Japan ups ante in race to counter China, boost influence in Asia with infrastructure spending

Energy Associated Press

Vying to keep pace with China's rising influence and economic clout, Japan plans to provide $110 billion to help develop roads, ports and other infrastructure in Asia in the next five years, Prime Minister Shinzo Abe said Thursday.

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Abe announced the commitment, which exceeds the $100 billion China has set for its newly created Asian Infrastructure Investment Bank, at a conference in Tokyo.

It represents about a 30 percent increase over current funding levels.

"Asia has a voracious infrastructure demand, reaching as much as 100 trillion yen (about $830 billion) annually," Abe said, adding that "we should seek 'quality as well as quantity.' Pursuing both is perfectly suited to Asia."

In addition to the $110 billion in financing in collaboration with the Asian Development Bank, Japan will provide 4 trillion yen ($33 billion) in support for public-private lending over the next five years, Abe said.

Japan sided with the U.S. in not joining the 57 countries that have signed on to the Beijing-initiated AIIB. It says it wants to see if the new institution will meet the rigorous standards for operation and disclosure required of other lenders, such as the Asian Development Bank and World Bank.

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Officials earlier announced plans to step up support for regional infrastructure investment, but had not specified how much Japan would spend.

Japan is eager to counter rising Chinese influence in the region. Analysts say their rival efforts will likely complement rather than compete with each other given the region's huge need for vital infrastructure.

About half of the funds to be spent will be channeled through Japan's aid agencies and the remainder will be extended in collaboration with the ADB.

Despite friction between the two countries over various issues, Abe has said he sees eye-to-eye with China on the need for infrastructure funding. Both Japan and China are rapidly expanding manufacturing capacity and trade in the region, especially in Southeast Asia, and can benefit themselves from improved ports, railways, roads, energy systems and other key facilities.

The scale of financing is still nowhere close to the $8 trillion the ADB says is needed by 2020 to help build up essential infrastructure.

"This is good news but it's a drop in the bucket," said Alison Evans, a senior analyst with IHS Economics & Country Risk in London.

The greatest benefit, she said, would go to smaller countries with the biggest needs, such as Myanmar and Laos.

"Definitely, as far as the recipient countries are concerned, the more funding the better," she said. "There's more than enough opportunities to go around."

Although China and Japan are rivals as the world's second- and third-biggest economies, they also have different advantages that can meet varied needs. With Chinese lenders, project planners need to "jump through fewer hoops," Evans said.

Abe did stress Japan's focus on quality, mentioning plans to provide advanced technologies, such as coal power plant knowhow, high-speed rail systems and electric vehicles.

"We will help Asian countries to realize their energy strategies and contribute to technological development around Asia. We will spare no effort in our cooperation," he said.

But Abe said Japan recognizes that at times in the past risk-averse lenders have set requirements for risk guarantees too high. In a shift, he said the policy-lending Japan Bank for International Cooperation will launch a new mechanism to fund higher-risk projects.

The push to expand infrastructure financing by Asians for Asia signals a shift for the region, which in decades past relied more heavily on the World Bank and other U.S.-dominated global institutions.

"Asians are taking accountability for the build-out of Asia," said Tony Nash, chief economist at the consultancy Complete Intelligence in Singapore.

In many parts of developing Asia, delivery of something as simple as ice cream or medicines or other necessities needing cold storage is near impossible due to the lack of cold chain facilities, he notes.

"I don't see these funds as competing with each other but as complementing each other," Nash said.

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Follow Elaine Kurtenbach on Twitter at twitter.com/ekurtenbach