TOKYO - Japan yesterday unveiled a plan to provide US$110 billion (S$147 billion) in aid for Asian infrastructure projects, as China prepares to launch a new institutional lender that is seen as encroaching on the regional financial clout of Tokyo and its ally Washington.
The amount of Japanese funds, to be invested over five years, tops the expected US$100 billion capitalisation of the Asian Infrastructure Investment Bank (AIIB), the Beijing-sponsored lender scheduled to begin operations next year.
Japanese officials said the plan, announced by Prime Minister Shinzo Abe at a symposium of Asian officials and experts, represents a 30 per cent increase over Tokyo's past infrastructure funding.
Japan said it wants to focus on "high-quality" aid, for example, by helping recipients tap its expertise in reducing pollution while building roads and railways. That is an implicit contrast with the AIIB, whose projects the US has said may not adequately safeguard the environment.
"We intend to actively make use of such funds in order to spread high-quality and innovative infrastructure throughout Asia, taking a long-term view," Mr Abe said in a speech announcing the plan.
About half of the funds will be extended by state-affiliated agencies in charge of aid and loans and the rest in collaboration with the Asian Development Bank (ADB). Japan hopes the aid will help draw private funds to meet the vast demand for infrastructure in Asia.
Finance officials said Japan's aid plan had long been in the works as part of a Group of 20 pledge to meet global needs. But Tokyo, worried that it may look less pro-active than Beijing, also wants to showcase its support for the region. "We had thought it was better not to speak up much, but that doesn't get through," Mr Koichi Hagiuda, a special aide to Mr Abe in his Liberal Democratic Party (LDP), said. "So some demonstration seems to be needed."
Japanese and Chinese finance officials will meet in Beijing on June 6 and may discuss the AIIB, but Tokyo is unlikely to decide about joining any time soon.
LDP lawmakers looking into the matter will put together a report soon, but will only state the pros and cons of joining or staying out, said a member of the party panel.
Japan - which, given the size of its economy, could become the No. 2 donor if it decides to join the AIIB - may well keep its powder dry for some time to come. The United States and Japan agreed last month that the World Bank and ADB should team up with the AIIB in syndicated loans as a way to help the new lender establish strong standards.
The AIIB's founder members are meeting in Singapore to decide on the articles of association and operational details. A delegate, speaking on condition of anonymity, said it was unlikely the bank could begin lending at the start of next year, given the need for member countries to get approvals from their legislatures.
"China hopes that members get such approvals by year end and the operations start from next year," said the delegate.