Competitive partners in development financing: China and Japan expanding overseas infrastructure investment

Abstract

In the aftermath of the global financial crisis, with the world in search for new economic engines, China and Japan have explicitly given their answer through their expansion of overseas infrastructure investments. This study focuses on the flagship sector of high-speed railways (HSR) and examines what kinds of development financing China and Japan have adopted in making these investments. It asks the following questions: What similarities are there in the Chinese and Japanese approaches to investments in overseas infrastructure, and how do they differ from traditional Western development financing? Also, in what ways have China and Japan changed their approaches to overseas infrastructure projects during this process? It argues that in the process of expanding overseas infrastructure investments and competing for infrastructure projects, China and Japan have become ‘competitive partners’ in challenging the traditional norms of development financing represented by the Washington Consensus and the Development Assistance Committee (DAC). To be more specific, China and Japan have adopted each other’s practices of tied commercial financing, heavy government involvement, focusing on physical infrastructure and industrialization, and showing respect for host-country forms of governance. In particular, by joining China in the new game of exporting infrastructure and through its own ‘quality infrastructure investment’ initiative, Japan has broken out of the constraints of DAC norms as an aid donor and endorsed some fundamental Chinese approaches to development and development cooperation, which in their turn were inspired by earlier Japanese practices.

Keywords:

• Japan
• China
• development financing
• high-speed railway
• infrastructure
• competitive partner

Acknowledgements

The author would like to thank the anonymous reviewer, Vinod Aggarwal, Toshiya Ozaki, Takashi Terada, Keiji Nakatsuji, Aki Tonami, Hironori Sasada, Timur Dadabaef, Kai Shulze and the other participants at the Sino-Japanese Rivalry workshop in Berlin in 2017 for their comments on earlier drafts of the article. Sincere thanks also go to Shujiro Urata, Toshiya Ozaki, Raymond Yamamoto, Koichi Sakamoto, Chunrong Liu, Ping He, Yu Zheng and anonymous interviewees for their help during my fieldwork trips in China and Japan.

Notes on contributor

Yang Jiang is Senior Researcher at DIIS. She received her PhD from the Australian National University in 2008, and previously worked at Copenhagen Business School as Associate Professor. She studies political economy of China and East Asia, including China’s domestic economic reforms and economic diplomacy, and outward investment from China and Japan. Her work has appeared in Review of International Political Economy, The Pacific Review, Journal of Contemporary China, The Hague Journal of Diplomacy, Australian Journal of International Affairs amongst other journals, and she is author of China’s Policymaking for Regional Economic Cooperation (Palgrave Macmillan 2013). Her recent publications include:

‘The New Silk Road for China and Japan: Building on Shared Legacies’, in Rethinking the Silk Road: China's Belt and Road Initiative and Emerging Eurasian Relations, edited by Maximilian Mayer, pp. 131–146. Palgrave Macmillan, 2017.

‘The Domestic Politics of China’s Financial Reform’, in Chinese Politics as Fragmented Authoritarianism, edited by Kjeld Erik Brødsgaard, pp. 181–203. London and New York: Routledge, 2016.

‘Vulgarisation of Keynesianism in China’s Response to the Global Financial Crisis’, Review of International Political Economy 22, 2 (2015): 360–390.

‘The Limits of China’s Monetary Diplomacy’, in The Great Wall of Money edited by Eric Helleiner and Jonathan Kirshner, pp. 156–183. Ithaca: Cornell University Press, 2014.

‘Red Trojan Horses? A New Look at Chinese SOEs’ Outward Investment’, Journal of China and International Relations 2, 1 (2014): 1–25.

Notes

1 Toyo Keizai 22 Sep. 2015, as cited by Harner (2015).

2 JOIN came into being as part of the Japan Revitalization Strategy (June 14, 2013) of achieving 30 trillion yen in infrastructure system orders by 2020 with and making joint investments with Japanese private companies in the global infrastructure market, negotiating with the host government to mitigate risks for the Japanese companies and bringing Japanese technology overseas. JOIN website, http://www.join-future.co.jp/english/about/index.html

3 China and Thailand agreed in September 2016 to proceed with the construction of the first 3.5 km section of the railway from Bangkok to Pak Chong as part of the 252.5 km Bangkok-Nakhon Ratchasima route. This had a price tag of 179 billion baht, which was slightly lower than what Thailand demanded (180 billion baht) but much lower than China’s requested price of 560 billion baht. Thailand signed two contracts worth $157 million with Chinese SOEs covering the engineering design of the project and the hiring of Chinese technical advisers. Thailand would bear the full costs of construction, whereas China would provide funds for technical systems (Parameswaran, 2016; Zhou, 2017b).

4 Article 44 cleared certain legal hurdles, including the employment of Chinese architects and engineers, who, under local regulations, would not be allowed to work in Thailand unless they passed an examination to obtain a license; Thailand’s procurement law requirement that any projects costing more than 5 billion baht (HK$1.15 billion) must be scrutinized by a procurement committee before construction starts; and building on designated farmland that cannot legally be used for any other purpose (Zhou, 2017a; Zheng, 2017).

5 That deal, however, has since fallen through because of a dispute between the consortium and Najib’s government.

6 In July 2015, the US Justice Department's Kleptocracy Asset Recovery Unit announced an investigation into more than one billion US dollar of funds that had allegedly been embezzled into the US from the 1Malaysia Development Berhad (1MDB) sovereign fund that Najib set up in 2009 and oversaw through his chairmanship of an advisory committee.