1
To what extent do Japanese and Chinese
foreign investment policies increase their
political influence in South East Asia?
Study of Japanese and Chinese infrastructure investments in the
Mekong region:
Master thesis International Relations Global Political Economy
Alexis Massot s2278308 a.f.massot@umail.leidenuniv.nl
Friday 5th of July 2019 University of Leiden Supervisor: Jue Wang Second Reader: Lindsay Black
2
Thesis Structure:
Appendix: ... 5
Introduction: ... 6
History of investment in South-East Asia ... 6
Japan the leading investor from the 1970s to today: ... 6
Early 2000s, arrival of the Chinese player in the game: ... 7
A climate of Geopolitical tension: ... 7
Structure: ... 9
Literature review: ... 9
Investments in South-East Asia ... 9
The Sino-Japanese competition: ... 10
Two economies two strategies: ... 11
Limitations of the literature and relevance of this study: ... 12
Concepts: Influence ... 13
Different definitions: ... 13
How to measure a countries ability to influence another? ... 14
Strategies of Political Influence and their relation to infrastructure
investment: ... 14
Dependence and Hirschmanesque relations: ... 14
Bandwidth or a spread of influence and legitimacy through institutions: ... 15
Realism and Infrastructure investments: ... 17
Methodology: ... 19
Policy convergence a measure of successful political influence: ... 19
What do Japan and China want? ... 20
Measuring Policy Compliance following infrastructure investments: ... 21
Where and when? ... 22
The Mekong region: ... 22
Time Frame: ... 23
Data: ... 24
Analysis: ... 24
Japanese investment in the Mekong: ... 25
3
Vietnam and Japanese connectivity: ... 26
Projects: ... 27
Interests and geopolitical climate: ... 27
Dependence: ... 28
Bandwidth: ... 28
Policy convergence: ... 29
Limits: ... 30
Thailand and Japan’s waning influence: ... 31
Projects: ... 31 Japanese interests: ... 32 Dependence: ... 32 Bandwidth: ... 33 Policy convergence: ... 34 Limits: ... 34
China in the Mekong: ... 35
The role of institutions and prosperity of the region: ... 36
Small countries and dependence: ... 36
Laos Hydropower & Railways: ... 37
Projects: ... 37 Chinese interests: ... 38 Dependence: ... 38 Bandwidth: ... 39 Policy convergence: ... 40 Limits: ... 40
Cambodia and the Belt and Road initiative: ... 41
Projects: ... 41 Chinese Interests: ... 42 Dependence: ... 43 Bandwidth: ... 44 Policy convergence: ... 44 Limits: ... 45
Discussion: ... 46
Successes of each Country ... 46
4
China: ... 47
Limitations and Challenges towards the spread of political influence: ... 48
Limits to Japan: ... 48
Limits to China: ... 49
Other factors and limits to the analysis: ... 50
Conclusion: The future of investments in South East Asia, domination,
or cooperation? ... 50
5
Appendix:
ADB: Asian Development Bank
AIIB: Asian Infrastructure Investment Bank ASEAN: Association of Southeast Asian Nations BRI: Belt and Road Initiative
FDI: Foreign Direct Investment
FPIC: Foreign Bilateral Influence Capacity GDP: Gross Domestic Product
HSR: High-Speed Railway
IDP: Industrial Development Project
JETRO: Japanese External Trade Organization JTEP: Japan Thailand Economic Partnership LMC: Lancang-Mekong Cooperation
METI: Ministry of Economy Trade and Industries MOFA: Ministry Of Foreign Affairs
MOU: Memorandum Of Understanding
MIDV: Mekong Industrial Development Vision PQI: Partnership for Quality Infrastructure OBOR: One Belt One Road
ODA: Official Development Assistance SEA: South East Asia
TPP: Trans-Pacific Partnership
6
Introduction:
History of investment in South-East Asia
While Foreign Direct Investment (FDI) had long been concentrated around northern countries, the late seventies saw a shift towards the south. South-East Asia (SEA) would become the destination of this new shift in investment. The 1990s would be characterised by a significant rise in investments, mainly focused around Vietnam, Singapore and Indonesia receiving 70% of all inward FDI together (ASEAN & UNCTAD 2018). Due to the ASEAN’s rapid growing export industries, investors from Japan, the US and the EU flocked to the region aiming to gain rapid returns on their investments during the following decade.
Since then, FDI towards the region has continued to steadily increase, despite important shifts during the different economic crises. Between 2008 and 2017, foreign investments towards SEA increased by nearly 40 per cent (ASEAN & UNCTAD 2018). In addition, the actors and goals behind the investments have also changed (Wrobel 2019). Intra-ASEAN funding, once non-existent, has slowly become the main source of investments in the region. China has become an important actor, while the United States has kept shifting their rates of investments with their different strategies of foreign policy (Asean Data Portal 2018). However, more importantly, a new rivalry in foreign investment and aid has developed, between Japan, an old established investor in the region, and China a newcomer (Pajon 2013).
Japan the leading investor from the 1970s to today:
Historically, important Japanese investments started in the 1970s. Yet, it is only in the 1980s that Japan became the biggest source of investment in the region, a position it managed to keep until today (Reed & Romei 2018). During these decades, Japan managed to not only develop a strong financially backed system of private investors, but also one supported by policies from the public sector. Japanese investors have also managed to establish a strong legitimacy and trust with
7
the receiving countries, thanks to the long-standing economic cooperation and experience. With these advantages, and Japan’s historical position, Japanese economists and politicians often see the ASEAN as a big market they will never lose (Sivalingam 2013). Nevertheless, investments from Japan, have not been equal throughout the early and late 2000s, characterised by the weakness of the stagnating Nippon economy (Breene 2016).
Early 2000s, arrival of the Chinese player in the game:
Chinese investments, however, started far later than those of Japan, gaining importance only in the early 2000s. Nevertheless, by 2010 total Chinese outward investments towards ASEAN had grown over 30% compared to the base amount back in 2005. In addition, 76% of Chinese outward FDI was focused on Asia, mainly in Hong Kong (Davies 2013). Despite these changes, China is still behind Japan, being the third biggest investor in 2017. Chinese investments today are also characterised by large differences between countries. While they represented 80% of the outward FDI towards Laos, they only represent 2% in the Philippines in 2018 (Asean Data Portal 2018; Wrobel 2019). It is only in the small countries of the Mekong, such as Cambodia, Myanmar, and Laos, that China truly dominates investments. Furthermore, due to China’s lack of experience and adaptability and still being a new player in the field of foreign investment, their investments have run into various problems, such as cost overruns, environmental degradation, and social tension.
A climate of Geopolitical tension:
While tension and rivalry between the two powers of China and Japan are not exactly a new issue, recent developments within the region have given them a renewed intensity. The growth of the Chinese economy, multiple border disputes throughout the East and the South China Sea and America’s policy of pivot to Asia, have all contributed to this renewal. This period also saw a surge in high-profile diplomatic visits from China and Japan towards ASEAN countries, discussing aid and economic cooperation (Gallagher 2018).
