Japan and China step up fight for Asean infrastructure contracts

Ben Bland in Kuala Lumpur | November 22, 2015 9:14 am

China and Japan are stepping up their battle for strategic infrastructure projects in Southeast Asia amid rising economic competition and tensions over maritime disputes.

At an annual summit of Asia-Pacific leaders in Kuala Lumpur this weekend, China pledged to add another $10bn to its growing pool of infrastructure lending in Southeast Asia, while Japan vowed to halve the time it takes to approve infrastructure loans and take on more financial risk.

China recently beat Japan to win a $5bn high-speed rail project in Indonesia on the back of no-strings financing that did not require the Indonesian government to act as guarantor.

China and Japan are going head to head to secure other high-speed rail projects, including one linking Kuala Lumpur and Singapore, as well as bidding against each other for ports, power stations and other infrastructure deals across this fast-growing region.

Shinzo Abe, Japan’s prime minister, said in a speech that Japan’s official development assistance must keep pace with the speed of change in Asia.

“We will drastically reduce the time needed for going through the procedures for ODA loans by as much as one and a half years compared with the current system,” he said, promising a significant reduction from the current average processing time of three years.

“We will also revise the current practice of requiring without exception recipient governments’ payment guarantees.”

A senior Japanese diplomat said that Tokyo had to become more “expeditious” in executing infrastructure projects in Asia, rather than simply highlighting that it has a better record than China in terms of quality, safety and social and environmental protection.

Beijing also pledged to accelerate and deepen its economic co-operation in Southeast Asia with Premier Li Keqiang promising $10bn of new loans for infrastructure as well as an increase in grants to the region’s less developed nations.

While China clashes at sea with Japan and some Southeast Asian nations including Malaysia, the Philippines and Vietnam, Beijing and its rivals are competing to build alternative spheres of economic influence.

Malaysia, Vietnam, Japan and the US were among 12 nations that recently signed the Trans-Pacific Partnership, a pact that excludes China and is designed to promote a rules-based trading and investment system in the region.

Beijing has backed a rival trade deal with Southeast Asia, called the Regional Comprehensive Economic Partnership, that has fewer requirements for economic liberalisation.

But hopes to conclude RCEP by the end of the year received a blow on Sunday when Malaysia, which is chairing the Association of Southeast Asian Nations, said that negotiations would not be concluded until next year because of the “challenges faced”.

Xi Jinping, China’s president, made an implicit criticism of the TPP on Wednesday when he warned at another regional forum in Manila that “with various new regional free trade frameworks cropping up, fragmentation is becoming a concern”.

Despite Beijing’s concerns, since the TPP was agreed last month other Southeast Asian nations including Indonesia, the Philippines and Thailand have said they are interested in joining.

“With the TPP now finally coming to fruition, it increasingly seems like it is the best game in town in terms of driving economic development,” said a minister from one of the Southeast Asian nations keen to sign up. “But given the state of our economy and the fact that the existing TPP participants must ratify the deal first, it will take several years before we can join.”

Barack Obama, US president, welcomed the new interest in the TPP from Southeast Asian nations, claiming that the pact would “write the rules for trade in the Asia Pacific for decades to come”, promoting the resolution of economic disputes through dialogue rather than “bullying or coercion”.

Source: www.ft.com