Japan Signals Possible AIIB Membership
Photo Source: Kyodo
By Tai Wei Lim

Japan Signals Possible AIIB Membership

May. 23, 2017  |     |  0 comments

On May 15, 2017, Japan signaled its intention to join the Asian Infrastructure Investment Bank (AIIB) initiated by Beijing. The condition for membership, as articulated by Japan, is for the AIIB to address Japan’s concerns about the environmental impact of AIIB-funded projects and other matters. Previously, other issues of concern for Japan as suggested by observers included transparency. Tokyo is also keen to have more assurance that countries taking loans from the AIIB can sustain their debts.

Japan had never rejected joining the AIIB. At different phases, it was keen to seek more information and/or have more assurances that the organization was transparent, ethical (in the environmental realm), and not detrimental to Japanese interests and values. For example, there were earlier perceptions that the AIIB would be laxer on environment regulations for projects like coal-fired power plants which the Tokyo- and Washington-led Asian Development Bank (ADB) was less keen to support, unless they are of the clean coal variety. Such perceptions contributed to dissonance in understanding the funding philosophies embodied in the two bodies, as perceived by Japan and other environmentally-conscious states.

Previously, Japan, which is a strategic ally of the US (as part of the US-Japan Alliance), held off joining the AIIB as it was perceived to be cautious of Washington’s reaction. There were also media perceptions that Japan’s Prime Minister Shinzo Abe had secured the trust of former President Barrack Obama’s administration by standing loyally with its longstanding ally. Some observers also put forward the argument that holding off an AIIB membership could provide Japan with some leverage in the Trans Pacific Partnership (TPP) by putting on a show of strong loyalty to the US. Japan’s decision not to join AIIB contributed towards such perceptions. However, current US President Donald Trump has taken the US out of the TPP.

In an earlier phase, when the AIIB was at a stage of uncertainty and when details were scant, most of the major Western countries held off joining the AIIB. But the floodgates opened when another close ally of the US, the UK, joined the AIIB on March 12, 2015. It paved the way for other US allies and friends to follow the British lead, leaving only the US, Japan, and Canada as non-members. The British decision apparently drew displeasure from Washington (something that Tokyo had possibly anticipated). Observers argued that the UK and other Western countries joining AIIB allowed them to work with Chinese partners and would also positively influence the development of the multilateral organization from within.

At that time, Japan held off seeking membership even after the British and other Western allies had joined the AIIB. In addition to alliance loyalty and a desire to seek more information about the AIIB, some commentators had previously speculated that the more established ADB was a potential rival with the AIIB, leading to reluctance on the part of the two close allies (US and Japan) to join the AIIB. The ADB is based in Manila and is sometimes considered to be a component of the so-called “Washington Consensus,” and one of the most important postwar multilateral institutions alongside the United Nations, International Monetary Fund, and World Trade Organization that shape the global order.

Prime Minister Shinzo Abe may meet President Xi Jinping to communicate bilaterally Japan’s interest in joining the AIIB at the July 2017 G20 meeting in Germany.

But the ADB and AIIB need not necessarily be rivals as the accumulated experience of Japan in managing the ADB and also Japanese experience in investing in ADB projects can be contributions to the AIIB if Japan becomes a member. Moreover, Japan has cutting edge environmental technologies and project management know-how that can contribute to AIIB projects. The pie for infrastructure construction in the Asian region is ever-expanding, and neither the AIIB nor the ADB alone can single-handedly meet all the requirements for infrastructure funding in the region. The acute need for infrastructure creates incentives for all capacity-building institutions to work together rather than have competitive instincts. Washington and political commentators in the US have also at times expressed willingness to examine the possibilities of working with AIIB through third parties like the IMF.

The top leadership in Japan continues to watch developments of the AIIB closely. The expressed desire to possibly join the AIIB rides on reinvigorated interest within the Japanese political world in joining the AIIB, especially amongst the Beijing-friendly China old hands. This group of Japanese politicians hopes to possibly and potentially work with the AIIB on environment projects and issues of sustainable development, which are issues close to Japanese political concerns in the regional and global arenas. After all, Japan in the past had been a major advocate of the Kyoto Protocol and an evangelist on climate change and the environment. In recent times, with pushback against globalization perceived to be symbolized by Brexit and the US election results as well as the near-challenge from Le Pen in the French election, Japan (along with China) have become champions of global free trade that is open and inclusive.

The announcement by Japan on its AIIB interest comes on the heels of China hosting the Belt and Road Forum which saw 29 world leaders and representatives from other countries attending. They used the occasion to renew pledges to encourage trade between them. Japan and the US are the only major Western economies that have yet to join the AIIB at this point of writing. Canada was approved to join the AIIB in March 2017. At about the time Canada joined the AIIB, the number of AIIB member states overtook that of the ADB. It may signal the growing importance of the AIIB while highlighting the maturity of the ADB.

The ruling Liberal Democratic Party (LDP) factional leader that first backed this current Japanese lobbying for AIIB membership was Toshihiko Nikai, the party’s General Secretary. Nikai is a powerful heavyweight within the ruling party. Japanese political leadership is dependent on garnering intra-party support by aggregating factional interests and lobbying powerful elders within the party. These elders (genro) exert influence based on their factional leadership. Nikai is also a China-friendly politician and an old hand in understanding China. He is part of an aging community within the Japanese political world that is traditionally knowledgeable in dealing with Beijing.

It may be possible that Prime Minister Abe, who has gone on a television program to indicate Japanese interest in AIIB membership, may meet Chinese President Xi Jinping to communicate bilaterally Japan’s interest in joining the AIIB at the July 2017 G20 meeting in Germany. Japan’s joining the AIIB is likely to enhance overall Sino-Japanese relations. A promoter of multilateral free trade, Prime Minister Abe still hopes that some remnant framework of the TPP can still go on and eventually pave the way for the US to re-join the pact. As the world’s largest market and economy, the US is an important integral component of any world trade initiative.

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