8
This same period was characterised by a growth of FDI and a multiplication in the number of infrastructure projects towards this region. Through different initiatives and organisations, such as the Belt and Road initiative (BRI) and the Asian Infrastructure Investment Bank (AIIB), China has invested in many projects such as the construction of dams in the Mekong, or railways across Indonesia (Ng 2017; Yeophantong 2016). At the same time, the “Japan is back” policy and the Partnership for Quality Investment in Asia (PQI) have both led to a rise in Japanese investments, from High-Speed Railways (HSR) in Thailand to metro systems in Vietnam (Hong 2018; Tatarski 2017).
While there are of course other factors and variables explaining the rise in these investments, there is a strong correlation between the renewal of geopolitical tensions and this surge. Over the grounds of this correlation, the link between political rivalry and increase in investment has been the subject of many academic studies (Lauria 2019; Ng 2017; Ogasawara 2015; Reed & Romei 2018; Wrobel 2019). Additionally, the surge of FDI, during the period of geopolitical tensions, was mainly led by large investments and aid in infrastructure projects, supported by the state (Hong 2018). Due to the importance of the state in these projects, they have often been described as a tool used by these countries to spread their influence throughout the region (Adams 2015; Ogasawara 2015).
Japan on one side wishes to contain the growing power of China. China, on the other hand, wants to not only set up a zone of influence within its neighbourhood but also complement the asymmetry between its actual power and lacking influence in the region (Goh 2016). These arguments explain the link between the rise of infrastructure investments and geopolitical tensions throughout the region. While the motives describing the will of each country to spread their influence throughout the region are explained in detail, there is little information about the general efficiency of these investments in spreading influence. Therefore, it is interesting to look at the different forms of large infrastructure investments done by Japan and China and analyse if they manage to strongly influence different host countries or if they are very limited. More specifically;
9
to what extent do Japanese and Chinese foreign investment policies expand their political influence in SEA?
Structure:
To answer this question, the essay will be divided into three different sections, the research background and theory, the analysis and finally the discussion. The first part will start with a critical analysis of the existing literature. This will be followed by a conceptualization of the term influence and its relationship with infrastructure investment in SEA and its relation to realist theory. Finally, there will be an explanation of the methodology used and the cases studied.
The analytical part will be characterised by a study of Chinese and Japanese influence within the Mekong region of SEA from 2012 to 2019. Chinese investments will be analysed in Cambodia and Laos, while Japanese investments will be studied in Thailand and Vietnam. These countries have all seen strong investments by each separate country.
The last part will consist of a general discussion comparing results and offering an explanation on how each country succeeds or fails in spreading its influence within each country. Finally, this study will end with an analysis of the limitations of this paper and potential future studies which can be done around the subject.
Literature review:
Investments in South-East Asia
With foreign investment generally on the rise in SEA, and gaining significant importance in the 1990s, a rich literature has emerged in order to explain this phenomenon. The majority, of the studies undertaken, tend to focus on the different economic incentives which led people to SEA, such as a large market, cheap labour, high returns on capital, or a stable and business-friendly region, to name a few (Diaconu 2014; Sjöholm 2013). While these are all legitimate reasons for investment one cannot ignore the political background of these investments. Due to old cold war
10
tensions, regional rivalries, and new rising powers, all happening at the same time as this rise in investments, several authors have focused on the geopolitical factors, behind this evolution (Lauria 2019; Ng 2017; Ogasawara 2015; Sivalingam 2013; Wrobel 2019).
The link between geopolitical tensions and investments in the region is not clear cut however, with different explanations and arguments, depending on the specific period and actors analysed. The increase in investments in SEA, from a western standpoint, can be explained by investors searching for an indirect way of entering the Chinese market, following the Sino-American trade war (Lauria 2019; Yap 2018). Going back earlier in time, they can also be linked directly to Obama’s pivot to Asia strategy (Chan 2017; Goh 2016).
The Sino-Japanese competition:
Nevertheless, most of the literature on economic investment and political tension tends to focus on the rivalry between the two major powers of East Asia, China, and Japan. Different studies illustrate how the motivations behind these investments go beyond purely classic economic motivations for both countries (Nicolas 2018; Obe & Kishimoto 2019; Wrobel 2019), with each state playing an important role in enforcing them (Hong 2018; Wallace 2019). One example of these geopolitical motivations is illustrated by Dandan Wan in “China and Japan Rivalry in the Asean”, wherein 2012 following territorial disputes between Japan and China in the East China Sea, Japanese FDI towards the ASEAN suddenly skyrocketed (Wan 2018). Urban et al. (2012) on the other side, explain in “An analysis of China’s investment in the hydropower sector in the Greater Mekong
Sub-Region” how China has been using investments to directly influence political parties and policies
within countries of the Mekong region.
As stated earlier, the link between politics and investments is mainly visible throughout the different projects of infrastructure investment encouraged directly by each state (Hong 2018, Wallace 2019; Wrobel 2019). Multiple examples of these different massive infrastructure investments are described in detail throughout the literature, from HSRs (Dalphino 2017; Obe & Kishimoto 2018)
11
to roads, dams (Goh & Steinberg 2016) and even metro lines (Tatarski 2017) all undertaken in the last decade.
Two economies two strategies:
Throughout the different studies from Wallace in, “Japan’s strategic contrast: continuing influence
despite relative power decline in Southeast Asia”, and Hong Zhao in “Chinese and Japanese Infrastructure Investment in Southeast Asia: from Rivalry to Cooperation?”, show that the two countries invest in the
same sectors, nevertheless the strategies employed by each countries differ, reflecting the political and economic structure of each nation.
First, there is China, a large state-led economy but far poorer than Japan. Investments are characterised, by several large infrastructure projects focused around energy and public transportation (Davies 2013; Hong 2018; Wrobel 2019). These large-scale investments, while spreading to other countries of the ASEAN, have long been focused around smaller countries, such as Laos, Cambodia, and Myanmar. Due to the sheer size of these projects and the small GDP of these countries, this has created a form of economic dependence. Scholars seem to argue that this dependence has been used as a tool in order to politically influence countries (Dias 2017; Wrobel 2019; Yeophantong 2016).
Then there is Japan, a smaller, more liberal economy, but wealthier and more economically diverse than China (AEC 2019). Although they do invest heavily in large infrastructure projects, most investments are focused around providing important technical and technological support, to local companies, who then build up the infrastructure (Hong 2018, Wallace 2019). This form of investment is less direct and often supported by investment banks, such as the Asian Development Bank (ADB). Japan’s strategy of investment is mostly focused around spreading political influence, through institutions and diplomatic ties, which come with these investments (Pajon 2013; Wallace 2019).
12
It is important to note that both countries are not limited to employing one form of strategy. Chan shows how through the creation of the AIIB (Asian Infrastructure Investment Bank), China has been trying to promote its ideas and norms throughout Asia (Chan 2017). On the other hand, Japan’s continued dominance of investment and aid in certain countries of SEA could be seen as a way of fostering economic dependence (Trinidad 2018).
