October 16, 2018 – “This is the first case where Japan has cooperated with China to develop a high-speed railway network,” declared Thai Deputy Prime Minister Somkid Jatusripitak this May during talks with then Japan Bank for International Cooperation (JIBC) Deputy Gov. Tadashi Maeda.
The deputy prime minister was expressing his expectations about a venture to connect three of Thailand’s airports, jointly planned by Japan and China, by high-speed rail. A JIBC official asserted that the purpose of the meeting was simply a courtesy call and that “the plans for the Thai high-speed railway product are still not laid out concretely.” However, the possibility that the Japanese and Chinese governments, which often stand in opposition to one another, are reversing their stance and working together on a project quickly garnered interest across the countries of Southeast Asia.
Directly following the statement, Chinese Premier Li Keqiang made a visit to Japan to speak directly with Prime Minister Shinzo Abe. During the meeting, they agreed to form a new public and private sector committee to discuss cooperation in the private economy of third-party countries. A forum held by political and business figures of the two nations is also planned to be held in Beijing on the sidelines of Prime Minister Abe’s visit to China on Oct. 23 for the 40th anniversary of the Treaty of Peace and Friendship between Japan and China.
What led China to the development of an agreement with Japan about projects in other countries were setbacks faced by Chinese President Xi Jinping’s economic policy to create a modern Silk Road: the “One Belt One Road” initiative. What began as a loose economic sphere imagined connecting China, Europe and the rest of Asia, has now expanded to include Africa and South America. New plans such as a “Silk Road on ice,” including the North Pole, are also regularly mentioned in talks.
In order to win over the favor of the countries along these Silk Road routes, China is approaching the governments with proposals for infrastructure projects such as high-speed trains or harbors. However, countries with low capability to repay the funds for such ventures run the risk of defaulting on their debt. The U.S. International Development Center think tank warned that eight countries, including Laos and Pakistan, are shouldering excessive debt to China.
Concerns have already been raised about China’s high-speed railway plans in Indonesia and Malaysia, which aim to procure development funds through real estate projects along the rail line, and delays have been numerous. The local operator of Hambantota port in southern Sri Lanka, which was built with support from China, has run into financial difficulties, and its operation rights have been taken over by a Chinese operator.
Joining hands with Japan, which has previously led the way building infrastructure networks in developing Asian nations, is now envisaged as the beginning of a new trajectory for the strained One Belt One Road initiative.
For Japan as well, teaming up with China comes with considerable merit. The Asia Development Bank estimates that the demand for funds for infrastructure projects in Asia from 2016 to 2030 will be around 2.6 billion dollars, or roughly 300 billion yen. For years, China and Japan have competed to win such projects, and in many cases, the two countries ended up in a price reduction battle. But with Japan and China joining forces and dividing roles, it will mean that projects will be easier to acquire and the risk of price reduction can be avoided.
On the other hand, however, rapidly closing the space between China and Japan runs the risk of angering the U.S. administration under President Donald Trump.