The Belt and Road InitiativeShould Become aNew Platform for Mutually Beneficial Cooperation between China and Japan

By YanShenchun

I. Japan's attitude towards the Belt and Road Initiative shifted from questioning and criticism to active participation

(I) Japan once thought that both the Belt and Road Initiative and the Asia Infrastructure Investment Bank (AIIB) were going to fail.

Ever since China put forward the Belt and Road Initiative and proposed the establishment of the Asian Infrastructure Investment Bank (AIIB) in 2013, Japan has been generally holding a negative and skeptical view. The mainstream view is that the Belt and Road Initiative is China’s geopolitical and geoeconomic strategy through outward expansion of its economic strength. It aims at building a China-centric "geoeconomic circle" and establishing a China-led new regional and international order and thus it poses a serious challenge to the "liberal international order" dominated by the United States, Japan and other Western countries. Meanwhile, China remains a developing country with tens of millions of people living under poverty line and still receives loans from international agencies such as the World Bank and the Asian Development Bank. Against such backdrop, China’s grand strategic vision of building a self-dominated multilateral development bank and investing heavily in countries across Asia, Europe and Africa is too ambitious to succeed.

Japan was especially concerned about the direct impact that the the Asian Infrastructure Investment Bank (AIIB) may have on the Japan-led Asian Development Bank. At first, there were many dismissive comments on the Asian Infrastructure Investment Bank (AIIB) in Japan, portraying it as nothing more than a doomed multilateral platform or international agency repacked and transformed from China’s originally bilateral infrastructure financing scheme for some poor Asian neighbors. Internal assessments by Japan's Foreign Ministry, Finance Ministry and the ruling Liberal Democratic Party all believed that not only would United States publicly oppose the the Asian Infrastructure Investment Bank (AIIB), but also European countries would not participate. Contrary to Japan’s assessment, a group of Western countries such as the UK, Germany announced their accession to the bank before the registration deadline for prospective founding members on March 14, 2015, which greatly shocked the Japanese leadership.

In the same year, Japan lost to China in bidding for the Jakarta-Bandung high speed rail project in Indonesia, which was also a big shock to Japan. Japan initially felt very confident about obtaining this project since it hadalready made a feasibility study in 2011, thus seizing the first chance. In fact, Japan has long been Indonesia's largest source of foreign investment, with many Japanese firms investing in Indonesia for several decades, cultivating a large number of connections. Most members of IndonesianPresidentJoko Widodo’scabinet have somesort of origins with Japan. When cabinet meeting discussed the bidding between China and Japan, only President Joko Widodo andthe Minister forState-Owned EnterprisesRini Soemarnosupported China, while the Vice President and other ministers unanimously backing Japan. However, China eventually won the project. Jakarta-Bandung high-speed railway project is not only a landmark project of theBelt and Road Initiative, but also the first time for Chinese and Japanese enterprises to directly compete for such high-end overseas infrastructure projects. Japan’s failure greatly impingedon its confidence. Japan has to gradually recognize China's strength and seriously consider proper way of handlingits competition or cooperation with China.

(II) Since May 2017, Prime Minister Shinzo Abe has made many positive statements on the Belt and Road Initiative, claiming that Japan and China can work together vigorously in this regard.

In May 2017, the Belt and Road Forum for International Cooperation was held in Beijing. Japan's ruling Liberal Democratic Party Secretary-General Toshihiro Nikai attended the forum on behalf of the Japanese government. Matsumura Yoshifumi, State Minister of Economy, Trade and Industry, and Takaya Imai, Abe's executive secretary and close confidant were also in the Japanese delegation. Mr. Nikaipaid a special visit to Prime Minister Abe before visiting China, and Abe asked him to forward a personal letter to Chinese President Xi Jinping. Abe’s above-mentioned move signaled thathis attitude towards the Belt and Road Initiativehas undergone significant changes.

On June 5 of the same year, Prime Minister Abe delivered a speech at an international conference held in Tokyo. For the first time, he publicly praised the Belt and Road as a promising initiativethat"holds the potential to connect East and West as well as the diverse regions found in between” and he also added that "Japan is ready to extend cooperation". On November 14, when meeting with Chinese Premier Li Keqiang in Manila at the sidelines of the ASEAN related leaders meetings, Prime Minister Abe expressed his hope that “the Belt and Road Initiative will contribute to world peace and prosperity” and “Japan hopes to cooperate with China from this point of view”. On the night of December 4, delivering a speech at a dialogue between Chinese and Japanese business executives and former senior government officials in Tokyo, Prime Minister Abe said he believed “Japan will be able to cooperate well with China on the Belt and Road Initiative”. Abe also said “the Japanese government envisions the two countries cooperating in the development of infrastructure in Asia”.