Limitations of the literature and relevance of this study:
The current literature offers a comprehensive explanation on how political rivalries may fuel investments from both China and Japan, while also showing how each country employs different investment strategies. However, the research suffers from limitations when explaining how efficient and relevant China and Japan’s investments are in spreading their influence throughout the region. While some studies do exist, they tend to focus on several other economic factors, rather than specifically on foreign investment and infrastructure development (Kastner 2016, Wallace 2019) or tend to set their focus their argument on one country, China (Ganesan 2018) or Japan (Sivalingam 2013).
Therefore, in order to complete this research gap, this study aims to offer an overview of Japanese and Chinese investments in different countries and will try to answer the question, to what extent do Japanese and Chinese foreign investment policies increase their political influence in South-East Asia? Due to the importance of both governments in infrastructure projects, these will be the investments analysed in order to explain the strategy of each country. In addition, this paper will also be looking at what are the differences between investment strategies? And which country is more successful in promoting political influence through infrastructure investment?
13
Concepts: Influence
Different definitions:
Before looking at how infrastructure investments correlate to a rise in political influence, it is paramount to define and be able to measure influence. Therefore, this part will be dedicated to analysing the similarities and variations in the literature in order to derive a better definition of what influence is.
First of all, Dahl defines influence and power in the same way, stating that they are an action through this sentence “A has the power of B to the extent that he gets B to do something that B would not otherwise do” (Kastner & Goh 2016 p.246) In the case of this study A would be China and Japan while B would be the countries of SEA. This being said, Dahl’s view of influence is very bilateral, assimilating the influence of a country purely to a reflection of its power. This is problematic, for influence is not limited in International Relations, to relations between two countries. It is common to see several actors trying to influence one actor at the same time, or one actor can be influencing several others, in addition, these actors are not limited to states and can also include international organisations and multinational companies (Moyer et al. 2018).
Cox & Jacobson on the other hand state that influence is the “modification of one actor’s behaviour by another” (Goh 2016 p.6). This view separates power and influence contrarily to Dahl. While power and influence are similar concepts in Dahl’s theory, in this definition, influence is an action, while power can be seen as a tool through which this action can be undertaken (Moyer et al 2018). This change of behaviour also offers a temporal dimension to influence, the behaviour before and after the interaction. This is important for it offers a way to measure influence, as done by Kastner and Goh, in “Rising China's Influence in Developing Asia”. By comparing the situation before and after a country was influenced. Notably by looking if countries after being subject to Chinese influence would shift their behaviour on certain policies, from divergent to convergent. This shift does not need to be absolute, with nations totally rejecting a policy to fully accepting it,
14
if there is any change in behaviour or opinion, that can be clearly linked to a foreign powers action, one can say that this power has influence over the said country.
How to measure a countries ability to influence another?
Following these definitions political influence can be defined, as the ability of one or several actors, to modify the behaviour of others, towards their advantage. However, how does one actor influence the other, through which tools, and which methods can he use?
In order to answer this question, one can look at the Foreign Bilateral Influence Capacity Index (FBIC) developed by Jonathan D Moyer and his team in “Power and Influence in a Globalized World”. This index argues that two factors are necessary for a country to exert its influence on another one, Dependence and Bandwidth.
Strategies of Political Influence and their relation to infrastructure investment
:
Dependence and Hirschmanesque relations:
Dependence looks at the size of the flow of interactions between the two sides, relative to each country’s size. In other words, how important is the trade, security and protection, or economic aid of one country relative to the rest? If there is a country that has a higher dependence on this relation, this means that the other country has a form of leverage. This leverage allows one country to exert influence over the other (Moyer et al. 2018).
In the context of economic relations, relevant to this study analysing infrastructure investment, this relation of dependence is known as a Hirschmanesque one. Developed by Albert Hirshman in
“National Power and the Structure of Foreign Trade”, it sets a situation where there is A, a smaller country
that is highly dependent on the trade it shares with the larger one B. Due to this unequal relation and dependence, A will do anything in order to maintain this trade relation with B. Therefore, if B wishes to exert a high political influence on A, it must find a way to create a Hirschmanesque trade
15
relation. (Hirschman 1945; Wagner 2009). Multiple examples of these relations are illustrated, such as Nazi Germany’s trade relation with south-eastern European nations, or the United States and Hawaii during the late nineteenth century (Kastner 2016).
While both China and Japan have different sized economies, their economies remain in both cases far larger than the economies of SEA. This is illustrated through, the largest country of the region, Indonesia, which has a GDP four times smaller than Japan (WorldBank b. 2017). It is therefore not farfetched to state that this unequal relation allows both countries to exert a form of influence on the region.
When looking specifically at infrastructure investments and projects countries of SEA, they mostly concern strategic sectors. Laos, for example, is nearly fully dependent on the electricity generated through dams, built throughout the Mekong river with Chinese capital. While the highways, both funded by Japanese and Chinese funds, built throughout Indonesia and Thailand, are crucial for each country’s industrial development. This means that through this dependence both China and Japan, would be able to exert their influence throughout SEA. Infrastructure investment following this idea could be considered as a strategy of hard power, where the smaller countries are coerced into accommodating to the larger powers foreign policy.
In the case of FPIC, the dependence of one country can be directly measured by looking at the size of military aid, compared to a state’s army or the size of trade compared to a country’s economy. For what is of the focus of this paper infrastructure investment, one can look not only at the size infrastructure investment and aid relative to the state’s economy but also relative to other sources of investment in order to argue if there is a real dependence with one country.
Bandwidth or a spread of influence and legitimacy through institutions:
The second factor used to measure a state’s influence over another, developed by the FBIC is called “Bandwidth”. This is the size of the flow between two or more countries. This size is not
16
only summarized by how much countries trade between each other, or supply military support, but also the number of channels countries can use to increase their relations and influence with each other. An example can be how many trade agreements or memberships in similar organisations do two countries share. While still focused on bilateral exchanges this focus shows an indirect approach to influence and the relevance of organisations in spreading it (Moyer et al. 2018).
One might argue that Japan and China, in these last decades have also been employing indirect tools to spread their influence. Mainly using different regional and multilateral organisations promoting investments and intraregional trade, created, or supported by each nation. These institutions have become the main source through which investments have flowed towards the ASEAN, primarily the ADB led by Japan and the AIIB, by China. Both institutions were created to funnel investments towards Asia (Kajimoto 2017). Nevertheless, more importantly, mainly for the AIIB, they proposed an alternative to development banks, such as the International Monetary Fund or World Bank, led by Washington (Adams 2015; Chan 2017; Hong 2015)
Therefore, the creation of these institutions and the development of infrastructure programs allowed a diversion of investment origins from other powers such as the United States, or each other. Eventually, these same institutions shape the channels of investment for the region and become leaders in infrastructure development. With both nations becoming the main sources of development and prosperity in SEA, through these investment banks, they reinforce their legitimacy as regional leaders in the region. This is similar to what happened with the United States, through the World Bank. The World Bank allowed them to become the main source of economic investment for the developing world allowing them to gain more influence in different countries and creating beneficial economic and politic relations in the long term (Beattie 2012).
