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Japan’s Engagement in China’s Belt and Road Initiative

23 Feb 2018
By Dr Shutaro Sano

Tokyo’s decision to join the Belt and Road Initiative enables Japan to seek greater business opportunities. However, to reap the greatest benefits, there are a number of important moves Japan needs to make.

In June 2017 the Abe government suddenly reversed its original position on China’s Belt and Road Initiative (BRI), announcing that Japan would provide cooperation and financial backing for the USD$1 trillion (AUD$1.3 trillion) cross-border infrastructure development project. Tokyo’s new position on the BRI includes loans through government-backed financial institutions to promote cooperation among Japanese and Chinese private companies in the fields of energy and logistics. The extent of Japan’s cooperation remains to be seen; but engagement, if initiated and politically sustainable, may help Japanese Prime Minister Shinzo Abe realise his Free and Open Indo-Pacific Strategy. The strategy aims to “improve connectivity between Asia and Africa… and promote stability and prosperity of the region as a whole.”

Indeed, there are some promising opportunities for Japan’s involvement in the BRI. First, engaging in, rather than only competing against, the BRI allows Tokyo to pursue some important national economic goals through greater overseas infrastructure investment. Tokyo’s engagement in the BRI may also motivate Japanese companies to seek greater business opportunities along the BRI route. Second, Japan’s own ongoing regional connectivity initiatives can complement the BRI, strengthening regional integration in the Indo-Pacific as a whole. Notably, Japan’s support for the BRI is likely to enhance the efficiency of both China and Japan’s ongoing infrastructure projects due to overlapping functional areas such as energy conservation, advancement of industry, and the distribution of goods. The potential for cooperation between Tokyo and Beijing to help deliver more rapid and sustainable growth is huge, especially in relation to the region’s high demand for infrastructure. Finally, Japan and China may also be able to use these opportunities to improve their bilateral relationship, including a resumption of high-level visits and a winding down of existing tensions in the East and South China Seas.

However, there are challenges, primarily due to the BRI’s geopolitical implications. While it will be a difficult task for Japanese companies to compete with their Chinese counterparts due to the latter’s cheaper prices and quick delivery, the BRI poses additional political and economic challenges that are likely to affect Japan’s level of involvement. Specifically, major countries in the Indo-Pacific need to avoid trade wars, but trade and economic cooperation with China must remain governed by the rules of the existing liberal order if the benefits are to be shared. This means the principles and rules that shape the BRI need to be transparent and fair.

Furthermore, a number of states including the United States, Russia, EU members, Australia and India, already have become sceptical about Beijing’s intentions, particularly in the context of China’s increasingly assertive behaviour in the Indo-Pacific region. New Delhi sees the BRI as a move likely to contain India’s own regional ambitions and security, especially with the development of Gwadar and China’s recently reported plans for a military base in Jiwani in western Pakistan. Countries such as Nepal, Myanmar, Indonesia and even Pakistan, moreover, also have started turning down some major projects offered by China due to concern over the validity and technical reliability of the projects.

Another obstacle to the BRI is the unstable security environment along parts of the BRI route. This is perhaps most notable in Afghanistan, which continues to pose challenges, despite years of military intervention, and political and economic support. The inclusion of India and Pakistan in the Shanghai Cooperation Organisation in 2017 demonstrates growing acceptance of the organisation’s relevance to combating terrorism, separatism and extremism. However, the so-called fight against the Three Evil Forces will remain a huge challenge for both the SCO and the BRI’s implementation.

Furthermore, the situation surrounding Iran is likely to affect the future of the BRI. Tehran has become a vital transport and logistics hub for the initiative, and has long been of vital importance for Japan and India, due to Iran’s oil as well and their respective interests in the development of the Chabahar port. However, political relations with Iran are made problematic by its long-standing differences with the US and its own domestic problems. This makes the BRI’s future prospects in Iran highly uncertain.

But, given the initiative’s scope and the number of countries involved, the BRI has the potential to establish a new global economic centre of gravity. For Japan, China remains not only an important trade partner, but also a country with which Japan could, given a more stable political relationship, construct a “Mutually Beneficial Relationship Based on Common Strategic Interests.” Therefore, Japan’s cooperation on the BRI depends largely on Tokyo’s ability to find a way to strengthen regional economic connectivity without endangering the present geopolitical architecture on which Japan’s own security interests continue to rest.

Thus, Tokyo should first, together with Australia and India, ensure that the United States maintains its geopolitical presence in the Indo-Pacific region, and that the Japan-US alliance continues to function as the cornerstone of regional peace and stability. At the same time, Japan needs to continue its focus on quality and affordability in the various infrastructure projects it funds. Tokyo also should seek stronger political support in shaping economic public goods, like the BRI, by supporting the involvement of likeminded countries in regional groupings and fora, such as India’s membership in APEC for example.

Third, Tokyo should ensure the BRI becomes a more accommodating initiative for all, and that the funding and implementation of BRI projects is based on international standards and rules, including fair and open competition and cooperation. It may be beneficial for Japan to be involved in the rule-building and decision-making processes of the BRI by joining, for example, the Asian Infrastructure Investment Bank. Japan also needs to facilitate its ongoing development initiatives, including the Japan-India Asia Africa Growth Corridor, providing alternatives to the BRI.

Fourth, Tokyo should continue strengthening its strategic partnership with like-minded countries so they can together demonstrate their strong determination to oppose to any attempt to change the status quo by force. In this regard, the Japan-US-Australia-India quadrilateral dialogue in November 2017 was an encouraging development. The four Quad countries have been discussing the establishment of a joint regional infrastructure project as an alternative to the BRI. Yet the four countries each have different geopolitical calculations as indicated by their failure to produce a joint statement during the November dialogue.

It will, therefore, be pragmatic for Japan to continue strengthening its bilateral strategic partnerships with Australia and India rather than becoming overly focused on the Quad. It must be noted that the Japan-ASEAN strategic relationship needs to be strengthened as well via, for example, the 2016 Vientiane Vision, as these countries are also deeply involved in the BRI. Finally, Tokyo should seek to increase domestic support for its involvement in the BRI, including the Asian Infrastructure Investment Bank. A Japan-US 2016 survey showed that nearly 60 per cent of business respondents believe there is no need for Japan to become a member state of the China-led bank.

Whether Japan’s decision to support the BRI will bear fruit will depend on how broadly and deeply Tokyo chooses to engage, which will be determined in large part by how well its members, in particular China, can manage the various external and internal challenges the initiative faces. In any event, the Abe government needs to begin establishing the political groundwork with the United States and its other regional strategic partners, in particular Australia and India, if Japan and its partners want to have a serious voice in how the BRI develops and to what ends. China is moving fast and will not wait for prolonged internal debates.

Dr Shutaro Sano is professor and deputy director at the Center for International Exchange, National Defense Academy of Japan.

This article is an edited version of a paper presented at the Australia-India-Japan Trilateral at the Griffith Asia Institute on Monday 5 February. It is edited and republished with permission.