In the past 20 years, ASEAN has made steady progress in promoting regional integration. The region’s growing geopolitical significance has also resulted in rivalry between China and Japan, which are actively courting member nations through trade and investment. Both countries are intensifying efforts to build infrastructure in Southeast Asia. China launched its flagship Belt and Road Initiative (BRI) in 2013, while Japan initiated its Partnership for Quality Infrastructure (PQI) in 2015. At the same time, ASEAN countries are reorienting their growth strategies to prioritise infrastructure development. China and Japan are facilitating this shift by offering large amounts of financing and seeking to increase their infrastructure exports.
Chinese infrastructure investment in ASEAN
China’s initiatives in building regional financial institutions for infrastructure development turned into a significant development with the establishment of the Asian Infrastructure Investment Bank (AIIB). In addition, China initiated a series of other financing institutions, such as the Silk Road Fund and the New Development Bank, to support its BRI, which aims to develop economic co-operation on infrastructure development and strengthen linkages with neighbouring countries. China’s greatest advantage is that unlike some privately owned companies with strict budget constraints, its construction companies are state owned.
China shares borders with several ASEAN countries including Vietnam, Laos and Myanmar, allowing China to exert diplomatic leverage while having easy access to their local markets. Furthermore, China has built and managed the world’s biggest and longest high speed rail (HSR) network for years. This is a testament to the quality and safety of China’s HSR system and related train, rail track, control, and operation and maintenance systems.
At present, Chinese firms have a dominant market share in the rail sector in Malaysia, supplying around 80 per cent of the rolling stock in use. In addition, the China Railway Rolling Stock Corporation set up a $131 million manufacturing facility in Perak in 2015, targeting Southeast Asian markets. In the past year, it has won projects to supply engines for a new track between Kuala Lumpur and Ipoh, and between Johor Bahru and Padang Besar near Thailand.
Japanese infrastructure investment in ASEAN
As Japan’s population ages, the government and companies are searching for new markets overseas. Japan dominates infrastructure investment in the Philippines and Vietnam, which are among the world’s fastest growing economies. In the light of a stagnating economy, the Japanese government has made the export of HSR and related technology a key feature of its policy agenda. It has established foundations throughout the region with its construction companies, whose cutting-edge technology has made a profound impact in countries such as Thailand, Cambodia, Laos, Vietnam and Indonesia.
Japan’s concerns about China’s increasing assertiveness in the realm of Southeast Asian financing have been obvious since the creation of the AIIB in April 2015. The PQI in May 2015 was Japan’s strategic response to retain its influence in infrastructure development in the region.
Unlike China, which wants to improve its connections to ASEAN, Japan seeks to expand transport infrastructure to support its industrial investments in the region. In May 2015, Thailand and Japan signed a memorandum of understanding on a joint investment in the 635 km HSR line between Bangkok and Chiang Mai. In addition, the Thai government is keen on getting Japan to invest in two east-west corridors.
Competition or collaboration
According to the Asian Development Bank (ADB), during 2016-30, Southeast Asian countries require an investment of $2.8 trillion in infrastructure. This gives a chance to China and Japan to play their roles as well as prompts competition between them, which is reflected in infrastructure financing and the construction of HSR. China and Japan have been engaged in relentless rivalry since 2010 to not only secure infrastructure projects, but also export their products. The intense competition between the two countries played out when both vied for the Jakarta-Bandung HSR line in Indonesia, which China won in September 2015. It was a momentous victory for China as the project forms part of its grand plan to build the pan-Asian railway network, which will connect several Southeast Asian countries to China. In another sign that the Indonesian government wants to maintain an environment of competition between Chinese and Japanese construction firms, a contract was awarded to a Japanese consortium in 2016 to upgrade the rail link from Jakarta to Surabaya.
Concerns have been raised about compatibility as both Japanese and Chinese rail systems use different types of construction. Doubts have arisen about the proposed Kuala Lumpur-Singapore HSR project in terms of efficiency. The construction can involve using both Chinese and Japanese materials as Malaysia prefers the former while Singapore is in favour of the latter. In the long run, this can cause connection difficulties and have a detrimental impact.
While the battle for infrastructure contracts continues, there have been recent signs that both countries’ governments are realising the advantages of collaboration. Japan’s stance on China’s BRI has evolved from reticence to acknowledging potential synergies, and in May 2018, the Japan Bank for International Cooperation proposed that a joint Japan-China consortium build a HSR system in Thailand. Further, both governments plan to establish a public-private council to discuss common infrastructure projects.
Conclusion
Despite being a relative latecomer to the region, China has successfully caught up with Japan in terms of trade and economic cooperation with ASEAN. However, Japan has managed to maintain a strong foothold in the region and is far ahead of China in terms of infrastructure investment. According to industry estimates, Japan’s infrastructure investment since 2000 totalled about $230 billion, while that of China was about $155 billion. Many ASEAN countries welcome this rivalry as they seek to maximise their interests. Both China and Japan are important sources of investment, important markets and key trading partners. Asia’s two biggest economies are jostling to expand influence in the ASEAN region, one of the world’s brightest economic spots and home to half a billion people. Increasingly, infrastructure is among the region’s main growth engines. Indonesia boasts a pipeline of over 250 projects, while the Philippines plans to spend $180 billion on railways, roads and airports. Besides, Singapore is doubling the size of its mass transit system.
For full regional integration, which will help all countries collectively reap the rewards of interconnected infrastructure, there needs to be more coordination. Dominant powers such as Japan and China will need to work closely together to effectively pool their capital resources for the greater good of the region. One of the approaches may be to form Sino-Japanese joint ventures. While more efforts will be needed to find the right modes for such a joint approach, some successful case examples do exist in the region, such as ADB-AIIB joint finance for projects in Pakistan and Bangladesh, and Sino-Japanese jointly run industrial parks in Southeast Asia. Japan and China have reached a point where there is a growing need for them to adopt unified stances, particularly surrounding trade and denuclearisation on the Korean peninsula. This creates opportunities to discuss a whole range of issues, including whether to compete or collaborate over infrastructure.