The BRI, for instance, promotes concepts such as a “harmonious society” and “Chinese model”, supported also by Xi Jin Ping, giving credence to China as the legitimate leader of Asia (Albert 2018). Corey Wallace also shows in the case of Japan, how it’s long-term position in the ADB has
17
allowed them to preserve a favourable relationship with the economies of SEA (Wallace 2019). Through these infrastructure investments supported by institutionalization, each country can increase its economic relations, allowing an improvement in trust and cooperation between both countries.
Following this idea, multilateral institutions through the spread of norms and ideas would serve as an indirect tool for each country to spread their influence. The opening of more connections offers a less aggressive and more covert alternative, in setting up political influence towards SEA than direct bilateral relations. However, compared to the first form of influence, it is harder to clearly measure. Even though Japan has a strong influence in the ADB or China on the AIIB, both institutions have other member states, which also exert their influence.
Realism and Infrastructure investments:
Within this essay, the concept of political influence has been linked directly with investments. Investments can lead to economic dependence or the creation of International Organisations, which, in turn, can be used to maintain political influence. This vision goes hand in hand with one of the most classic theories of International Relations Realism.
While classical realism looks at the ideas of morality and structural realism on how the international order shapes relations between states, realism generally discusses the importance of states in the international system and how they promote their own self-interest (Donnelly 2013). For this study, the focus will be more specifically on Waltz’s and Mearsheimer’s realism. Both defend a view that the behaviour of states is a result of the structure of the international system and an absence of hierarchy. In the case of East Asia, one can argue that since the decline of the US, the region has lost its unipolarity entering a period of anarchy (MacDonald 2015). This competition for influence in SEA from Japan and China can, therefore, be seen as a way, to rebalance the regional system. Japan develops ties with ASEAN nations as a counterbalance to the rising influence of China, while China through the BRI aims not only to reform the regional and international system but also to
18
diminish the power of other potential rivals (MacDonald 2015). Additionally, neo-realism states, that nations are alone in providing their security, following an idea is known as self-help. This can be seen through each country’s strategy, both aiming to create a sphere of influence around them in order to protect their interests.
Finally, Mearsheimer and Waltz differ in how each state follows self-help. First, there is Waltz who defends the idea of defensive realism where states focus on maximising their security, through alliances in order to ensure their survival (Waltz 2010). Mearsheimer, on the other hand, discusses the idea of Offensive realism or the idea that states focus on maximising their power in a more aggressive manner to ensure their survival (Mearsheimer 2007).
Hughes develops the idea of Japan’s defensive realism, in “Japan’s ‘Resentful Realism’ and Balancing
China’s Rise”, by looking at how Japan has been shifting its foreign policy since China’s rise. One
of the many examples there is Shinzo Abe’s revisionist policies on security and military strategy aiming to contain China (Hughes 2016). This directly follows the idea of Kenneth Waltz’s defensive realism through which states focus on maximising their security to ensure their own survival (Waltz 2010).
China on the other side, under Xi Jinping, has defended the ideas of a “great rejuvenation of the Chinese nation”, while military investments have been dramatically growing (Hudda 2015). Chinese policies such as the BRI have been argued to also create a system oriented around China. While Japan follows policies, of defensive realism, China seems more focused on expansionist policies, more related to offensive realism.
Finally, how does the concept of influence fall into realism? The contest for power and influence in realism is seen as a zero-sum game. In the case of this study, this means the more, Japan, or China grow their influence in other countries the less the other will have.
19
Methodology:
While Dependence and Bandwidth are the methods through which Japan and China exert their influence on the nations of SEA, and realism explains the motivations behind these investments, how can it be known if infrastructure investments have truly affected the recipient country? In order to answer this issue, this part will be devoted on explaining the measures used to determine the success rate of infrastructure investment in promoting political influence, but also, which countries are going to be studied and what data will be used.
Policy convergence a measure of successful political influence:
For political influence to be truly successful as stated by Dennis Wrong, the variation of behaviour in a state must be “in the desirable direction” (Moyer et al. 2018 p.7). How can this be measured?
In “Buying Influence? Assessing the Political Effects of China’s International Trade”, Kastner shows the role of China’s trade relation, on increasing its foreign influence. Kastner describes China’s ability to influence countries through trade as:
“Countries that are more dependent on trade with China will be more likely than less dependent countries to accommodate Chinese interests on issues that China cares about” (p.985).
This statement offers a way to measure ties between economic incentives and influence, through convergence in policies which directly affect the home country. While Kastner only focuses on dependence, he also offers a way of measuring influence through economic incentives Kastner’s statement can, therefore, be reformulated and adapted to measure how Japan and China, spread their influence through investing in SEA. In other words, SEA countries receiving funds from, Japan or China, will be more likely than other countries to accommodate Chinese or Japanese foreign policy. Furthermore, can this accommodation be explained through, the dependence on aid or investments directly offered by China and Japan or due to normalization through multilateral
20
institutions, creating a positive image of each country and enhancing trust? In other words, is there a link between Dependence and Bandwidth from infrastructure investment and policy convergence for each country.
What do Japan and China want?
In order to measure policy convergence, this study will now briefly discuss the interests of each country for the SEA region and their general foreign policy.
Japanese foreign policy has been focused and oriented around maintaining a strong role as the investment leader for the region (Ogasawara 2015). Since the end of the cold war, Japan has not only built up ties and trust, with the ASEAN, through direct bilateral treaties but also, through multilateral ties such as the ADB or ASEAN+3 (Singh 2017). Japan argues that it has promoted a system of peace and stability in the region, mainly to allow easier access to the SEA market for private investors. The Nippon foreign policy has also been strongly oriented around limiting the spread of influence and power of growing China since the 2000s. This has been done through promoting a strong regional integration within the ASEAN (Ogasawara 2015). This allows them to establish themselves on the right side of the institution while countering the expansion of Chinese influence in the region (Nicolas 2018).
On the other hand, Chinese foreign policy seems oriented around enhancing their global reputation. While China is the biggest economic and military power, in Asia, and second in the world, the nation still feels that it is not truly recognized as such (Goh 2016). These infrastructure programmes, therefore, offer the chance for China to redefine the current economic and political system, towards one more centred around them. Through the AIIB, the BRI, and the maritime silk road in SEA, China aims to create a Beijing consensus and become a model of development (Huang 2016; Wiśniewska 2018).
Secondly, defending territorial claims in the South and the East China Sea dispute has also been a major issue of Chinese foreign policy. Its claims on the controversial nine-dash line have come in
21
direct confrontation with countries of SEA, specifically, Vietnam, Indonesia, the Philippines, and Malaysia (Zhen 2016). This has created a direct divergence between the foreign policies of China and the ASEAN, hindering their ability to influence countries through investment or economic aid (Ang 2016; Wrobel 2017). Nevertheless, this is less of an issue for the smaller nations not bordering the sea, Laos, Cambodia, and Myanmar.
