Shinzo Abe could face a rocky third term as the economy contracts. Photo: AFP / KiyoshiOta
Shinzo Abe is Japan's longest-serving prime minister. Photo: AFP / KiyoshiOta

Shinzo Abe, Japan’s longest-serving prime minister, will leave Tokyo with three strong legacies after he steps down, probably next year.

These are a strengthened Quadrilateral Security Dialogue (or Quad, comprising Australia, India, Japan and the United States) process in the Indo-Pacific region; a revitalized effort to strengthen Japan’s national-security doctrine and reform its pacifist constitution, especially Article 9; and a sustained campaign to lead the promotion of “quality” infrastructure in Asia and beyond, which is critical for Japan’s economic growth and prosperity.

While strengthening the Quad and reforming Japan’s pacifist constitution are security-driven strategic initiatives, promoting quality infrastructure forms Abe’s key economic-diplomacy goal aimed at reviving Japan’s economic fortunes globally, ahead of a predatory Chinese economic policy. 

In light of China’s flagship Belt and Road Initiative (BRI) under President Xi Jinping, Japan launched its own Asia-centered “Partnership for Quality Infrastructure” (PQI) campaign in 2015, which Abe revised and reintroduced in May 2016 as the “Expanded Partnership for Quality Infrastructure” (EPQI) at the Group of Seven Ise-Shima Summit, to offer it a global milieu.

The EPQI promotes “quality” and “sustainable” infrastructure across Asia to revamp the altruistic motive of building trust, transparency and testimony that Japan’s infrastructure-investment capital can bring to the world.

Although a key foreign-policy initiative, the EPQI was never intended to match the investment volume of China’s BRI, let alone its financial prowess. But that may soon change with the introduction of the Blue Dot Network (BDN), a multiparty venture by Japan, Australia and the US under a public-private partnership, that aims to promote “quality,” “sustainable” and “transparent” infrastructure through a process of certification or gradation. 

A quality coalition plan

The BDN process not only complements Japan’s EPQI strategy but also builds on its Group of Twenty presidency aimed at enhancing quality infrastructure investments through consensus building.

Besides, it adds to Japan’s commitment to the Vientiane Declaration announced at the 11th East Asia Summit in 2016 to promote infrastructure-development cooperation among ASEAN, Australia, China, India, New Zealand, Russia, South Korea, the US and Japan.

Introduced and perceived as an alternative to the BRI, the BDN is in essence a multilateral platform for governments, private companies and citizens to come together and certify developmental projects as meeting international best practice standards of “transparency and accountability” while protecting “sovereignty of property and resources” along with many other issues. 

Although ambitious, the BDN remains an initiative in its infancy. Even before the Covid-19 outbreak, the platform faced huge challenges in terms of securing funding for infrastructure projects. The very fact that the BDN is a “rating agency” rather than a funding platform like the BRI is by necessity.

By all accounts, China is investing via the BRI an overwhelming US$575 billion in projects spanning more than 70 “corridor economies” involving more than 150 governments across all sectors. Aware of its limitations in competing with the BRI, the BDN has focused on adding value (for instance, by extending fundamental services) instead.

Nevertheless, in a post-Covid-19 economic scenario, the BDN’s funding problems will likely be amplified, casting the initiative’s execution under doubt. The BDN is not merely an “economic alliance” for Japan and its partners, but a critical platform for furthering their geo-strategic objectives vis-à-vis China. 

For Japan to emerge as a leader in the new post-pandemic world, it must assume a leadership role in facilitating high-quality infrastructure in Asia and beyond by forming a “Quality Coalition.” Such a unit under Abe’s tenure will complement the BDN, supplement the Quad process with Australia and US, maintain ASEAN centrality as the key to Asia’s economy, build economic and infrastructure cooperation with India, and be commensurate with Japan’s Free and Open Indo-Pacific (FOIP) narrative.

However, amid the massive Covid-19-induced slowdown constraining Japan’s infrastructure campaigning, the question of how Tokyo will aid implementation of an at present largely theoretical BDN remains to be seen.

Mobilizing the constraints to choices 

Over the past decade, China has not only overtaken Japan as Asia’s leading development investor, but also surpassed it in terms of its Indo-Pacific outreach. Yet Japan ranks high in reputation: It has a proven track record in delivering quality, safe, sustainable and innovative infrastructure development, as opposed to the BRI’s push for quantity-led growth.

In this context, the BDN will certainly provide the impetus to execute Abe’s vision. Nonetheless, Japan’s struggle for regional supremacy against a resurgent China will be arduous, more so if it lacks support of partner countries like India, which has begun its own efforts to emerge as a regional power.

India’s prospective inclusion in the BDN will not only provide a thrust to the “Platform for Japan-India Business Cooperation in Asia-Africa Region” but also further Japan’s geo-strategic aims of promoting high-quality infrastructure and exploring alternative global supply-chain networks. 

The Japan Bank for International Cooperation (JBIC), in collaboration with the US Overseas Private Investment Corporation (OPIC) and Australia’s Department of Foreign Affairs and Trade (DFAT), in 2019 reaffirmed its “continued commitment” to funding infrastructure sector projects in the Indo-Pacific region without compromising on either quality or respect for the recipient’s national sovereignty.

