With growing criticism of Beijing's Belt and Road Initiative in mind, Stratfor anticipated that Chinese authorities would adjust their strategy in several ways, including adding outside investors. As relations between China and Japan continue to thaw, both are testing their collaboration in Belt and Road projects in a third country, allowing each to reap gains.
As part of their monthslong process to mend fences, China and Japan are establishing closer business ties through overseas infrastructure projects. Leaders of both countries are expected to sign a memorandum of understanding for 20 to 30 projects related to China's Belt and Road Initiative when Japanese Prime Minister Shinzo Abe embarks on his highly anticipated trip to Beijing in October. This will be after a public-private committee, scheduled to hold its first meeting in late September in Beijing, is expected to pick specific projects for cooperation.
A high-speed rail project in Thailand, which aims to connect the country's three main airports — Don Muang, Suvarnabhumi and U-Tapao — is widely seen as a likely candidate for China and Japan's first collaboration. The project is a central component of Thailand's Eastern Economic Corridor development plan, which Bangkok hopes will help its eastern provinces and link it with its neighbors.
Why It Matters
Joint ventures with Japan in a third country would mark a step forward in China's efforts to incorporate other powers, particularly developed states, in its Belt and Road infrastructure projects. Although Beijing has long stated its intent to include other countries, progress has so far been limited. Instead, its dominance in many large projects and its approach to debt financing has earned growing criticism. As Beijing reorients its tactics, it is hoping that the participation of Japan could ease some of the criticism, as well as allow its domestic companies to gain necessary experience and skills. Japanese participation could also pave the way for further third-party involvement elsewhere, because Beijing has signaled its intent to entice core powers of the European Union and even India into the Belt and Road Initiative.
Whereas Beijing's logic is primarily strategic, Tokyo's participation is more business-driven. Over the past few years, Chinese and Japanese firms have engaged in fierce competition over infrastructure projects. And the more they competed for market access, the more recipient countries, such as Thailand and Indonesia, could play them off each other for better financing and deals. Meanwhile, though Japanese firms have a reputation for high quality projects and good investment experience, China's state-led approach in infrastructure expansion can be seen as a barrier to Japan's access in some countries. A joint Belt and Road project could turn competition into cooperation, allowing Japanese firms to take advantage of China's platform in regions where Tokyo lacks a foothold. Thus, the joint ventures are most likely to occur in countries where China and Japan compete the most, particularly those in Southeast Asia and, to some extent, Africa and Central Asia.
The joint venture in overseas projects is part of an overall tactical thaw between China and Japan. Over the past few months, both have worked to manage maritime disputes in the East China Sea and to restore some damaged trade and economic relationships. The thaw has been primarily driven by the evolving dynamics in Northeast Asia, including U.S. President Donald Trump's protectionist trade policy and the uncertain yet positive developments on the Korean Peninsula.
Still, it does not eliminate the strategic competition between China and Japan. Continued Japanese expansion in the South China Sea, for example, and Tokyo's willingness to take a leading role in U.S.-led infrastructure initiatives to counter the Belt and Road Initiative both reflect a sophisticated balancing act and highlight the underlying conflict of interests between the two powers. But as Beijing works to insulate itself against escalating U.S. trade and strategic pressure, its goal of maintaining amicable relations with neighboring countries could allow Japan, India and those in the Association of Southeast Asian Nations to recalibrate their strategies, as well as allow other participating nations to adjust and maximize their shared strategic interests.