Measuring Policy Compliance following infrastructure investments:
Both countries seem to wish to position themselves as the economic and political leader of SEA. In order to measure each state’s, influence, one can look at the compliance of each recipient state in allowing a leading position to each country.
For Japan and China, influence means a dominating position, in infrastructure investments, characterised by successful market control, and a successful dependence of each country. This will be measured by looking at the number of private companies investing for each country, compared to other nations. In addition, by analysing if these infrastructure developments, led to a redirection of trade, which benefits a certain country and creates more dependence. For instance, can the BRI of China, be seen as a long-term strategy of economic dependence.
For Bandwidth, and how successful it is in affecting political influence, means looking at how Japan and China are viewed by the affected countries. In other words, do they see Chinese or Japanese leadership as a positive towards the prosperity and development of their region, or as a threat. This will be analysed by looking at different opinion polls. These opinion polls will be complemented by the different press releases, published by the foreign ministries of the countries of SEA and the two investors, Japan and China. This information combined allows on to measure how each country is viewed in the recipient countries.
When looking at China specifically, the position of SEA countries of the South China Sea is an important way of measuring political influence. It is relevant as a measure of influence and a disadvantage. The countries of Laos, Myanmar and Cambodia, support to varying degrees Chinese
22
claims in the South China Sea, while being also dependent on Chinese investments, showing an interesting correlation (Albert 2019, Lintner 2019). On the other side of the spectrum Vietnam and Indonesia rival claims, have strongly limited Chinese influence in the region, and therefore this must be considered as an external factor when measuring influence in the region.
Where and when? The Mekong region:
The last parts have explained how the spread of influence through infrastructure investment in SEA will be measured. The issue, however, is that SEA is a large region. It regroups eleven different countries, from tiny city-states, such as Brunei and Singapore, to large economies such as Thailand and Indonesia (Nations Online 2019). Due to the size of the region, it is too large to analyse in its entirety for this study. Therefore, the Mekong region will be used as a sample, where a more specific analysis will be able to be undertaken.
The Mekong region regroups the countries of Cambodia, Vietnam, Laos, Thailand, and Myanmar (OD 2019). It is of interest due to the diversity of each nation within the region, and the varying high levels of influence Japan and China exert within them (Japan Times 2018).
There are large richer economies in the region, such as Thailand and Vietnam, while also having small poorer economies, such as Laos, Myanmar, or Cambodia (OD 2018). While the richer Southern countries remain dominated by Japanese investments, in the sector of infrastructure, China has gained an increasing role in the smaller economies of Myanmar and Cambodia, with Laos even coined China’s backyard (Wrobel 2019; Yeophantong 2016).
Secondly, both China and Japan have been heavily investing in similar infrastructure projects throughout the region, while following different strategies, with both different rates of success and failure (Nicolas 2018). The Japanese infrastructure investments promoted under Abe, through the “Japan-Mekong connectivity initiative”, mainly focused around human development (Kikuchi & Unzaki 2019), While China is mostly focusing on connectivity in the region, through large
23
construction projects such as the Pan Asian Railway, crossing the Mekong and stretching from Laos to Singapore (Doig 2018) These different strategies have not only resulted in different levels of dependence, but also the indirect spread of norms and values in each country, leading sometimes to policy convergence in the region, but sometimes also to hostility.
Within the Mekong region, the focus of this study will be on four countries. The first part of the analysis will focus on Japanese investments within the countries of Vietnam and Thailand. The second part of the analysis will be looking at Chinese investments in Laos and Cambodia.
Figure 1 The Smaller economies are more dominated by China, while Japan dominates the bigger economies (Nicolas 2018).
Time Frame:
The countries will be analysed other the period spanning from 2012 to 2019. 2012 is important for it marks the year of Xi Jinping’s election in China and Shinzo Abe’s in Japan. With this new change in power, both countries promoted policies encouraging a higher presence on the global stage. Shinzo Abe program of “Japan is back” and Xi Jinping’s “Great Rejuvenation”. While different policies each encouraged more assertive strategies of foreign policy (Yoshimatsu 2018). In addition, both leaders are still in power today, meaning that there has been no massive shift in foreign policy strategies as there has been in the United States. These years also mark an increase
24
in infrastructure investment in the Mekong from both China and Japan. Therefore, they offer a good comprehensive timeline of what happened.
Data:
As said earlier the first category of primary sources used throughout this essay will consist of the press releases of Japanese and Chinese Foreign ministries, plus the host countries to these investments, Cambodia, Laos, Thailand, and Vietnam. The data used in order to quantify the size of these investments and relative importance compared to other nations will be provided by reports of the ADB, AIIB development banks, Japanese External Trade Organization (JETRO) and in certain cases the World Bank and the ASEAN investment Reports.
The secondary sources will mostly differ depending on the nation studied, however, for all, Open development Mekong, a platform using simple yet reliable data on the different infrastructure investments within each country of the region, will be used to offer a comprehensive overview. To measure the impact of each investment on political influence, a plethora of different scientific and academic journals will be referred too. Some of those being, the different sections of Evelyn Goh’s book “Rising China’s Influence in Developing Asia”, which offer explanations behind China’s rise in influence, or Francoise Nicolas “Catching Up or Staying Ahead Japanese Investment in the Mekong Region
and the China Factor.”, which illustrates the different strategies employed by Japan when investing in
different countries of the region.
Analysis:
While the previous section focused on clarifying the background and theory key to this research, this part will now be centred around the analysis of results. The analytical part will cover Japanese investment in Vietnam and Thailand and Chinese investments in Laos and Cambodia. The study of investment in each country will begin with a discussion of the different infrastructure projects undertaken and the interests of Japan and China in these investments. This will be followed
25
by the analysis of the levels of Dependence or Bandwidth the host country shares with the investor and if it has an effect on policy convergence. Finally, there will be a discussion on the limits of each country’s infrastructure investments in the spread of political influence within each nation.
Japanese investment in the Mekong:
In SEA and the Mekong region, Japan’s focus seems to be foremostly on quality and human development projects. As stated earlier, this strategy can be linked to the Japanese economy, which is highly developed and complex. However, Japan lacks the manpower and budget of China who is able to conduct large scale projects (Hong 2018). This insistence on quality is mainly used by Japan to underline the superiority of their projects compared to China. Shinzo Abe’s speeches, which compares long-term high-quality Japanese infrastructure investment, to the short-term, second-rate investments of China, depict this vision (Wallace 2019). This strategy is also exemplified in Japan’s offer of “green aid” in the Mekong, a direct contrast to China’s unsustainable hydropower projects on the same river (Wallace 2019 pp19).
Quality investment in the region can also be seen, as a new sector, through which it can spread its influence. In the last decade, the smaller Japanese economy is feeling increasingly unable to compete, with the number of large infrastructure projects originating from China. Japanese politicians more recently talk of complementing and offering an alternative to China’s BRI, such as Abe stating the region need “quality as well as quantity” (Harris 2019). While co-opting to Chinese policy and complementing their quantity projects, Japan is still able to compete for influence, through opening up new channels for quality infrastructure (Hong 2018; Wallace 2019).
