myanmar, learning some important and tough lessons along the way. Just as China now has difficulty dealing with soft diplomacy, so too did Japan as their initial investment strategies favoured Japanese agencies and employment. In a sense this now gives an outbound looking Japan, an advantage in approaching the new drive for building infrastructure within Asia. Furthermore, the concept of economic corridors, is not new to the region. In the 1980’s the Asia Development Bank, of which Japan is a key signatory, commenced the Greater Mekong Subregion, development plan. It could be argued that Japan was ahead of China’s thinking when it came to the idea of driving regional prosperity by achieving greater access to markets via infrastructure.
JAPAN’S ALTERNATIVE APPROACH TO THE BRI
This could explain why Japan was ambivalent to the 2013 Xi Jinping announcement introducing the BRI. Whilst cautious of the BRI, the Japanese have worked increasingly on their own initiatives to counter China’s increasing influence in the region. One of Japan’s first responses was to launch the Partnership for Quality Infrastructure (PQI) in 2015. The initiative was aimed at specifically addressing the concerns that third countries were expressing with regards the BRI, namely transparency, sustainability and community engagement with projects.
As interest in the PQI increased, Japan has managed to effectively engage with other nations to create other economic corridor funding arrangements. Examples of this include the Asia Africa Growth Corridor in 2017, a collaborative effort between India and Japan to boost trade between Asia and Africa. The initiative is seen as a counter measure to China’s Pakistan economic corridor (Gwadar Port) as well as offer alternatives to African countries. In some quarters, this is referred to as the “Freedom Corridor” as it claims to reduce risks associated with “debt diplomacy” as well as allow greater local community participation. In some quarters it is argued that Japan can help the region as its approach is more integrated and co-ordinated than the currently perceived disjointed nature of the BRI.
JAPANESE INVESTMENT FUNDS
Whilst financing has been an issue for Japan, it has created the Japan Bank of International Co-operation and the Japan International Co-operation Agency. Both agencies have committed approximately us$2.3billion to fund infrastructure with a further us$16.5billion committed to loan programs and financial guarantees in 2018. Clearly these funds do not match those of China, but it has been able to put pressure on China by offering alternative development programs.
More recently we see Japan announce the Indo-Pacific Fund, a collaborative effort with the USA and Australia. This fund, to develop and offer complementary infrastructure within the Indo – Pacific region will work within the USA’s current regulatory passage of the “Build Act” that will develop finance capabilities of the US government through the “Overseas Investment Corporation”. These initiatives are said to advance private sector led investments that are sustainable, transparent and help Countries sidestep the “debt trap”. This initiative has not identified specific projects as yet, but has helped Japan leverage its’ position with China.
SOFT DIPLOMACY AND LEVERAGING OF FUNDING AGREEMENTS
On the soft diplomacy level, Japan upped the ante in the first half of 2018 as it stepped up efforts to engage the central economic corridors. The Japanese prime minister has now visited the Baltics and three East European countries – a first for Japan. It also played a central role of getting the Trans Pacific Partnership (TPP) agreed despite the USA withdrawing from the TPP. These efforts have enabled Japan create leverage with China
An example of the Japanese leverage is the investment into Sri Lankan ports, such as Colombo and Trincomalee on the east coast. Trincomalee is regarded as the best natural deep-water port and not surprisingly was used by the British as a naval and air base. It should be noted that Sri Lanka is playing an increasingly important strategic role in the maritime Silk Road due to the proximity of the main maritime trade route between Europe and the Asia. Another example is Japan partnering with India to invest in Chabahar Port in Iran. This port is located a mere 75 km from Gwadar Port.
There are already signs that these activities have allowed host countries to secure beneficial agreements with China. As written in an earlier piece, Myanmar secured a favourable agreement with regards Kyauk Phyu Port. But there is also the case of the Philippines, in which the northern railway lines connecting with Thailand have been awarded to the Japanese, whilst the southern lines have been awarded to China.
JAPAN SECURES ITS ROLE WITHIN IN MYANMAR DESPITE CHINA
Japan has played an interesting game with China, some might say it has taken an interesting gamble. With these pieces now on the board, China and Japan have committed to sharing the burden with regards collaborating along the BRI’s Eastern Economic Corridor. This gives Myanmar an opportunity to test China’s claims that the BRI is open to all – a good position to be in considering the Kyauk Phyu MOU with China is about to be concluded. It will also test the critics of the BRI who now have a template that uses collaborative financing instruments to make the BRI more universally acceptable than China centric. In any event, Japan has played the game well by taking a bet each way.