Geoeconomics, easy money, and political opportunism: the Perils under China and Japan’s high-Speed rail competition

ABSTRACT

China and Japan have engaged in fierce competition over infrastructure lending in East Asia, particularly since the 2010s. Under the intense focus on the geopolitical roots of this competition, the political-economic effects of this competitive statecraft on the smaller Asian countries are less discussed. At first glance, lending competition seems to benefit borrowing countries through access to more financial resources. This paper argues, however, that competitive statecraft leads to an ‘easy money’ conundrum where overeager creditor countries, in pursuit of geostrategic goals, perpetuate political opportunism in borrowing countries. To support this claim, we examine China–Japan competition over two high-speed rail projects in Indonesia and Malaysia. Our process tracing analysis explains how push factors (easy money from China and Japan) and pull factors (the host government’s desire to exploit easy money for political gain) interacted to advance two troubled projects at the cost of borrowing countries’ fiscal discipline and government accountability.

KEYWORDS:

• Infrastructure finance
• Sino-Japanese relations
• geoeconomic competition
• Malaysia
• Indonesia
• high-speed rail

Acknowledgment

The draft of this article was presented at ISA 2019 and AAS-in-Asia 2019. We thank the two panel discussants for their comments, and Noah Lenhardt, Gabrielle Cheung, Esther Kwon and Kirby Wang for their excellent research assistance. We also thank the two anonymous reviewers for their feedback and suggestions. We retain sole responsibility for any errors or omissions in the article.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes on contributors

Jessica C. Liao is an Assistant Professor of Political Science at North Carolina State University and the Wilson China Fellow 2020-21. Her research focuses on the international political economy of East Asia and her current project investigates Chinese and Japanese finance and investment in Southeast Asia. She is the author of Developmental States and Business Activism (Palgrave 2016) and her publications appear in journals including Global Governance, The Pacific Review, Journal of Contemporary China, and Asian Survey. She holds a PhD degree in Political Science and International Relations from the University of Southern California, the United States.

Saori N. Katada is a Professor at Department of Political Science and International Relations at University of Southern California. She is the author of Japan's New Regional Reality: Geoeconomic Strategy in the Asia-Pacific (Columbia University Press, 2020), and a co-author of two books: The BRICS and Collective Financial Statecraft (Oxford University Press, 2017), and Taming Japan’s Deflation: The Debate over Unconventional Monetary Policy (Cornell University Press, 2018). Her single-authored book Banking on Stability: Japan and the Cross-Pacific Dynamics of International Financial Crisis Management (University of Michigan Press, 2001) received Masayoshi Ohira Memorial Book Award. She has also published six edited and co-edited books and numerous articles on the subjects of trade, financial and monetary cooperation in East Asia as well as Japanese foreign aid. She has her Ph.D. from the University of North Carolina at Chapel Hill (Political Science).

Notes

1 The often-cited evidence is the 2017 Asian Development Bank report (ADB, 2017), estimating that Asia needs a $26 trillion of infrastructure investment in 2016-2030, which is far beyond the combined assets of the multilateral development banks working in the region.

2 Bueno de Mesquita and Smith (2013) uses the term ‘easy money’ to highlight foreign aid as a substitute for bribe to purchase policy concessions.

3 Lim and Stern (2002) provide a comprehensive literature review on the subject.

4 Two feasibility reports called by Japan Ministry of Economics, Trade and Industry and Japan Ministry of Land, Infrastructure, Transport and Tourism made different recommendations for the project. For detailed discussion, see Salim and Negara (2016): 2-4.

5 Following the setback of Jakarta-Bandung HSR bidding, the Abe government authorised the newly-built Japan Overseas Infrastructure Investment Corp (JOIC) with broader financing functions. In addition, it also made many changes in Japan’s overseas financing rules, including, shortening of Japan’s foreign aid loan procedures, and extending length of coverage over sovereign risk. For more information, see JOIC website: http://www.join-future.co.jp/english/index.html

6 For more information, see OECD website, ‘Infrastructure Investment’, http://www.oecd.org/g20/topics/infrastructure/

Additional information

Funding

This work was supported by North Carolina State University [Grant Number N/A].