Finally, while the Mekong is geographically closer to China, Japan has had an important and consistent role in the development of the sub-region since the 1990s (Ogasawara 2015). This happened mainly at first through helping the poorer countries of Indochina integrate the ASEAN. Unlike in the rest of the ASEAN Japan, however, is not the main source of FDI due to the region’s
26
proximity to China, however, it is still dominating in official development aid. Nevertheless, due to this same proximity, the Mekong has been of great interest to Japan, in having the potential of becoming a strong buffer to the growth of Chinese influence. As stated earlier in the analysis the focus of Japanese infrastructure investments has been on the two countries of Vietnam and Thailand, both sizable enough to exercise influence on the sub-region and act as counters to Chinese growth. These case studies will, therefore, focus on what extent do these Japanese investments have expanded their political influence in Thailand and Vietnam.
Influence through Bandwidth rather than Dependence:
Due to a focus on smaller projects, of higher quality, it is not very relevant to argue that Japan uses a Hirschmanesque strategy of economic dependence. However, Japan does use a great number of multilateral channels, through which they propose these infrastructure investments. The PQI, the ADB and the Japanese Bank for International Cooperation (JBIC), all open different routes to expand influence within each country. In addition, the different programs mainly in Thailand and Vietnam, such as the “Industrial Human Resource Development Cooperation Initiative” form thousands of local workers and engineers by Japanese offers a micro approach to influencing a country throughout its people (Wallace 2019).
Vietnam and Japanese connectivity:
From all the countries of the Mekong, Vietnam is the one which saw one of the most significant increases in inward Japanese FDI (Kikuchi & Unzaki 2019). This can be explained by its rapidly growing economy and demand for infrastructure, making it an interesting destination. Due to this a multitude of projects have emerged around the development of HSRs, roads, airports, and ports (Retail Asia 2018), with Japanese ODA financing a large part of it (Nicolas 2018)
27
Projects:
Japanese infrastructure projects and investments in Vietnam have mainly been in the sector of energy and transportation. Several investments are being undertaken throughout Vietnam, in the construction of coal and gas power plants (Tomiyama 2017). The Marubeni and Khanh Hoa Coal power plant amounted to a little under 6 billion dollars, while another four billion have been injected in the construction of gas lines and thermal power plants (Nicolas 2018; Tomiyama 2017).
In the field of connectivity and transportation, Japan has also been very active first by investing over 781 million in the construction of deep-sea ports in Lach Hguyen (Nicolas 2018) However, the most interesting case is the Ho Chi Min Urban rail project financed by Japan and the EU. This is mainly due to this urban rail being far more reliable than a similar project in the Vietnamese capital of Hanoi, financed by China (Nicolas 2018; Tatarski 2017). While both projects are similar and located in comparable cities, the Chinese rail project in Hanoi has already been characterised by delays and some high-profile accidents. In Ho Chi Min, however, the lines have been free of accidents, in part explained by the technical assistance of Japan and the ADB it leads. (Tatarski 2017). Therefore, the focus on the quality and experience of Japan mentioned earlier seems to have paid off in enhancing their global reputation
Additional investments have also been done through the development of several industrial parks throughout Vietnam and the Mekong, such as investments amounting to 9 billion in Thang Long I & II (Sumitomo Corp 2018).
Interests and geopolitical climate:
From an economic perspective as stated earlier, Vietnam is a very attractive destination for foreign capital, due to it having a large consumer market. These infrastructure investments can be viewed as a strategy of market seeking allowing Japanese companies to offer demand to growing consumption. In addition, the rapid growth of the economy means a large demand for new infrastructure which Japan is ready to offer (Hoa 2018).
28
More related to Sino-Vietnamese tension, there is also a strong strategic interest in investing in Vietnam. Being a mid-sized economy with a direct land border to China, they make an interesting ally to strengthen. By having Vietnam on their side, Japan can use them as a brake for Chinese expansion (Armstrong 2014). This strategic interest can be seen through the Japanese government insisting several times on the need for Vietnam to build up its navy and maritime capacity (Hiep 2017).
Finally, Vietnam itself may be seen as one of the main beneficiaries from the Sino-Japanese and American Rivalry, due to receiving a large part of its funds and FDI due to capital flight from China. Vietnam has become not only an alternative to China but also a pivot state of some form (Corr 2019).
Dependence:
While not the largest trade partner Japan is the largest investor, and provider of ODA within Vietnam accounting for 30% of what is given by the international community (Huyen 2018). Additionally, it is also, largest infrastructure donor, as Nicolas says in “Catching Up or Staying Ahead
Japanese Investment in the Mekong Region and the China Factor.” “Japan dwarfs Chinese involvement in
Vietnam” (Nicolas 2018 p27).
Therefore, it can be stated that Vietnam has a certain dependence on their Nippon provider however it would be going a bit too far to say that Japan is practising debt diplomacy. Vietnamese debt although important is far below countries such as Laos and is described as solvable (Ngan 2018).
Bandwidth:
Since the 2000s relations have flourished between the two nations, associated to an increase in trade and investment “In 2006, the two countries announced that they were working towards a Strategic Partnership for Peace and Prosperity” (Hiep 2017). More recently came the visit of the
29
royal family in 2017 for the first time in years, in addition, to a visit from Shinzo Abe both illustrating an increase in diplomatic ties. During that same period, Vietnamese Japanese relations were described as “stronger than ever” (Hiep 2017 p. 2).
Since 2003 the Japan Vietnam Investment Agreement has promoted officials and businessmen from both sides to meet regularly allowing the promotion of Japanese economic ideas and practices. On top of that since 2008, the Japan-Vietnam economic partnership has made Japan the sole advisor in the Vietnamese industrialization development (Wallace 2019).
In addition to these organisations, Japanese investments have led to cooperation in multiple fields, through a number of multilateral channels as described by Huyen:
“The two sides also cooperated closely and effectively at international and regional forums such as
the United Nations, Conferences ASEAN+, Asia-Pacific Economic Cooperation (APEC) Forum, and Asia-Europe Meeting (ASEM)” (Huyen 2018).
Finally, comparatively to China with the LMC, Japan has used the “Japanese Mekong Cooperation Summit” to promote its influence in the region and has also developed its own cooperation network through them. Rather than promoting connectivity as the BRI does these summits are focused around sustainability. This idea of sustainable development allows an increase in Japan’s reputation and therefore one could suppose a growth of soft power (Duggan 2018; MOFA 2018)
Policy convergence:
Japanese investments in Vietnam seem to have been rather successful in promoting Japan’s image in the country. Following data from the pew centre back in 2015 80% of Vietnamese saw Japan positively (Gallagher 2018). More recently the Vietnamese National academy of politics stated that:
“Politically, the relationship between the two countries is at the best stage with strong confidence in history since the establishment of diplomatic relations” (Huyen 2018).
