CHINA CHOO CHOO CHOOSES JAPAN / GEOPOLITICAL FUTURES

China Choo Choo Chooses Japan

China looks to Japan as a companion on the “New Silk Road.”

By Phillip Orchard

China’s wildly ambitious Belt and Road Initiative, throughout its mere five-year existence, has been dominated by Chinese money and manpower. Hailed as a modern-day Silk Road, its purpose is to establish a regional order built around Chinese commercial, economic and security influence. Anyone was welcome to join, as long as they did so largely on Chinese terms. Now, Beijing is starting to consider whether it might be better off bringing in outside partners – including one of its biggest rivals, Japan. Over the past year, Japan and China have been holding low-level discussions on possible BRI collaboration. During Japanese Prime Minister Shinzo Abe’s recent visit to Beijing, Chinese Premier Li Keqiang formally invited Tokyo to journey together down the new Silk Road, while firms, agencies and universities from the two countries pledged to cooperate on more than 50 infrastructure projects in third countries.   Why Cooperation Makes Sense China’s outreach seems to be at odds with some key BRI objectives – namely, to broaden political influence across the Indo-Pacific and beyond, especially in strategically important countries. In Pakistan and Sri Lanka, China hopes BRI’s soft power will translate into hard power in the form of naval access to Chinese-constructed deep-water ports around the region. In states like Cambodia, BRI has helped cultivate allies that side with China on contentious issues in defiance of multinational organizations like the Association of Southeast Asian Nations. And in sub-Saharan Africa, China is keen to secure access to natural resources and emerging markets. If BRI was purely about gaining an edge in the competition for influence across the Indo-Pacific, the stakes would effectively be zero-sum: More Japanese influence over a country’s strategic behavior generally means less for China. More than any other country (save perhaps the U.S.), Japan poses the stiffest strategic competition for China.

 

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No, BRI is about much more than just influence – it’s also about money and maritime access. China needs to keep its oversized industrial base humming and vast labor pool busy, particularly as its economy enters a prolonged phase of slowing growth. To keep those gears turning, China has become adept at combining diplomatic influence with its state-owned banks’ lending power to open new opportunities for Chinese firms abroad. China has also targeted infrastructure projects intended to create new trade routes to circumvent maritime chokepoints that, if blocked, would bring the Chinese economy to its knees. They have the added benefit of integrating less-developed provinces into the global economy, helping to reduce China’s steep wealth disparity between coast and interior. So, China has an overriding interest in simply ensuring that BRI projects are green-lit – even if it means bringing a historical adversary on board. And, increasingly, China is seeing a need to do so.

 

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Beijing is finding it more difficult to foot the bill for many BRI projects. Many projects have less-than-stellar commercial prospects; Chinese firms have won so many BRI contracts so easily partly because they have routinely underbid the competition, and partly because they’re taking on projects that no one else would want to invest in. And China has a high tolerance for risk in projects that are strategically beneficial, even if they are only marginally profitable. But Beijing doesn’t have money to burn, and there are limits to that tolerance. As it grapples with all its financial risks at home, China has become more concerned with reining in reckless BRI investments. BRI also has an image problem. High-profile cases of alleged “debt-trap diplomacy” have convinced Indo-Pacific governments that there are strategic, economic and political risks in becoming dependent on Beijing. Some countries – like Thailand, where China and Japan are planning their first joint projects – have long histories of deftly balancing ties with stronger outside powers, subtly manipulating competition to their benefit and not getting caught in a zero-sum game. Beijing has realized that BRI was never going to pull such countries tightly into its geostrategic orbit. But if China adds another player like Japan to the mix, it can ease host government concerns about BRI and coax them into partnerships that serve more limited Chinese strategic aims.

 

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For Beijing, then, there’s often little downside to giving third parties a stake in BRI projects, and Japan is an ideal partner. It is singularly responsible for the modernization of many Southeast Asian economies and, as a result, enjoys a broadly stellar reputation throughout the region. (Japan is already plowing tens of billions of dollars into its own regional infrastructure initiatives.) Historically, Japanese infrastructure projects abroad have generally been commercially motivated. But Japan has increasingly taken on a strategic bent of its own, with Tokyo channeling official development assistance to riskier initiatives that it hopes will help prevent Chinese coercion, boost Tokyo’s own political influence abroad and service Japan’s expansive overseas manufacturing footprint. Thus, Japan is more inclined than most to answer Beijing’s call.

 

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Beijing’s Lonely Road China’s BRI outreach to Japan is hardly evidence that the two are moving from mutual hostility to, as Abe and Chinese President Xi Jinping effectively put it, a new golden era. Rather, it indicates two things we already knew. First, China and Japan have mutual economic interests, and rivals collaborate when it makes sense to do so. Since the 1960s, they have at times been willing to look past their thornier differences to address more immediate, shared interests. With both under pressure from the U.S. on trade, intellectual property, currency and defense matters, this is one of those times. Second, sometimes it makes sense to keep your enemies close. China wants to pull Japan away from the U.S. and make Tokyo consider the potential economic cost of challenging Beijing on other fronts. For its part, Tokyo is keen to weaken the coercive potential of BRI from the inside and do everything possible to prevent its rivalry with Beijing from spiraling into conflict. To what extent either Tokyo or Beijing gains leverage over the other through BRI cooperation will, of course, depend on what they actually build together and who pays. Mutual suspicion could very well limit cooperation to a select few projects. Still, China’s sudden outreach to Japan shouldn’t be dismissed. Beijing’s suspicion of Japanese ambition is anchored deep in history and geography; it wouldn’t be cozying up to Tokyo if it didn’t have to. That Beijing is reaching out underscores just how much pressure it’s under. The U.S. trade war is worsening China’s financial position at home and increasing its isolation abroad, forcing Beijing to ease off painful, economy-stabilizing reforms and threatening China’s access to foreign technologies and investment, which it needs to forge sustainable growth going forward. BRI was supposed to help on both fronts – winning China friends and allowing it to offload surplus industrial capacity. But now BRI is making both problems worse, saddling Chinese state-owned banks and firms with additional toxic assets and fanning the flames of anti-China sentiment abroad. At its core, BRI was always a reflection of China’s weaknesses – its socio-economic and geographic vulnerabilities, in particular. BRI is by no means a wholesale failure; vast projects are still being built in support of an array of Chinese strategic and economic interests. Beijing’s outreach to Japan merely illustrates just how far it still has to go.