II. Reasons behind the shift of theJapanese government's attitude towards the Belt and Road Initiative

The above-mentioned shift in the attitude of the Japanese government towards the Belt and Road Initiative is mainly a tactical policy adjustment made according to the needs to attain real interests and reflects the following strategic considerations by Japan:

 (I) The actual economic interest is the most important internal cause for the shift in the attitude of the Japanese side. 

The Belt and Road Initiativecontains enormous business opportunities and economic benefits. As its population plummets year by year, coupled withsmall and saturated domestic market, Japan’s economic recovery and sustainable development rely heavily on the huge Chinese market as well as the even broader Eurasian market. The successfullylaunched Asia Infrastructure Investment Bank(AIIB) has been operating quite well, winning the highest rating from international rating agencies. The Belt and Road Initiative has received positive responses and support from more than 100 countries and international organizations including many developed countries. More than 40 of them have signed cooperation agreements with China in areas such as connectivity, industrial capacity cooperation and financial support.Lured by enormous economic benefits and prospects, the Japanese side began to gradually change its confrontation mentality and seek some degree of cooperation with China.

In fact, the Japanese business community has long been enthusiastic about participating in the Belt and Road Initiative. There are over 23,000 Japanese enterprises investing in China, all of whom are direct beneficiaries of the Belt and Road Initiative and many have already taken concrete actions to participate in the cooperation. Nippon Express, Japan's largest logistics company, actively seizes the business opportunities brought about by the Belt and Road Initiative. The firmhas been assisting Japanese enterprises in China to regularly transport their goods to European market in cooperation with China Railway Corporation and Kazakhstan national railway company(known as Kazakhstan Temir Zholy ). From early 2018, the logistics firm started to provide joint land and sea transport services between Japan and Europe via sea lanes between China and Japan and trans-Eurasia trains that run through China, Central Asia and Europe. Nippon Express is just a microcosm of the many Japanese enterprises that have benefited from the Belt and Road Initiative. In June 2017, the Japanese Chamber of Commerce and Industry in China, the biggest Japanese business lobby group in China, set up a liaison council on the Belt and Road Initiative, which helps members share information and serves as a platform of liaison with the Chinese government and business community.

(II) Improving the relations with China and stabilizing its neighborhood environment are the real political needs for the change of Japan’s attitude. 

Ever since assuming office in late 2012, Prime Minister Abe has been vigorously pursuing a “diplomacy that takes a panoramic perspective of the world map”, which has seen him traveling around the globe. However, he has not yet has a chance to pay a formal visit China, let along his failure to improve relations with China, South Korea and Russia, the three most important neighbors. Getting rid of the post-war system, becoming a "normal state"by revising the pacifist Constitution and building a strongmilitary forcehave been the unswerving pursuit of the Japanese political elite since the end of the Cold War and it is also the life-long political mission of Abe. 

To achieve this goal, obtaining certain degree of the understanding from important neighboring countries is an indispensable condition. Ever since the “collision incident” around Chinese islands of Diaoyu(known as Senkaku Islandsin Japan )happened in 2010, the bilateral relations between China and Japan has been deteriorating. Following that, a series of other incidents such as the "Diaoyu Islands nationalization" and the visit by Abe to Yasukuni Shrine, a symbol of militarism which honors war dead, including 14 confirmed WWIIClass-A war criminals,all inflicted more damaging effects on the chilling relations, which plunged to their lowest point since the two countries normalized ties in 1972. In November 2014, after many rounds of hard negotiations, the two sides reached a "four-point principled consensus," aiming to bring the derailed bilateral relations back on moral track, but the process of improvement has been unsteady until it gradually stabilized in the first half of 2017.

In May 2017, Abe dispatched Toshihiro Nikai, Secretary-General of the Liberal Democratic Party and known as a leading pro-China figure in LDP to attend the Belt and Road Forum on International Cooperation held in Beijing. In his meeting with Chinese President Xi Jinping, Nikai hand-delivered Abe’s personal letter calling for mutual visits by top leaders of the two countries. Japanese media commented that Abe's cooperative attitude towards theBelt and Road Initiative is sending a strong signal that he is determined to improve the stalled Japan-China relations. 

