Tokyo’s playing tit for tat on the Asian infrastructure game board. China’s responding in kind.

Japan said Thursday that it will funnel $110 billion in new aid for Asian infrastructure projects in a competitive slap at China’s new Asian Infrastructure Investment Bank (AIIB). China, in the meantime, appears to be snuggling up to New Delhi to make India the AIIB’s second largest investor. It’s a GDP-based spot that Japan would theoretically have occupied if it had joined the Chinese-backed institution.

The $110 billion in Japanese cash, to be invested over five years, is larger than the $100 billion in funding expected to be amassed by the AIIB. It represents a 30% jump over Tokyo’s past infrastructure funding for the region. Roughly half the funds will come from aid-related Japanese agencies. The rest will be raised through the Asian Development Bank (ADB). Corporate sources also will be tapped.

Coupled with recent Japanese moves to bolster defense cooperation with the U.S., especially in the disputed South China Sea region, Japanese Prime Minister Shinzo Abe’s government is sending a strong signal that it won’t stand idle as China challenges its leadership in Asian development and plays a game of military sand box in its territorial claims over disputed islets with neighbors. Japan, like the U.S., is also signalling that it’s in no hurry to join the AIIB — which is viewed as a rival of both the World Bank and the ADB.

“We had thought it was better not to speak up much, but that doesn’t get through. So some demonstration seems to be needed,” Koichi Hagiuda, a special aide to Abe in his Liberal Democratic Party, told Reuters about the billions in new aid.

Abe disclosed Japan’s new development infusion ahead of a key meeting of prospective AIIB members in Singapore this week. But China had a response. Delegates attending the AIIB confab said Friday that India’s likely to be the AIIB’s second-biggest shareholder after China, which is seen holding a 25-30% stake. India’s emergence as a key AIIB player follows Indian Prime Minister Narendra Modi’s ground-breaking visit to Beijing last week

The AIIB expects to be operational by year’s end. The Singapore meeting reportedly finalized the articles of agreement which are scheduled to be signed in June.

While Japan is adopting an overtly competitive stance towards the AIIB, it could eventually decide to the straddle the issue: It could eventually join the AIIB while continuing to tout its leadership of the ADB. The final upshot will depend on consultations with Washington.

The U.S. and Japan have left open the door for cooperating with the AIIB now that 57 nations, including Group of 7 members, have joined since March.

The U.S. and Japan floated the idea last month that the World Bank and ADB should team up with the AIIB in syndicated loans to help the new institution set strong lending standards.

Japan is also mulling how it can best vie against the AIIB. It’s touting its upscale technical expertise in promoting “green” aid projects that will have less environment impact than the AIIB, which is facing criticism for being mum on such safeguards.

The Japanese can also muster substantial financial clout in their financial game of chicken with China. Japan is still the world’s top creditor nation and Japanese corporations are relatively flush with cash. On the downside, the country is shouldering the social welfare costs of an aging society and has substantially increased defense spending.

Japanese and Chinese finance officials are due to meet Beijing on June 6 to discuss bilateral issues. The AIIB may be on the agenda. Watch this space.

Leave a comment