30
In addition, Shinzo Abe one of the leader’s in promoting investments through the PQI or Japan is back strategy, is seen very positively in Vietnam. With statistics of the Global Attitudes survey stating that 65% of the Vietnamese are confident he will do the right thing in World Affairs compared to only 58% in Japan (PRO 2014). Therefore, due to Abe wanting to place Japan in a leading position on the continent and the Vietnamese opinion of him it can be stated that Vietnam accepts Japan as a local leader.
On the subject of defence, Japan’s interests in limiting China’s expansion, go hand in hand with Vietnam’s will to protect their territorial sovereignty in the South China Sea. Therefore, there is a clear policy convergence. However, it is hard to link this to infrastructure investments, rather than direct Vietnamese interests of security.
Limits:
Although Vietnam may be wary of the growing Chinese influence, Chinese investors have been progressively outbidding other foreign investors, due to the sheer amount they are ready to put through the BRI, and original low prices. Examples of these sizable investments from China are numerous, such as a six-lane highway between Nahm Dinh to Vihn Long (Tran 2019) or the construction of a North-South Corridor between Kunming and Bangkok (Yoshimatsu 2018). However, China seems to be more of a long-term issue, with the Vietnamese government still being highly suspicious of their investments due to high-interest rates and fears of falling in a debt trap (Tran 2019).
Secondly, while Japan and Vietnam have developed strong bilateral relations these last years and although it is likely infrastructure investments played a part, there are a great number of other variables which affected these relations, mainly security and economic benefits. Furthermore, it also complicated to determine if Japan is exerting political influence over Vietnam, or the other way round. As was the case of Cambodia with China, Vietnam has been pragmatic, choosing between economic profit and security. It was as much Vietnam’s decision to choose to attract
31
Japanese rather than Chinese capital, as it was Japan’s decision to invest in the country (Liao & Dang 2019).
Thailand and Japan’s waning influence:
Compared to Vietnam, Thailand is far bigger, being the largest economy in the Mekong region and the second biggest in the ASEAN. It is also the country which received the most FDI from Japan (Hong 2018), with the total capital amounting to around 86 billion US dollars, between 1985 and 2016 (Nicolas 2018). Due to these investments, Thailand has historically been considered part of Japan’s backyard, however, today the situation is changing. Although Japan is still the prime investor and has the most infrastructure projects, its domination is waning with the recent increase of Chinese investors (Nicolas 2018). Richer than the other countries discussed throughout this paper, its demand for basic infrastructure has also decreased. Nevertheless, the launching of the recent Thailand 4.0 to transform the country into a more competitive and modern economy, has led to a new surge in investment (Yuwa 2019). Japan has answered to the demand through the development of railways and of Thailand’s East Economic Corridor (EEC).
Projects:
Japan has been investing in two railway programs, not only investing in an HSR between Chang Mai and Bangkok but also urban railway projects within the Bangkok area (JapanGov 2018; Nicolas 2018). Japan has been investing in HSRs throughout the Mekong (Hong 2018), the Northern line between Chang Mai and Bangkok exemplifying this. The project was finalized through joint participation with the Thai government with the use of concessional loans from the JICA (Jiang 2019). Although Japan has a comparative advantage due to their know-how and Shinkansen technology, the competition is strong in this sector, with China pledging funds to a railway network from Kunming to the Gulf of Thailand (Jikkham 2015).
Secondly, Japan has also been investing in a railway development project, in the Thai capital of Bangkok, through the Purple line (JapanGov 2018). Although smaller than the HSR network, Japan’s insistence on quality and sustainability can once again be seen when looking at the reports from their government (JapanGov 2018). In addition, other lines, such as the red line most of these projects will be financed directly by Japanese companies mainly Mitsubishi, Hatsushi, and Sumitomo Corp, rather than state
32
investment (Kyozuka 2016). However, although not making direct investments, Japan has pledged to offer technical assistance for a mass transit system in the greater Bangkok area (Nicolas 2018).
The other sector seeing a large quantity of investment in Thailand is the East Economic Corridor (EEC). The EEC is an ambitious project following the Thailand 4.0 policy, this policy is aimed around modernizing the country from a manufacturing one into an innovation-based one (Nicolas 2018). To achieve this, the EEC aims in building a new industrial basin for Thailand, through several different infrastructure projects to attract foreign companies. When looking at data from the JETRO, one sees rapidly that Japanese companies completely dominate it, investing over half of the total foreign capital, and building projects (JETRO 2018).
Japanese interests:
Investing in Thailand is very interesting mainly due to economic benefits. With so many Japanese companies in the country, maintaining good relations and increasing connectivity is crucial for the economy of the country (Nicolas 2018).
Both sectors where investments are present illustrate this. The HSR between Bangkok and Chiang Mai may be very profitable for Japan in terms of connectivity and limiting transport costs. With most of Japan’s companies concentrated in Bangkok and to the northeast around Chiang Mai, these lines will connect Japan’s industrial bases (Jiang 2019). Investments in the EEC, and the creation of a new industrial basin, and commercial hub allows more Japanese companies to not only penetrate the Thai market, but also the whole Mekong region (Nicolas 2018).
In terms of geopolitics, Thailand is the most powerful nation in the Mekong, therefore, maintaining positive relations means further influence in the surrounding countries, such as Vietnam or Myanmar. Besides being part of the ASEAN, Thailand has a say in the ruling on restricting the Chinese claims in the South China Sea, meaning Japan could use it as a brake to China's expansion (AMTI 2018).
Dependence:
Ass for dependence, Japanese investors consisted of over 40% of FDI between 2005 and 2015 and the country remains the leading foreign investor, despite some variations (Nicolas 2018). Between 1985 and 2016 Japanese investments amounted to 86 billion, which was the double of the second investor the United
33
States. As for FDI from their rival China, although increasing faster than Japan, these last years remains relatively smaller (Nicolas 2018).
However once again it is hard to argue that this dependence is used as a strategy of influence. With Japanese companies and governments insisting on profitability. An example of this is Japan insistence on the fact that the HSR line must be cut in two, because of economic feasibility. Japan is searching for profits from Thailand rather than loans (Jiang 2019).
In terms of development railway programs specifically, Thailand is not highly dependent on Japan, with China eager to build similar railways and offering lower prices in theory (Hong 2018). Although not certain yet, Thai and Chinese officials have been discussing, the construction of an 874 km railway, being part of a larger Pan Asian Railway project (Tanagsempipat &Wongcha Um 2019). However, Japanese companies dominate investments for the EEC when looking at projects and invested capital (JETRO 2018).
Lastly, although having a far smaller GDP than Japan, Thailand is still a far richer and a more powerful country, when compared to Vietnam or Laos. Meaning that creating dependence is far more complicated (WorldBank 2019).
Bandwidth:
Due to the history and quantity of Japanese investments in the Thai Kingdom, both nations have developed several bilateral forums of cooperation, increasing the Bandwidth of ties between the two countries (MFA Thailand 2018). The Japan-Thailand Memorandum of Understanding (MOU) in 2017, for example, came with the promotion of several investments (Nicolas 2018), while The Japan Thailand Economic Partnership (JTEP) focused directly on promoting development and investment between the two countries.
