China and Japan’s Business Cooperation in Third Countries
Photo Credit: The Japan Times
By Amrita Jash

China and Japan’s Business Cooperation in Third Countries

Dec. 26, 2018  |     |  0 comments

2018 marks the 40th anniversary of the signing of the Sino-Japanese Treaty of Peace and Friendship, and the bilateral relations are experiencing a significant thaw. As noted, sidestepping the longstanding “cold politics” and further adding to the “hot economics”, China and Japan are putting mutual effort into constructive management of the fragile relationship. What has significantly added to this burgeoning warmth in ties is the signing of the Memorandum on Business Cooperation in Third Countries between China and Japan on May 9, 2018, which aims to expand bilateral economic cooperation between the two countries by strengthening bilateral cooperation in the third-party market. This agreement was an outcome of Chinese Premier Li Keqiang’s visit to Japan, wherein Li in his meeting with Japanese Prime Minister Shinzo Abe agreed to launch a public-private sector council to consider specific projects of cooperation related to Beijing’s Belt and Road’s cross-border infrastructure initiative.

In view of this, the Memorandum seeks to work under a four-fold framework: first, to promote business activities between companies as well as develop their business activities in third countries; second, to establish the Committee for the Promotion of China-Japan Business Cooperation in Third Countries under the framework of the China-Japan High-Level Economic Dialogue; third, to establish and hold the China-Japan Forum on Third Country Business Cooperation; and lastly, to consider successively potential markets and industries for Japanese and Chinese companies to cooperate.

In actualizing the Memorandum of Understanding, with Abe’s landmark visit to China in October 2018, Beijing and Tokyo formalized the initiative by holding the China-Japan Forum on Third Country Business Cooperation. Under which, over 50 Memorandums of Understanding were signed, of which, the most important was a Memorandum of Understanding on financial support for Chinese and Japanese companies in their business cooperation in third countries, as agreed between the International Cooperation Bank of China (ICBC) and Mizuho Bank of Japan. Specific to this, the Memorandum of Understanding identified the Eastern Economic Corridor (EEC) of Thailand as an important investment destination for China-Japan business cooperation in third country.

What makes the EEC a desirable destination of joint investment for China and Japan? Given the strategic advantage of the geographical location and need for heavy infrastructure investment, the focus of the EEC is to improve existing connectivity and foster manufacturing and innovation. The agenda for the Thai government lies in creating established sea routes from the eastern provinces of Thailand to Myanmar’s on-going Dawei deep-sea port project, Cambodia’s Sihanoukville port, and Vietnam’s Vung Tau port. In doing so, the Thai government is expanding the Laem Chabang seaport, wherein the primary goal is to transform it into a marine hub of South East Asia.

Under this third country investment scheme, China and Japan’s joint agenda entails: first, out of the 50 Memorandums of Understanding, the first joint project for China and Japan is that of the “Thai Smart City”. Under this project, Japanese contractor JFE Engineering Corp. and a Chinese enterprise will develop an energy efficient smart city in the province of Chonburi. Second, for financing of projects, the Japan Bank for International Cooperation will set up a joint financing framework with the China Development Bank. Third, Mitsui Sumitomo Insurance and China Pacific Insurance will enter into a comprehensive tie-up on operating in third countries. Fourth, in the automobile industry, Panasonic will team with an affiliate of Chinese search giant Baidu to provide in-vehicle systems for next-generation models. Fifth, in the energy field, Japan’s JXTG Nippon Oil & Energy plans to collaborate with China’s Sinopec to build hydrogen filling stations for fuel in third countries.

With a mutual attempt to sideline the increasing competitive edge between China and Japan, a joint initiative between Asia’s two infrastructure giants only helps to bridge Asia’s expanding infrastructure gap.

What makes this joint initiative significant? The 2017 Asian Development Bank’s Report on “Mapping Asia’s Infrastructure Needs”, pointedly notes that developing Asia needs “$22.6 trillion, or $1.5 trillion per year” from 2016 to 2030; when climate-adjusted, this estimate increases to $26 trillion from 2016 to 2030, or $1.7 trillion per year. Of which, Southeast Asia will need to spend $2.8 trillion in infrastructure, or $184 billion annually.” To fill up the infrastructure gap China and Japan have been at loggerheads in their infrastructure turf in Southeast Asia, as noted in China-led Belt and Road Initiative (BRI) and Japan-led Expanded Partnership for Quality Infrastructure (EPQI). More specifically, in Thailand, both Beijing and Tokyo have been fierce competitors to invest in mega-projects, especially in high-speed railway projects.

China launched the Sino-Thai High-Speed Railway as a flagship project within its Belt and Road Initiative in the spirit of “wide consultation, joint construction and shared benefits”. China began the first phase of construction of Thailand’s first ever High-Speed Railway from Bangkok to Nakhon Ratchasima province in the northeastern region. With completion of the first phase, the next phase will be to connect Nakhon Ratchasima with the border town Nong Khai, adjacent to Laos. This will then link the Sino-Thai Railway with the Sino-Lao Railway — connecting Thailand, China and Laos along the BRI.

Similarly, Japan and Thailand signed a memorandum on a joint investment in a 635 kilometer High-Speed Rail link between Bangkok and the northern Thai city of Chiang Mai, and a 574 kilometer railway from Ban Phunam Ron at the border in Kanchanaburi to Chachoengsao and Aranyaprathet district of Sa Kaeo. Wherein, the 1-metre gauge railway project also known as the Lower East-West Corridor Route will serve as a transport link from the Dawei project in Myanmar (a joint project between Myanmar, Thailand and Japan) to Bangkok, Laem Chabang sea port in Chonburi and the Thai-Cambodia border in Aranyaprathet. While the last project to be launched will be the 718 kilometer Upper East-West Corridor linking Mae Sot border district of Tak, Phitsanulok and Mukdahan, the border province opposite Laos.

With such competition at play, this joint initiative offers a “win-win” for China and Japan. That is, for China, a joint initiative with Japan automatically provides a boost to the Belt and Road Initiative, which has increasingly faced with severe criticism of pushing countries into “debt traps”. While for Japan, such cross-border partnerships provide a boost to Japan’s EPQI as well as helps to expand its own multinationals in other countries. They also give an opportunity to advance Tokyo’s own broader economic ambitions in Asia. Most importantly, such an initiative helps to avert the struggles that Chinese and Japanese companies suffer in their bidding for infrastructure projects. This further helps to bridge the quality-quantity gap, as often debated with China-Japan infrastructure investment model.

In general, with a mutual attempt to sideline the increasing competitive edge between China and Japan, a joint initiative between Asia’s two infrastructure giants only helps to bridge Asia’s expanding infrastructure gap. And specifically, to the bilateral relations, with an end to Japanese official development assistance (ODA) to China, such infrastructure investment partnerships provide a new direction to the fragile Sino-Japanese relations. This third-country framework also acts as a confidence building measure for China and Japan, given the unwarranted risks that emanate from “cold politics”.

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