When Finance Minister Taro Aso meets with his Chinese counterpart, Lou Jiwei, in Beijing on Saturday, the Asian Infrastructure Investment Bank (AIIB) will loom large in the talks.
While 56 nations have so far signed up to the new $100-billion lender being established by China, Japan has not.
In a recommendation compiled for Prime Minister Shinzo Abe on Thursday, lawmakers in the ruling Liberal Democratic Party urged caution on joining. Aso has repeatedly raised concerns about what the AIIB’s governance will look like.
Japan is boosting spending in the region to counter China’s rising influence, using its Asian Development Bank to expand funding for infrastructure projects to about $110 billion over the next five years.
Below are the pros and cons of Japan joining the lender for both governments in Tokyo and Beijing:
What’s in it for the Japanese?
Joining will help give Japan stronger influence on policy and investment decisions in Asia, said Masahiro Kawai, a professor at the University of Tokyo and former dean of the ADB’s think tank.
Japan’s entry could improve ties between the governments in Tokyo and Beijing, according to the LDP’s recommendation.
It will help Japan’s economy by raising the odds that Japanese companies — seeking expansion overseas as the domestic market contracts — are chosen to build infrastructure projects. Banks will also benefit.
Why not sign up then?
China has failed to explain how the AIIB will be governed, Aso said last month at the ADB’s annual meeting in Baku, Azerbaijan.
It will add to Japan’s debt burden, the world’s heaviest.
By keeping its options open, Japan can use its position as a diplomatic card, said Toru Nishihama, chief economist at the Dai-Ichi Life Research Institute.
Japan has to move in line with the U.S., which also hasn’t joined, said Hiromichi Shirakawa, chief Japan economist at Credit Suisse Group AG.
Why would China want Japan in?
China can gain technology and expertise from Japan, which has headed the ADB since its founding in 1966, said Chen Fengying, a senior fellow researcher with the China Institute of Contemporary International Relations.
Having Japan on board will show regional solidarity, said Shi Yinhong, professor of International Relations at Renmin University in Beijing.
Zhang Dejiang, China’s chairman of the Standing Committee of the National People’s Congress, urged LDP Vice President Masahiko Komura to join when they met in Beijing on May 5, it was reported. The only thing President Xi Jinping told Abe during an April meeting was that the proposal “has been welcomed in the international community,” according to the official Xinhua News Agency.
Why wouldn’t China want Japan to join?
China is frustrated with the regional influence of the Japan-led ADB, and concerned that Japan will seek to counter its influence in the AIIB.
China and the other founding members will have little problem getting the capital together, Shi said.
Chinese Finance Minister Lou Jiwei has said that there are no such things as “best practices” in development finance. So what could China learn from Japan?
What is the time frame for joining?
Lou said May 22 that founding members have agreed to sign a charter in Beijing in the second half of June, and Xi has said he wants to have the bank up and running by December.
Practically, it will be next year as the amount of capital is fixed and would need to be specially expanded if Japan were to join.
“For the situation now, without Japan, it might be a bit easier for China to finalize the agreement of associations and detailed structure with the existing founding members,” Shi said.