Japan pushes infrastructure program into Pacific to counter China’s influence

Japan's Prime Minister Shinzo Abe, who is also the ruling Liberal Democratic Party (LDP) leader, attends a news conference after he won the ruling party leadership vote at the party's headquarters in Tokyo, Japan September 20, 2018. REUTERS/Toru Hanai

TOKYO, 24 OCTOBER 2018 (THE FINANCIAL REVIEW) – Japan has singled out the Pacific Islands for its next infrastructure push, amid increasing concern that Chinese investment will consolidate Beijing as the dominant force in the region.

As part of the push, Tokyo is eager to cooperate with Australia on infrastructure or maritime security projects on the Pacific islands. The projects would come under the banner of Japan’s Free and Open Indo-Pacific strategy, or FOIP.

While Tokyo insists the strategy is not aimed at one country and therefore not a direct response to China’s trillion dollar Belt and Road infrastructure programme, it is widely viewed that way.

In a series of recent briefings, officials from the Ministry of Foreign Affairs and other departments in Tokyo confirmed the government’s intention to expand infrastructure investment in both south-east Asia and the Pacific islands.

Japanese investments in the Pacific already include the redevelopment of Nadzab Airport in Papua New Guinea, an upgrade of Honiara airport in the Solomon Islands and improvements to the port in Vanuatu’s Port Vila. Now it wants to do more.

It is particularly keen to invest in projects that will improve maritime security, such as it has done in the Philippines. There it provided 12 patrol vessels, 13 high-speed boats and a coast monitoring radar as well as law enforcement training. Australia has committed $2 billion (US$1.4 billion) to the Pacific Maritime Security Programme over the next 30 years, providing patrol boats and aerial surveillance equipment.

The Australian Federal Police also has a law enforcement role through the Pacific Transnational Crime Coordination Centre.

Japan’s growing interest in the Pacific follows high-profile investments by China in ports and roads across the region, which have prompted questions about Beijing’s strategic motives. There is concern some of these sites could eventually become military bases.

The Pacific islands sit in the middle of what Japan refers to as the “third sea lane”, a stretch in which China is seeking to gain influence. The first sea lane runs through the South China Sea and is the most important for Japan because it provides access to the Middle East and Europe. The second, also strategic, runs from Japan to Australia, which is Japan’s second-biggest energy supplier and fourth biggest supplier of food. The third lane runs from the US through the Pacific islands to New Zealand, and is another area that has recently attracted significant investment from China.

“We are an island country and sea lanes are very important to us,” explained one official.

“Some people say FOIP is just a concept but we are doing many projects under FOIP,” he added.

Still, Japanese Prime Minister Shinzo Abe is being careful to avoid overtly promoting FOIP as a rival to the Belt and Road. He is instead expected to announce this week, on a visit to Beijing, cooperation with China on infrastructure projects in south-east Asia.

Japan and China are attempting to normalise relations after six years of raised tensions over their territorial dispute in the East China Sea. While there has been little progress on resolving that dispute, a resumption of high-level exchanges would bolster ties for the important economic partners. Infrastructure development is one area of common ground for the historic rivals, and both countries appear willing to let the other claim these co-investment projects as part of their own regional strategy.

Japan has been stressing the importance of “quality” infrastructure as a way of distancing itself from the criticism directed at China that it is loading too much debt into  projects in developing countries.

The US, Australia and Japan recently announced an infrastructure initiative under the Trilateral Security Dialogue (TSD). However, there has been very little detail on specific projects.

The Australian Financial Review understands Japan is particularly keen to team with Australia in the Pacific.

This could take the shape of joint Australia-Japan initiatives, with Tokyo providing the funding and Canberra the technical expertise, or cooperation on maritime security. Canberra’s involvement in the broader FOIP strategy is expected to come through the TSD rather than the recently-revived Quadrilateral Security Dialogue, which also includes India. Japanese officials expect that group’s joint activities to develop gradually.

“It’s baby steps,” two officials said.

Japan believes China’s search for spheres of influence takes in the north Indian Ocean, around Pakistan and Sri Lanka; the East and South China Seas – where Beijing is locked in territorial disputes with Japan and south-east Asian countries – and the South Pacific.

One of the hurdles in co-operation between Australia and Japan is Canberra’s reluctance to use loans as part of its overseas development assistance. Japan uses loan assistance more than most other countries: its loan aid was 58 per cent of total overseas development assistance in 2016, worth almost U$S8 billion, according to its Ministry of Foreign Affairs.

Australia is not alone in preferring the use of grants and technical assistance. The US uses grant aid for 97 per cent of its official development assistance (ODA). Only France and Germany come close to Japan, with 45 per cent and 23 per cent respectively, of ODA in loans.

Canberra has also been cutting its aid budget.

Earlier this year, the Australian government announced it would fund the $137 million (US$97 million) undersea high-speed internet cables to Papua New Guinea and Solomon Islands after a contract was first awarded to Chinese telecommunications company Huawei, raising alarm bells in national security circles. But rather than being new money, these funds were mostly redirected from aid programs in Indonesia and Cambodia.

Most of Japan’s recent development assistance has been in Asia, particularly India, Indonesia and Vietnam.