The number of organizations shows not only the depth of ties between the two countries but also that Thailand has become more than a simple recipient for investments becoming more of a partner with Japan for investment in the Mekong. The strategic tie between the JICA and the Thailand International Cooperation Agency and the Neighboring Countries Economic Development Cooperation Agency, show this new relation. With both groups cooperating in development programs in Ayeyawady, Myanmar for example (MFA Thailand 2018). Finally, future cooperation is also growing with both governments consulting each other to create new organizations such as the MIDV and METI (Wallace 2019).
34
As stated multiple times throughout this essay, Japan has insisted on quality investment through technical support. To fulfil this promise, Japan has opened different Human Resource development programs in the host countries, such as in Thailand with the IHRCHI (MFA Thailand 2018; Wallace 2019). These organizations allow Japan to promote influence indirectly, through opening exchanges at the micro-level. Through the formation of engineers, and businessman around Japanese models, Japan can promote their ideals and closer ties can develop between the two countries (Wallace 2019).
In terms of multilateralism, both countries are members of investment and development related organizations, such as the ADB and ASEAN+3. Although not part of the TPP, Thailand said they were considering joining following a discussion on Japanese interest in investment in the EEC (MOFA b 2018). Nevertheless, Thailand’s strategy of cooperation is very government to government, bilateral rather than multilateral. In this respect infrastructure investments tend mostly to be done through direct bilateral accords with the governments, rather than through an international open bidding system (Jiang 2019).
Policy convergence:
When looking at the situation on the surface, Japan seems to have a strong influence in Thailand. Following data from IPSOS, used by Japan’s foreign embassy, it is stated that 83% of Thai’s see Japan as a reliable and friendly country compared to the 73 % mean in the ASEAN. More specifically, 42 per cent of Thais view Japan as very reliable. Albeit these results, the same data states Thai’s consider China as reliable as Japan. This, therefore, shows the difficulty of Japan to keep Thailand in its sphere and does not show a strong policy convergence (IPSOS 2016).
When looking at tensions in the South China Sea, the Thai government, while not endorsing China’s claims has been rather supportive. Back in 2016 following sightings of Chinese ships near the Philippines coast, the Thai government stated that “it supports China’s efforts to maintain maritime peace in the region” (Reuters Editorial 2016). The support of a direct Japanese rival shows a strong policy divergence.
Limits:
Therefore, following prior information, one can state that there is a lack of policy convergence between Thailand and Japan. This can be explained by several factors limiting influence through investment. First, Thailand is significantly richer and more developed than the other countries, therefore, it is far more complicated to exert influence on it or develop any form of Hirschmanesque relation through economic
35
dependence (WorldBank 2017). This also explains why Thailand today is seen more as an economic partner to Japan rather than a recipient to their investments. This is especially visible when looking at the "Thailand plus one strategy", where Thai and Japanese companies are investing in the surrounding Mekong. This is in order mainly to outsource Thai costly labour to poorer countries (EIC 2016). In the long term, however, this could also mean Thailand would become a direct competitor of Japan as an FDI source in the Mekong. Secondly, Chinese competition has been very high compared to other ASEAN countries, with Japan already losing several projects in the area (Hong 2018; Nicolas 2018). However, in the long run, this might not be an issue with rivalry in infrastructure investment not being the only possible outcome. Sino-Japanese collaboration is more and more discussed and might offer an interesting contrast and show the limits of ideas in classic realism. This strategy is exemplified through the 7 billion joint projects the two countries will be working on (Wallace 2019).
Finally, there are also domestic factors not discussed earlier. The recent political change in the country and empowerment of the military junta through a coup in 2014, has caused a shift in relations. While Japanese investments had been growing since 2010, in 2016 following a deterioration in relations between the two countries investments dropped (Hartley 2017). Even though investment levels have somewhat recovered, the loss of influence has been important with the new government developing new ties with China (Jory 2017).
China in the Mekong:
The other main investor in the Mekong, China has been investing heavily in large infrastructure projects, such as the building of dams throughout the Mekong River since the early 2000s. More recently China has also supported the construction of railroads and transport corridors throughout the region. While China on paper wishes to offer connectivity between the countries of the region, they, more importantly, have a strong interest in using the Mekong region as a gateway into the rich and profitable markets of SEA (Albert 2019).
Additionally, China is highly interested in the Mekong as it sees it as a pivot region, towards supporting its position in SEA and the South China Sea. With, the northern countries of the
36
Mekong having no claims in the South China Sea their foreign policies do not directly conflict with those of China making them easier to influence (AFP 2016; Zhou 2016). Additionally, due to the region directly bordering South China, there are many security-based interests.
The role of institutions and prosperity of the region:
Most of the Chinese projects in the Mekong have been undertaken by a new Chinese organisation the Lancang-Mekong Cooperation (LMC) involving China and the five countries of the region. Through this initiative, China has promised 10 billion US dollars in infrastructure development towards the countries of the Mekong while also financially committing to 132 regional projects (Giang 2018). This organisation has created a new platform of negotiation, which offers a leading role to China and expands, in turn, their influence on the outcome of negotiations. Finally, all countries of the Mekong are members of the AIIB, the main source of investment for the BRI (AIIB 2017).
Small countries and dependence:
While China understands the role of multilateralism as a tool to spread influence within the region, many scholars seem to argue China follows mostly a debt dependence strategy (Albert 2019; Wallace 2019). This is mainly due to the fact that China has focused on small countries and economies, highly dependent on its investment and aid. In addition, through the creation of loans to finance these developments, some countries might fall in traps of debt dependence, limiting to a certain extent the autonomy of a countries’ foreign policy (Albert 2019; Hoekstra 2018).
The countries of Laos and Cambodia are both good examples of the strategies and interests of China mentioned before. They both are heavily implicated in the BRI, have no claims in the South China Sea, and are countries small enough to be influenced through debt dependence. For
37
these following reason, they offer interesting, insight into China’s strategy of influence spread in the Mekong.
Laos Hydropower & Railways:
Laos is a small landlocked country of SEA that has been trading and sharing commercial ties with China for centuries. The need for Chinese infrastructure investment, however, truly gained significance in the 1990s with “the turning land into capital” strategy by the Laotian government, aiming to improve electricity supply and connectivity within the country (Hirsch & Scurrah 2015 p.3).
Projects:
Having a continuous border with the large Mekong riverbank, Laos has expressed a wish to exploit their geography and become “the battery of Asia” (BBC 2018). In order to become this “battery”, the Laos government has also promoted the building of several new dams, with the construction 53 by the end of 2018. These construction projects are believed to be the solution in eradicating poverty by offering sufficient energy, but also creating a source of profit through the resale of energy (Rujivanarom 2019). In order to make this dream a reality, Laos has come to the Chinese government and its investment banks.
The second main focus of China infrastructure investment in Laos is the development of railways following their BRI. Already 6 billion us dollars, have been invested in the construction of a railway between Yunnan province in China to Vientiane, Laos. While train tickets may not suffice to generate income, China assures that the development of tourism and hotels around will (Yu 2019).
