When world leaders adopt new international principles for “quality infrastructure” during the upcoming Group of 20 summit in Osaka, it will be the moment when Japan’s flagship initiative will finally bear fruit after years in the making.
In recent years, Japan has promoted what it calls high-quality infrastructure as the antithesis of a more quantity-driven strategy spearheaded by China, which has wooed developing economies by rolling out cheaper, if inferior, infrastructure programs under the multibillion-dollar “Belt and Road” initiative (BRI).
A tone of pride in scoring a preliminary endorsement of the principles was palpable when Finance Minister Taro Aso reflected on the outcome of a meeting with his fellow G20 finance leaders held in the city of Fukuoka earlier this month.
“‘High-quality infrastructure’ is the phrase that Japan created and gave rise to. We started it off about four years ago when there was little awareness of what that concept even meant,” Aso told reporters in Fukuoka after the event wrapped up.
But the fact the G20 finance leaders were able to “explicitly codify and publicize” this particular wording this time around, he said, “makes me feel that we’ve come a long way.”
The view prevails that the principles are meant to be a counter to the BRI, the signature strategy of Chinese President Xi Jinping.
The six-point statement on quality infrastructure stressed global commitment to “debt sustainability,” in an apparent bid to rein in Beijing’s questionable lending practices under the BRI.
Criticism has long persisted that China is burdening developing countries with loans that cannot be repaid, striking infrastructure deals that favor its own companies and expanding its strategic footholds around the world through railroads and ports that it invests in.
The principles’ formal adoption at the G20 summit in Osaka, experts say, would likely work to Japan’s advantage, legitimizing its push for quality infrastructure while heaping further pressure on China to rethink what has been dubbed its “debt-trap diplomacy” under the BRI.
Infrastructure is one of the most closely observed topics among the G20 countries, at a time when demand in Asia is soaring. Developing Asia, according to a 2017 report by the Asian Development Bank, would need an estimated investment of $26 trillion between 2016 and 2030, or $1.7 trillion per year, in order to maintain its growth momentum, eradicate poverty and respond to climate change.
China essentially “made a compromise” by signing the principles at the Fukuoka meeting, in hopes of allaying growing global distrust of the BRI, said Noriyuki Kawamura, a professor of Sino-Japanese relations at Nagoya University of Foreign Studies.
Even before the Fukuoka summit, there were signs China was seeking to quell international criticism over the BRI.
At the second Belt and Road Forum summit in Beijing in April, Xi made a point of addressing the goal of quality infrastructure in his speech, Kawamura said. A joint communique adopted at the event, too, added a mention of “debt sustainability” — a phrase that has been absent in the previous forum from 2017 — in what was widely seen as Beijing’s acknowledgement of concerns over its debt-trap diplomacy.
Xi’s conciliatory attitude, Kawamura said, was partly motivated by renewed global concerns with the BRI. Suspicion about China’s motives grew following Italy’s decision in March to become the first Group of Seven nation to join the infrastructure-building plan. Apparently alarmed by Italy’s move, French President Emmanuel Macron even declared the “time of European naivete” toward China is over.
China “can’t afford to let skepticism from across the world doom the BRI — one of its most strategically important projects,” Kawamura said. “So agreeing to the principles (for quality infrastructure) was a small price to pay” to ease worries among the international community, Kawamura said.
At the initiative of Japan, the idea of quality infrastructure was floated in recent years, and gained widespread international recognition when it was endorsed at the G7 summit held in the city of Shima, Mie Prefecture, in 2016. It was then recognized in one of the paragraphs of a joint communique adopted at the G20 summit held in the Chinese city of Hangzhou the same year.
“What we tried to do this time around is to upgrade this paragraph about quality infrastructure into an independent document in the form of international principles,” Finance Ministry official Takahiro Tsuda said. The upcoming summit in Osaka, he said, would mark the first time the G20 leaders will adopt international principles on quality infrastructure.
The latest statement is more detailed than ever in defining quality infrastructure, not only calling on world leaders to focus on debt sustainability but to ensure “openness” and “transparency” of procurement — a perceived dig at the opacity with which China has allegedly recruited its own companies in building infrastructure in developing countries.
Another prominent element of the principles is the idea of economic efficiency “in view of life-cycle costs.”
Underlying this idea is Japan’s claim that “quality infrastructure may prove more affordable for developing countries in the long run,” Masahiro Kawai, a professor of international finance at the University of Tokyo, said.
Still, not everyone is fully convinced of the principles.
Takahide Kiuchi, for one, an executive economist at the Nomura Research Institute, says the new principles “smack a little too much of a political agenda pushed by Japan and the U.S.” to curb China’s geopolitical advances.
He said the BRI’s reputation as “debt-trap diplomacy” remains debatable and tends to be exaggerated, with critics often fixating on the case of Sri Lanka in 2017, when the South Asian country was forced to hand over the strategic port of Hambantota to China after failing to repay the mammoth debts owed to Chinese state-controlled firms.
Moreover, Kiuchi argues that quality infrastructure espoused by Japan and the U.S. isn’t necessarily the best way to cater to the latent needs of developing countries, as it sometimes sets too rigorous a bar for investment.
“Quality infrastructure, in other words, is one governed by strict standards,” Kiuchi said, adding developing countries have such diverse needs that criteria pursued by countries such as Japan and the U.S. can be too stringent to facilitate investment there.
“Compared with that, what China has to offer is more accessible, aptly responding to the needs of some developing countries. So there is more to China’s infrastructure initiative than its negative, ‘low-quality’ aspect,” he said.
Some believe that Japan has pushed for quality because its infrastructure business can’t match China’s in terms of quantity. But developing nations have sometimes balked at Japan’s quality, more sustainable infrastructure due to its price tag, instead gravitating toward China’s cheaper proposals, the University of Tokyo’s professor Kawai said.
“Japan’s argument is that China’s infrastructure is only cheap in terms of initial investments, and that it could burden its borrowers with a stupendous amount of maintenance costs in later years when they would have to pay for various repairs.”
The extent to which the new principles would ignite an interest among developing countries in Japan’s quality-first approach remains unclear. But Kawai thinks that at the very least, it carries a symbolic significance for Japan that its long-held push will be endorsed internationally at a level as high as the G20 framework.
The principles, he said, can also be construed as an implicit message by Japan and its allies such as the U.S. and Australia that China has to emulate their “Free and Open Indo-Pacific Strategy,” which is widely seen as a counter to the BRI and backs the idea of quality infrastructure.
Although the principles are not legally binding and set forth no penalties, “they would put China under stronger international surveillance and in all likelihood make it behave in a way that would respect their basic spirit,” the professor said.
This is part of a series featuring key topics that will be discussed during the Group of 20 summit to be held in Osaka from Friday.