China, Japan and development economics

Early last month, the Asian Development Bank (ADB) held its annual meeting in Yokohama, south of Tokyo, and marked the 50th anniversary of its founding. It was attended by as many as 4,000 delegates, including finance ministers, central bankers and other government officials from the ADB's 67 member countries and regions around the world.

Japan hosted the event in its capacity as a major donor to the ADB. The meeting was chaired by ADB president Takehiko Nakao, a former senior finance ministry official in Japan.

Japan and China are often portrayed by media as competing for influence through development finance, given that the Asian Infrastructure Investment Bank (AIIB) led by China also happens to hold an annual forum in May.

Yet, the ADB estimates that Asia will need to invest US$26 trillion (S$36 trillion) from 2016 to 2030. It is unrealistic to expect the ADB alone to address the region's massive infrastructure needs. The ADB recognises this as a foregone conclusion. That is why Mr Nakao stressed in his address the significance of working together with the AIIB.

The ADB has developed know-how and human networks during the past 50 years. It has more members than the AIIB, as Mr Nakao pointed out, and its initiatives address a range of issues concerning not just infrastructure investment but also climate change, natural disasters, gender equality and poverty eradication. By contrast, the AIIB is more focused on infrastructure investment. Given this background, the two lenders have concluded certain agreements between them in pursuit of mutual cooperative developments.

Deputy Prime Minister and Finance Minister Taro Aso, as Japan's top representative, emphasised that the ADB's focus is on enhancing the quality of infrastructure, in line with Japan's key initiative in recent years to aid Asian economies' development, while the AIIB concentrates on financing investment in economic infrastructure.

Mr Aso's remarks are not to be construed as critical of the AIIB. Japan has pledged to provide US$40 million over the next two years via a new trust fund designed to help developing nations introduce advanced technology to meet the region's growing infrastructure needs. Amount-wise, that sum is no match for the AIIB's financing capacity, but it could be taken as a proposal to promote the complementary roles of the two organisations.

So it would seem that bilateral ties between Japan and China regarding the ADB and AIIB are not as competitive as often portrayed. The AIIB can be a partner for Japan and the ADB. However, of critical importance to Japan and the ADB will be how China deploys its lending capabilities and the future developments it undertakes through the AIIB.

The ADB needs to utilise the vitality of the private sector and undertake organisational reform. It could even lose ground to the AIIB in the future. Yet its role is vital, especially given the lingering concern that China may link its development finance and infrastructure plans under its Belt and Road Initiative to its military/national security policy.

  • The writer is professor of international relations at the University of Tokyo. This article was written originally in Japanese on May 9.
A version of this article appeared in the print edition of The Straits Times on June 22, 2017, with the headline 'China, Japan and development economics'. Subscribe