Despite the fanfare over Chinese investment abroad, Japan is still a bigger international creditor
By Mike Bird
A man walks by a flower installation set up for the Belt and Road Forum in Beijing. Japanese investment has outstripped China’s by tens of billions of dollars, International Monetary Fund data shows Photo: china stringer network/Reuters
China’s so-called Belt and Road initiative has been the subject of relentless media coverage. But Beijing’s flagship program of outward investment in several ways has been outmatched by Japan’s near-silent efforts.
Since the end of 2016, when Japanese and Chinese ownership of overseas assets reached almost identical levels, Japanese investment has outstripped China’s by tens of billions of dollars, International Monetary Fund data shows. Collectively, Japan owned $1.667 trillion in foreign assets in the third quarter of 2018, while China owned $1.542 trillion in the second quarter, the most recent available data for each country.
The gap demonstrates both the modest success of Tokyo’s intention to boost international lending as well as the Belt and Road project’s limitations.
The Asian Infrastructure Investment Bank—China’s competitor to the Asian Development Bank, which Japan and the U.S. dominate—has been thrifty since its launch in 2016, with just $6.4 billion in outstanding loans by September 2018. The same can’t be said of the ADB, which lent $35.8 billion in 2018 alone, up 40% over two years.
Moreover, Belt and Road is in part an attempt to internationalize the use of the yuan, but so far lending has overwhelmingly been in dollars. In fact, Japan seems to be doing a better job of promoting the overseas use of its currency.
The yen is the third most popular currency for international transactions, with a 4.35% share in February 2019. That is well behind the dollar or euro, but well above the Chinese yuan, which holds a 1.15% share and has made little progress in recent years. Even then, most international transactions using the Chinese currency are booked in Hong Kong, which is treated as a separate financial center.
The yen and dollar are the only major international currencies in which cross-border lending has outstripped pre-financial crisis levels, according to data from the Bank for International Settlements. The amount of international credit issued in British pounds or euros has fallen considerably.
Even in the area where China has seen most success—its rising share of foreign exchange reserves—Japan has beaten it. From the end of 2016, when the yuan’s share of reserves was first reported at 1.07% of the global total, it has risen to 1.89%. Over the same period, the yen’s share has risen from 3.96% to 5.2%, its highest proportion in over 15 years.
China may one day overtake Japan as Asia’s top international creditor, and the yuan may take a bigger place in the global financial system—the country’s economic heft would certainly warrant it. For now, though, Beijing’s international ambitions have generated more words than actions.
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