Navigation

INSIGHTS into the WORLD / Japan should join AIIB, help Asia-wide growth

By Takashi Shiraishi / Special to The Yomiuri ShimbunI recently visited India to sign an agreement between the Institute of Developing Economies of the Japan External Trade Organization and an Indian government-affiliated think tank for cooperation in research-related activities. On that occasion, I had an opportunity to exchange views with Indian researchers and officials on China’s “Belt and Road Initiative” and came away with a strong impression that their attitudes toward it were considerably different from those of researchers and officials in Southeast Asia.

The Belt and Road Initiative was proposed by Chinese President Xi Jinping in 2013. The initiative aims to establish a massive cross-border economic zone, comprising what China describes as a land-based “Silk Road Economic Belt” that runs from China to Europe and a 21st-century “Maritime Silk Road” that links the South China Sea, the Indian Ocean, and other seas. The purpose of the initiative is to extend economic cooperation to countries along the routes, mainly through infrastructure development projects.

The initiative envisions more than 1,000 projects, but details about all of them have not been disclosed. As of the end of 2016, information was available on about 461 of them, concerning recipient countries, sectors, and amounts of money to be invested. The combined scale of the known projects stands at about $480 billion. They include 188 large-scale projects worth a total of about $170.5 billion in the energy sector including power plant and pipeline construction; 197 projects worth a total of $174 billion in the transportation sector, including railways, ports, airports and roads; and 76 projects worth a total of $135.5 billion for commercial facilities and industrial estates.

As far as the known investments are concerned, Russia will be the largest recipient country with a 17 percent share, followed by 15 percent for Pakistan, 13 percent for Vietnam, 10 percent for India and 6 percent for Indonesia. The five countries’ combined share will exceed 60 percent.

India’s wary eye

Although Belt and Road projects are under way in India, and India is a member of the China-initiated Asian Infrastructure Investment Bank (AIIB), senior Indian officials regard the Belt and Road Initiative as a geopolitical threat to India.

Indian Prime Minister Narendra Modi did not attend the Belt and Road Forum Chinese President Xi hosted in Beijing in May this year. In contrast, the heads of state and top leaders of seven Southeast Asian countries, including Indonesia, the Philippines and Vietnam, took part in the Beijing summit. In the same month, Modi, for his part, emphasized his decision to give momentum, in cooperation with Japan, to economic development in Africa when he spoke at the annual meeting of the African Development Bank held in his country.

The Indian officials I talked with recently cited two reasons for India’s wariness of China’s new Silk Road initiative.

The first reason is the China-Pakistan economic corridor, an enormous $55 billion infrastructure development project connecting the Xinjiang Uyghur Autonomous Region in western China and the southwestern Pakistani port city of Gwadar. The project is a collection of plans to build roads, pipelines, power plants and port facilities. The corridor runs through Kashmir, where India and Pakistan have been locked in territorial disputes for decades.

The other reason is the Chinese presence in the southern Sri Lankan port of Hambantota. A Chinese state-owned company has constructed the port with funding from Sri Lanka, for which the South Asian country took out an $8 billion loan from China by granting a 99-year lease on the port for the Chinese. The Sri Lankan government has decided to permit China’s submarines to dock in the deep-sea port.

Indian officials cited these two reasons, but I think India’s concerns are more deeply rooted.

China has been developing port infrastructure in Kyaukpyu, western Myanmar, while gas and oil pipelines running from Kyaukpyu to Kunming in China’s Yunnan Province are already in operation. In October 2016, Xi proposed to provide Bangladesh with $40 billion worth of investments and loans. In Africa, China has built a naval base in Djibouti and a railway line between Djibouti and Ethiopia.

In sum, under the name of the Belt and Road Initiative, China has been undertaking projects to open “vertical” or north-south corridors along the eastern and western sides of India to link China and the Indian Ocean, while developing a network of ports in Myanmar, Sri Lanka, Pakistan and Djibouti.

