In the past decade, the proliferation of new infrastructure and connectivity projects in the Indo-Pacific region has resembled Jagdish Baghwati’s 1995 “spaghetti bowl” analogy, with which he argued that too many crisscrossing free trade agreements were paradoxically counterproductive in connecting states through freer and more open global trade. It is time one asks if there are more connectivity and infrastructure projects than the region needs.
Over the years, Japan has set the gold standard for infrastructure lending in the region. But, for the last eight years, the country has also had to compete aggressively (amidst some cooperation) with China’s 2013 mega infrastructure project, the Belt and Road Initiative (BRI). While a degree of competition is always healthy, the risk that arises with excessive donor competition is that it could lead to overly ambitious agenda setting and/or a drive for quantity that could undermine quality in the lending projects.
The ongoing global pandemic has exposed many BRI projects with poor lending practices that were made out of the abundance of balance-of-payments surplus China has accumulated and competition among internal provinces and external recipients. A few have already been scrapped and several that seemed dubious even before the start of COVID-19 now look like white elephants. Egypt has already postponed a project, Bangladesh and Tanzania are canceling projects and Pakistan is asking for easier repayment terms.
The new money and projects that are being brought in or signed onto by Japan must not resuscitate or replicate corrupt and poorly conceived projects such as those under the BRI. Japan instead must promote both the quality of output from the increasing number of new infrastructure initiatives it is signing and re-approach some of the older projects — including the joint projects it has with China — with improving their quality in mind.
Since China announced its BRI in 2013, Japan and its "Quad" partners have started a number of infrastructure initiatives. But, tangible outcomes are yet to be seen and these initiatives need to firm up in order to generate more impact.
The Asia Africa Growth Corridor (AAGC), which was purposed to integrate Africa and the western Indian Ocean, was signed between Japan and India in 2017. This has been around for three years, but with regards to joint infrastructure projects it remains squarely in the developmental phase. More recently, the EU-Japan infrastructure pact was signed in October 2019, which aims to boost connectivity between Europe and Asia. This initiative is yet to see both sides zero in on specific projects.
The initiation of the Blue Dot Network (BDN) by the United States, Japan and Australia in November 2019 at the Indo-Pacific Business Forum in Thailand aims to “certify infrastructure projects around the world that meet high standards of transparency, sustainability, and developmental impact.” Unlike the others, the BDN potentially carries the financial bandwidth to keep up with and even overtake Chinese overseas infrastructure development, assuming its members ramp up spending from present levels to 0.2%-0.3% of their Gross National Income. While drawing India into the BDN for funding purposes and the similar values it shares would be beneficial, there is no confirmation if this will go forward as the project is still in its early stages.
Alongside these initiatives, Japan already has its own $110 billion Expanded Partnership for Quality Infrastructure (EPQI) project that was initiated in 2016 to be paid out over five years. While all these initiatives in their respective capacities share complementary visions, goals and principles, there is still no overarching framework or understanding as to how Japan envisions its place in this spaghetti bowl.
In reactivating the Quad-centered infrastructure financing alternatives, Japan should join its emphasis on the quality of impact of connectivity projects to specific supply chains or product flows that are created by the project. Supply chain assessments enable the analysis of impacts on the chains that would benefit from specific connectivity interventions. COVID-19 has exponentially exposed the sensitivity of supply chains that have been overly dependent on the Chinese market. Additionally, the current Sino-U.S. rivalry and the slowing down of the BRI projects amid the pandemic, are all an opportunity for Japan to turn around the conversation on supply chains.
In aiming to diversify the supply chains away from China, Japan can, ironically, take advantage of the infrastructure projects — including the roughly 50 joint infrastructure projects in third countries, that it agreed to in 2018 with China. In doing so, Japan can focus on quality, not only defined as infrastructural resilience, but also as quality of life, economies, safety and the environment it creates through its projects.
Finally, Japan’s emphasis on quality neither precludes countering China quantitatively nor keeping itself partially on the BRI projects. Japan needs them all to walk a fine balancing line.
In 2017, then-Prime Minister Shinzo Abe, stated that Japan would “conditionally” work with China on the BRI; Abe’s conditions being that aid projects should be in line with international rules, values and practices. As Japan has already made its quality infrastructure program the basis for bilateral development cooperation with China, continuing these joint projects could positively influence China’s own practices. As many of the BRI projects are affected by COVID-19, now would be a good time for Japan to re-emphasize its values on prudent and values-based lending.
COVID-19 has been a wake-up call for Tokyo to push through on re-focussing on quality infrastructure lending in the Indo-Pacific on multiple fronts — quality of outcomes in the increasing number of infrastructure initiatives it has with partner states, quality of supply chains that stem from connectivity nodes and even quality of lending in China’s controversial but influential BRI. If Tokyo can do this, it would be beneficial for both its Quad and other like-minded partners and the broader region as a whole.
Vindu Mai Chotani is a Ph.D. student at the Graduate School of Public Policy, University of Tokyo. Yoichiro Sato is a professor at Ritsumeikan Asia Pacific University.
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