VIETNAM’S FIRST two fast transit lanes are getting closer to completion after many years of delays. The projects, one in each of the country’s two largest cities, have become symbols not just of Vietnam’s modernization, but of dueling interests for Asia’s two largest sources of infrastructure investment. Hanoi’s line has been funded by Chinese development aid; Ho Chi Minh City was launched with the help of the Japanese government.
Although China’s financial reach abroad is attracting enormous attention, Japan is still very much a leader when it comes to infrastructure in Southeast Asia (see chart). In total, it has invested $ 259 billion. In unfinished projects in Indonesia, Malaysia, the Philippines, Thailand and Vietnam, according to Fitch Solutions, a data provider, compared to China’s $ 157 billion. Both numbers have fallen since 2019 as the covid-19 pandemic has deterred greenfield infrastructure investment, but Japan’s lead has expanded slightly.
The construction of Ho Chi Minh City’s Urban Railway Line 1 is a microcosm of Japan’s overseas infrastructure. Government and quasi-government agencies laid the foundation for the country’s huge business groups. The project began almost nine years ago with early support from the Japan International Co-operation Agency, which facilitates most of the country’s overseas development assistance. Sumitomo Corporation, a large private sector conglomerate, won the construction contract as part of a consortium, Tokyo Metro has provided technical assistance, and Hitachi’s trains have been delivered to run on the line.
While America under President Joe Biden has been outspoken about its ambition to challenge China’s Belt and Road Initiative (BRI), Japan has been reluctant to frame its pursuit of major infrastructure projects as a competition with China. Still, it is not difficult to spot the change in strategy, especially during the tenure of former Prime Minister Abe Shinzo. In 2015, the government launched the “Partnership for Quality Infrastructure” (PQI) with the Asian Development Bank and other investors, who promised to raise $ 110 billion worth of public and private capital. for infrastructure projects in the region over the next five years (although progress in achieving this goal has not been closely monitored). Despite not calling BRI in public, the message behind Japan’s repeated emphasis on quality has not gone unheard of in the region.
That PQI was explicitly made part of the country’s “Free and Open Indo-Pacific” strategy, launched in 2016, linking its foreign policy objectives with its economic priorities. That same year, Japan Bank for International Co-operation, which began life in 1950 as an export-promoting bank, changed its role to enable greater economic risk-taking. In recent years, the focus has been on financing foreign investment: in the year to March 2020, only 11% of the bank’s liabilities were export loans, while 82% were overseas investment loans.
Japan has some clear advantages over most Western economies, each of which goes some way to explaining the country’s relatively discreet economic heft. Simple proximity is one of them: Japan’s largest companies are deeply familiar with other Asian markets, which have accounted for a significant share of their international sales for decades. Japan exported more to the Association of Southeast Asian Nations than U.S. companies did in 2019, even though the U.S. economy is more than four times larger than Japan’s.
Although the country cannot use private investment through large state-owned enterprises, as China does, the relationship between the private sector and the government is much closer than in other capitalist economies, which lubricates the wheels of cooperation. Saori Katada of the University of Southern California notes that Japan, in competition with China for regional infrastructure, has returned slightly to its “Old Japan” strategy of the post-war boom, in which the private and public sectors worked seamlessly together. The partnership is far less harsh than it was in the heyday of the “Iron Triangle” – the politically dominant Liberal Democratic Party, the state apparatus and the country’s business community. But the legacy of a mercantilist stance on foreign trade and investment is clear.
This blending and blurring of government and private investment targets could once have created pollution from Western governments, especially as Japan was seen as Asia’s growing economic power. But the emergence of BRI and concerns about China’s economic impact in the region have changed priorities. As the only serious competitor to Beijing’s economic influence in the region, Japan’s overseas infrastructure booklet is likely to be welcomed across large parts of the world – though Tokyo does not shout too loudly about it. ■
This article appeared in the section Finance & Economics in the print edition under the heading “A silent giant”
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