From the Indian perspective, those Chinese projects are nothing but a move to encircle India. In Doklam, a plateau disputed by Bhutan and China, Indian troops were in a standoff with Chinese troops this summer. India’s intervention, based on a bilateral friendship treaty with Bhutan, followed the eastern Himalayan kingdom’s protest at the Chinese military’s move to begin road construction in the Bhutan territory.

Let me be clear: I do not think that China’s economic cooperation with Indian Ocean rim countries is primarily aimed at forging a strategic encirclement of India.

Nowadays, China imports as much as 9 million barrels per day (bpd) of crude oil. This means that about 36 huge tankers are on a voyage at any given time between the Persian Gulf and China via the Indian Ocean and the Strait of Malacca. If oil imports go up to 10 million bpd, China will have to increase the daily number of tankers to 40. I think the main reason behind China’s push for port and other infrastructure development projects is to safeguard its crucial sea-lanes and enhance its energy security.

But such efforts on the part of China will certainly have the effect of encircling India. From the Indian perspective, the installation of a Chinese naval base in Djibouti and deep-sea port development in neighboring countries, along with the construction of land corridors going through Myanmar and Pakistan, signal the expansion of the geographical reach of Chinese military forces.

Why join AIIB?

Now, let’s look at how Southeast Asian countries have reacted to China’s Belt and Road Initiative.

In Southeast Asia, too, China has been actively undertaking infrastructure projects such as hydroelectric power plants, expressways and industrial parks. It has increased direct inward investment in Cambodia, Laos and Myanmar, among other countries, while a railway network between Kunming, Yunnan Province, and Thailand, via Laos, is under construction. In the meantime, those countries that are involved in territorial disputes with China in the South China Sea continue to worry about Beijing’s otherwise friendly approach.

Unlike South Asia, Southeast Asia has thus far seen both Japan and China playing important roles in advancing infrastructure development. As a result, while China is creating an economic corridor that “vertically” runs from Kunming to Vietnam, Thailand and Myanmar, a “horizontal” corridor project is under way with the backing of Japan to connect Vietnam and Thailand with the route to be extended to Myanmar in the near future. Against such backgrounds, Southeast Asian countries can let Japan and China compete in offering economic cooperation to them with terms and conditions favorable to recipients in the region.

So, as for Japan-India cooperation, I would like to recommend two specific approaches for Japan to strengthen such cooperation.

The first approach Japan should consider is its participation in the AIIB. We should take into account the fact that, despite its objection to the Belt and Road Initiative, India participates in the AIIB because it acknowledges that the bank is a multilateral institution, a factor that inhibits any arbitrary Chinese decisions on each loan approval.

In Asia, there is great demand for infrastructure investment. Both Indian Ocean rim countries and Southeast Asian countries want as much such money as possible to become available to them through a multilateral mechanism.

Japan should consider taking part in the AIIB provided that the institution meets certain conditions regarding fairness and transparency in its selection process and lending and funding projects.

The second approach for Japan is to promote the Asia-Africa Growth Corridor initiative the Japanese and Indian governments have already agreed to help create. This is part of a strategy proposed by Prime Minister Shinzo Abe in the summer of 2016 to realize a “free and open Indo-Pacific region.” For now, Indian government officials tend to focus too narrowly on Africa.

Instead, the purpose of the Asia-Africa Growth Corridor should be to expand the transnational value chains beyond Southeast Asia to South Asia and Africa. To that end, it will be necessary for the countries concerned to lay the foundations, such as energy infrastructure and logistics, of this Growth Corridor.

Special to The Yomiuri Shimbun

Shiraishi is president of the Institute of Developing Economies of the Japan External Trade Organization, a post he assumed in 2007, and professor at Ritsumeikan University. From 2011 to March 2017, he served as president of the National Graduate Institute for Policy Studies.Speech

Click to play

0:00/-:--

+ -

Generating speech. Please wait...

Become a Premium Member to use this service.

Become a Premium Member to use this service.

Offline error: please try again.