Japan and China

Rivalry reborn

As China and Japan vie for dominant influence in Southeast Asia, the region benefits from the aid it receives from both economic giants

Malcolm Cook
November 9, 2018
Rivalry reborn
Cambodian Prime Minister Hun Sen, left, shakes hands with Japanese Prime Minister Shinzo Abe after they signed an agreement on trade and investment in 2007

The Japan-China rivalry in Southeast Asia is good for the economic development and strategic autonomy of Southeast Asian states. This is particularly so for the poorer countries of the region that harbour the greatest fears of becoming solely dependent on China.

China and Japan are fully engaged in a strategic rivalry for influence in Southeast Asia with infrastructure financing as one of the major bases of competition. Cambodia is one of the most willing partners of Chinese leader Xi Jinping’s Eurasia-spanning Belt and Road Initiative. All Southeast Asian countries are founding members of the China-led Asian Infrastructure Investment Bank, while Japanese Prime Minister Shinzo Abe’s Partnership for Quality Infrastructure initiative is focussed on Southeast Asia and India. In 2016, all ten Asean states received Japanese aid, even oil-rich Brunei and Singapore. Vietnam, the region’s most reluctant partner in China’s Belt and Road Initiative, received over half of the $3.17 billion Japan gave in aid to the region that fiscal year — over four times more than Thailand, over 15 times more than Cambodia and over 30 times more than Laos.

Fortunately for Southeast Asia, post-war Japan has seen the region as its key economic and strategic hinterland. Japan remains the largest source of foreign direct investment and official development assistance, in stock and flow terms, in developing Southeast Asia. The region receives more Japanese official development assistance than any other region in the world, and Southeast Asia is second only to North America in direct overseas investment by Japanese firms.

The conventional wisdom for weaker states is that major power rivalry is bad

Until recently, Japan was the only major source of bilateral infrastructure assistance available to Southeast Asian states, and it was also a major benefactor of China. From 1979 to 2007, China was the largest recipient of Japanese official development assistance globally, with $30.3 billion allocated. Japan’s decision to make no new assistance commitments to China in 2007 and to focus its aid on Southeast Asia, coupled with China’s recent decision to export its successful infrastructure model with government assistance to link recipient countries more closely to itself, has been a boon to Southeast Asia. China’s decision, now packaged under the Belt and Road Initiative, has created an infrastructure rivalry in Southeast Asia between Japan and China.

This rivalry has had two major benefits to Southeast Asian states. First, the competition from China has been a major factor in the recent increase in Japanese aid spending after a decade of significant decline. From 2000 — when Japan was the largest source of aid globally by a considerable margin — to 2012, official development assistance dropped from 0.28% of gross national income to 0.17%. Since 2012, that percentage has increased to 0.23%.

Second, the recent loss of key Southeast Asia Infrastructure projects to China has led to important reforms in Japanese infrastructure assistance that will benefit poorer countries and fiscally challenged governments the most. In September 2015, the Indonesian government awarded the Jakarta-Bandung high-speed rial project to a China-led consortium over a Japan-let one, to Tokyo’s great chagrin. A decisive factor was that the China-led consortium required no loan guarantees or fiscal commitment from the Indonesian government — fiscal commitments that had long been requirements for projects supported by Japanese assistance. Japan’s Partnership for Quality Infrastructure initiative, launched in the same year as the Jakarta-Bandung decision, removes the requirement for host government loan guarantees on a case-by-case basis for projects with relatively high-risk profiles. Most infrastructure projects in Cambodia, Laos and Myanmar could well fall into this newly eased category.

The conventional wisdom for weaker states is that major power rivalry is bad, with the Cold War serving as a prime example. Weaker states get the worse end of a rivalry when they are forced to choose sides and behave in a manner that suits the interests of the chosen major power. The mounting superpower rivalry between the US and China can be seen in this manner, with Southeast Asia and the South China Sea as the main arena. Southeast Asian states are or will be forced to choose sides between the two; each superpower tries to influence, often punitively, the domestic politics of regional states. The Trump administration has led international pressure on Myanmar over the Rohingya crisis, and on Cambodia over the recent election — which saw the ruling party win all the parliamentary seats. China exerted economic and diplomatic pressures on the Philippines during the Aquino administration, a stance that has softened since current President Rodrigo Duterte declared his love for Xi Jinping.

Fortunately, the contest for influence between Japan and China in their shared Southeast Asian hinterland challenges this gloomy assumed truth. The economics of the rivalry allows, and even encourages, Southeast Asian states to choose both sides. Japan’s leading role in the development of Cambodia’s most important link to world trade, its Sihanoukville port — at the same time that China is the largest provider of infrastructure assistance to the country — is testament to this win-win situation.

President Duterte has warmly embraced China’s Belt and Road Initiative, claiming that his country is now dependent on China. At the same time, Japan has committed to the country’s largest ever official development assistance loan in Southeast Asia: the financing of Metro Manila’s first subway line. Fears about losing influence to China in Myanmar and Cambodia positively influenced the Abe administration’s decisions to not withdraw support for the recent Cambodian election and not to use the Rohingya crisis as an example of Japan’s values-based foreign policy.

The China-Japan rivalry in Southeast Asia benefits Southeast Asian states’ economic development and ability to mitigate against superpower pressure. The test for the region’s leaders is to take full advantage of this unconventional major power rivalry.

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