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Japan, China Vying for Infrastructure Orders

Japan, China Vying for  Infrastructure OrdersJapan, China Vying for  Infrastructure Orders

Japan and China are competing fiercely to win orders for infrastructure improvements in emerging economies and developing nations, Japan's Jiji Press reported.

Projects to build infrastructure such as railways, roads and electric power plants is seen as essential for economic development. Japan's own era of high economic growth after World War II was supported by the construction of the Tokaido Shinkansen bullet train system and Tomei Expressway in the 1960s, using loans from the World Bank.

According to the Yano Research Institute, a private research firm, global infrastructure investments are set to increase 100 trillion yen ($846b) in the coming decade to 365 trillion yen in fiscal 2024.

The projected sum is unlikely to be covered in full by public funds such as official development assistance from advanced economies and loans from the World Bank and other international lending organizations.

Investors Reluctant

While private funds are expected to fill the gap, many investors and commercial financial institutions are risk-averse and reluctant to finance projects in politically unstable emerging economies and developing nations.

To help create a better environment for infrastructure-related investments and loans, the World Bank, working mainly with the Japanese government, began a project last October to assist development of legal systems in emerging economies and developing nations and support basic research before development projects.

China, which is eager to tap demand for infrastructure improvements in Asia, agreed last October with 20 Southeast Asian and Middle Eastern nations to set up the Asian Infrastructure Investment Bank by the end of 2015.

With many of the AIIB's roles overlapping those of the Asian Development Bank, Japan and the United States, which lead the ADB, are jittery about China's aims. "China is expected to use the AIIB to expand its hegemony and tap natural resources," said a Japanese official familiar with international financial affairs.

Advanced Technology

Although Japanese companies have advanced technologies for infrastructure development and management, they "lag behind Chinese and other firms when it comes to the speed of entering markets and cost competitiveness," said Fumihiko Kamio, general manager of the Social Systems Consulting Department of the Nomura Research Institute.

Japanese companies therefore are likely to be adversely affected in terms of winning infrastructure orders if China expands its presence in the field through the AIIB.

With the Japanese government set to promote infrastructure exports as a pillar of its economic growth strategy, Prime Minister Shinzo Abe is increasing his visits to emerging economies to promote Japanese technologies.

When Indian Prime Minister Narendra Modi visited Japan in September last year, Abe told him that Tokyo is ready to offer financial and technological assistance so that India can use Shinkansen technology for its project to build a 4,600-kilometer high-speed train system. Abe made the same proposal when he met Modi again in Australia in November.

Cooperation

The Chinese are fiercely committed to economic growth. The Japanese are technologically advanced and devoted to guarding their high standard of living. Proximity would seem to make the two nations ideally suited to benefit from each other, The New York Times said recently in its opinion column.

But Japan is afraid of China’s rise, because the Chinese economy is so much more dynamic than Japan’s. And China is troubled by Japan, because the island nation seems to act as an unsinkable American aircraft carrier just off its coast.

China today has much more to gain from cooperation with Japan than from conflict. If China is to become the predominant power in the region, it can only do so with Japan, not against it.

As France and Germany have demonstrated, perceptions can change when national interest demands it. But shifting Beijing’s thinking from hierarchy to cooperation will require strong leadership and a nuanced understanding of national interests. China’s recent leaders haven’t inspired much hope of either.

 

Financialtribune.com