However, for many countries, including Japan, the Covid-19 crisis has exposed their over-reliance on China’s supply-chain nexus, prompting them to pursue diversification. Consequently, China’s major trading partners such as Japan are incentivizing companies to move out of China and invest in Southeast Asia instead.

While complete economic decoupling from China is largely unfeasible, a thrust on the EPQI could nonetheless aid these Japanese efforts and also reinvigorate the BDN infrastructure initiative.

Japan’s BDN partners, on a similar tangent, in their joint statement after the US-Australia Ministerial Consultations held on July 28, declared plans to continue their efforts in “mobilizing private-sector investment” for resilient infrastructure development in the Indo-Pacific region while upholding international standards to avoid drowning recipient states in unsustainable debt – a central aim of the BDN initiative.

Additionally, the post-Covid-19 BDN infrastructure-development outreach could be enhanced by exploring the digital medium, such as the provision of virtual loans that provide ease of access to partner countries.

With China accelerating testing of its digital yuan, the Bank of Japan has also engaged in experimenting with a central-bank digital currency, even including it in its 2020 annual policy roadmap as part of the Honebuto Plan for Economic and Fiscal Revitalization, the foundation to Tokyo’s economic and fiscal policies. The US and Australia, too, are working on their respective digital currencies.

Digital connectivity infrastructure is a significant area of cooperation for Japan. For example, to boost new-age infrastructure growth in a post-Covid order, Japan recently allocated 17.8 billion yen ($170.6 million) to encourage early implementation of public digital infrastructure investments.

Chile’s recent decision to choose Japan’s proposal (beating China’s pitch) toward building its first fiber-optic cable to connect South America and the Asia-Pacific region directly has spurred Japan’s ambitions further.

Moreover, in collaboration with Australia, the US, and the Palau government, Japan has already begun work on a project to develop an undersea cable that will connect the Pacific Island country to the trans-Pacific cable supported by the US International Development Finance Corporation.

And the BDN’s positive economic impact need not be limited to the recipient countries. In May, Japan’s economy officially slid into recession (with Olympics postponement costs over $3 billion) for the first time since 2015 as a direct result of the pandemic; in July, the virus’ resurgence began threatening the country’s economic recovery again.

However, the BDN could provide a much-needed stimulus to reinvigorate the recovery and provide Japan economic security. The BDN’s decision to include the private sector as a stakeholder can help accelerate development in emerging markets, which will in turn enhance the partner countries’ economies.

In an economy devastated by the ramifications of the pandemic, such a move will surely benefit Japanese companies. Firms will get an opportunity to engage in long-term investments, thereby spurring employment and other growth initiatives that will go a long way in revitalizing Japanese economy. 

Aligning with geopolitical landscape 

Besides, the BDN offers Japan the gateway to alter significantly the regional geopolitical landscape, which has of late been dominated by China. This coalition can help check China’s growing military posturing in the Indo-Pacific region.

In other words, Japan can use the BDN to deepen its regional partnerships through diplomatic, defense and security cooperation, in order to balance China’s increasing influence and the threat it poses in the region, by advancing the values of a liberal global order.

It also offers the Abe administration a chance to revive Japan’s economic diplomacy. Limited by its pacifist constitution, Japan has frequently employed economic tools to enforce its foreign policy.

The BDN could emerge as one such foreign-policy instrument that Japan can apply to strengthen diplomatic, economic and security partnerships. Consequently, the BDN can help Japan emerge as a leading regional and global power in the post-Covid-19 world order.

Furthermore, it can be argued that United States’ dependence on allies such as Japan stems from its relative inexperience in investing in Southeast Asian and Pacific nations. In this context, Japan’s leadership is of great importance within the framework.

For example, Japan’s close partnership with Vietnam and the Philippines, among other claimant South China Sea nations and ASEAN powers, will facilitate their acceptance of the BDN, as well as ensure a continued US presence in the region.

It will also help reduce economic dependence of these nations on China – a strategic necessity, particularly in view of that country’s increasingly aggressive stance in the South China Sea. 

From a broader perspective, as the world enters a new eera, the Indo-Pacific region is likely to see the emergence of a “flexi-nodal,” rather than a bipolar, framework.

As a leading member of the BDN, and through its blossoming partnerships with Indo-Pacific allies such as the US, Australia and India, Japan is in a position to emerge as a power center in a multipolar international order, especially given its close geographical proximity to China and its highly developed economy. This is remarkable in an increasingly competitive regional dynamic. 

The key, however, will be for the Abe administration to build a domestic consensus and encourage Japanese companies and stakeholders to disengage considerably from their “China connect” approach, which has paid Japanese firms rich dividends in the past.

But will Abe’s tryst with the BDN offer a new strategic glimpse to Japanese companies? And can Japan rely on the BDN to execute an effective infrastructure diplomacy that will revamp its economy?

If Japan is to utilize the BDN to its full potential, an Abe-led Tokyo will need effective planning and, more important, a comprehensive strategy commensurate with the emerging post-Covid-19 Indo-Pacific narrative replicating Japan’s leadership. 

Jagannath Panda

Jagannath Panda is a research fellow and center coordinator for East Asia at the Manohar Parrikar Institute for Defence Studies and Analyses, New Delhi. He is the series editor for Routledge Studies on Think Asia.