Boycott of China-led AIIB poses risks for Japan, where companies may lose out in infrastructure building work | The Japan Times
Boycott of China-led AIIB poses risks for Japan, where companies may lose out in infrastructure building work
BY MIE SAKAMOTO
KYODO
Japan has decided to stand back from joining a planned China-led investment bank for now, but risks losing a chance to tap into Asia’s rapidly growing infrastructure market.
As China’s end of March deadline approached, countries rushed to sign up as founding members of the Asian Infrastructure Investment Bank, despite wariness from the United States.
Britain was the first major Western country to announce an intention to join. British Chancellor of the Exchequer George Osborne, said the initiative would give his nation’s companies “the best opportunity to work and invest in the world’s fastest growing markets.”
Though the Beijing-led bank is seen as a challenge to the existing U.S.-led financial framework, including the World Bank and the Asian Development Bank, over 40 countries have so far said they want to take part.
World Bank President Jim Yong Kim welcomed the proposed AIIB despite its potential to become a rival, saying the need for infrastructure is “enormous.” The ADB estimates Asia’s infrastructure needs at $8 trillion over the 10 years through 2020.
“From the perspective simply of the need for more infrastructure spending, there is no doubt . . . we welcome the entry,” he told a news conference in Tokyo in March.
But Tokyo and Washington remain cautious, citing concerns over governance standards and transparency, such as how the AIIB would screen loans for approval.
“Japan’s policy has not changed at all,” Finance Minister Taro Aso told a news conference Tuesday. “We have no choice but to be very cautious about participation unless these conditions are cleared.”
The proposed institution will be established by the end of this year with initial capital of around $50 billion and China as the largest stakeholder. Other details will be decided around late June.
Toru Nishihama, senior economist at Dai-ichi Life Research Institute, said the Abe administration is right to act as it has done because of uncertainty over what Japan could do even if it joined the initiative.
“There is a risk that the AIIB can be a detached force of the Chinese government, or the Chinese Communist Party, which may have a conflicting philosophy,” Nishihama said. “If such an issue surfaces, participants would face a choice of which side they should take.”
Nishihama added that Japan should rather focus on enhancing the existing framework, including the ADB and official development assistance, and aim to increase its presence by accurately understanding what Asian nations really need.
As Japan’s population ages and domestic demand for infrastructure shrinks, companies are coming to rely more heavily on exports. Therefore business circles lobbied Prime Minister Shinzo Abe’s government to consider joining the AIIB.
“Generally speaking, overseas infrastructure demand centering on Asia will grow significantly,” Sadayuki Sakakibara, chairman of Keidanren, the nation’s foremost business lobby, told a recent news conference. “Consideration and responses would be needed so Japanese firms would not suffer a competitive disadvantage.”
Yasuchika Hasegawa, chairman of the Japan Association of Corporate Executives, expressed a similar view, saying, “I would really like to avoid (Japan’s) infrastructure businesses facing disadvantages by not participating in the AIIB.”
China says the bank will offer loans for the construction of infrastructure such as roads, ports and railways in developing and emerging economies.
Kiyoyuki Seguchi, research director at the Canon Institute for Global Studies, said Japan should join the initiative at an early date so it can help raise governance standards. This, Seguchi said, would bring benefits to Japan, China and other member countries.
“As China has little experience in operating such an institution, it remains uncertain how the new body can secure transparency and proper governance, but Japan understands Asia the most, as well as global standards,” he said.
If Japan and the United States remain uninvolved, they could face the diplomatic risk of becoming isolated in the Asia-Pacific region, he said, even though they have been playing leading roles in key groups, including the Association of Southeast Asian Nations.
“Japan can discuss the conditions together with others within the group and make its standards similar to global standards,” Seguchi said. “If there remains a condition that Japan cannot go along with, it has the choice of leaving.”
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Japan says not bound by deadline to join AIIB, and not yet decided| Reuters
"The only option for Japan is to not join," said the Abe adviser. "The AIIB is a challenge to the status quo led by the World Bank and Asian Development Bank (ADB). It's impossible that Japan would join such an institute."
"Doing so without the U.S. would hurt our alliance," he said.
Some analysts have said instead of joining, Japan can cooperate with the AIIB by co-financing projects through existing institutions such as the ADB, the Manila-based institution it dominates along with the United States. That way it could also avoid providing funds to finance the AIIB.
"Some Japanese firms worry they may be at a disadvantage in procurement if Japan stays out of the institute," said Toru Nishihama, emerging market analyst at Dai-ichi Life Research Institute. "But Japan should not jump on the bus thinking it’s bound for treasure mountain. We must think whether we have a lot of money to spend, taking into account our public finances."
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