Later, on 28th September, in a very rare move,Prime Minister Abeattended a reception held by the Chinese Embassy in Tokyo marking Chinese National Day and the 45th anniversary of the establishment of diplomatic relations between China and Japan. Delivering a speech to the 2000 strong audience, he proposed "three steps" to improve Japan-China relations, i.e. first inviting Premier Li Keqiang to visit Japan, followed by Abe’s visit to China and finally inviting President Xi Jinping to visit Japan. Abe said that stronger cooperation between Japan and China is not only important to both countries, but also indispensable to peace and prosperity of Asia,given the current situation in the region. He also stressed that he is willing to make efforts to strengthen the bilateral ties based on the idea ofstrategic and mutually beneficial relations. 

Local Japanese media commented that Prime MinisterAbe’s unusual move highlights that he pays great attention to bilateral relations and expresses his strong desire to restore high-level exchange of visits as soon as possible and comprehensively move the relations forward.Considering his increasingly consolidated position in Japanese domestic politics, Prime Minister Abe is less constrained to invest more political capital in improving relations with China. 

(III) To ease the pressure brought to Japan by Trump Administration's "America First"policy is an important external factor for the Japanese government’s change of positions.

Ever since DonaldTrump took U.S. presidency, he has been pursuing an "American First" policy, sparing no efforts in advocating trade protectionism. Shortly after his inauguration, President Trump withdrew the U.S. from the Trans-Pacific Partnership (TPP), which Japan regards as an critical treaty to forge an economic alliance with the US and to dominate the economic order in the Asia-Pacific. Japan has overcome so many domestic obstacles and spent years of efforts to reach agreement. President Trump has also launched a trade war against countries around the world and even US alliescannot be exceptional.In fact, President Trump even put enormous pressure on Japan, the second largest source of trade deficit for the US, directly demanding Japan to cut trade surplus. All these US maneuvers had greatly disappointed Japan.

 Meanwhile, in the minds of Japanese political elites, the shadow of "over-head diplomacy" pursued by China and the United States during the Cold War has always been lingering. In June 2017, President Trump first expressed his willingness to cooperate with China on the Belt and Road infrastructure project. One month earlier, the United States also sent its official representatives to attend the Belt and Road Forum for International Cooperation held in Beijing. The shift in U.S. attitude has alarmed and touched Japan very much. Since the Trump Administration is not reliable, it is better for Japan to rely on itself. To improve its relations with China become more necessary than ever amid an increasingly uncertain world and seeking cooperation with China on the Belt and Road Initiative is a must as well as good starting point. 

In addition, Western developed countries such as the UK, France, Germany and Australia all have relatively positive attitudes toward the Belt and Road Initiative. The UK, France, and South Korea etc. have also signed memorandums of understanding with the Chinese government on strengthening cooperation in third country’s market under the framework ofBelt and Road Initiative, which also brought some peer pressure for Japan.

III. Japan's participation in the Belt and Road Initiativeis conducive to a better international environment for relevant cooperation.

(I) Japan's participation can help reflect the essence of the Belt and Road Initiative as an open and inclusive one for international cooperation.

As a spokesperson of the Chinese Foreign Ministry said in response to Japan's change of attitude, the Belt and Road Initiative is an open and inclusive platform for international cooperation and an important international public product. It was proposed by China, but it belongs to the world. The Belt and Road Initiativeupholds the principle of "achieving shared growth through discussion and collaboration" and any country in the world can participate in it. In this sense, it is of positive significance for Japan,the world’s third largest economy, to participate in the initiative.

(II) Japan's participation will help to expand the sources of funding and ensure the sustainability of financing for related projects. 

According to a report estimateby the Asian Development Bank, infrastructure financing needs in Asia alone will reach 8.7 trillion U.S. dollars for the next ten years. The demand for industrial investment in countries along the Belt and Road is even greater. In face of such a huge financing need, China alone can not meet it and a diversified source of financing should be pursued. 

(III)Japan's participation will help reduce the vicious competition between China and Japan and achieve complementary cooperation.

Japan has worked hard for decades in Asia and accumulated very deep political, economic and social connections through official development aid(ODA), investment and personnel training etc. In particular, Japanese firms are investing heavily in Southeast Asia and South Asia, with very rich experience in international operations and local project management. This is exactly what Chinese enterprises as later-comers, must learn to do well on the path of internationalization. Chinese companies can better overcome their shortcomings by working with Japanese counterparts. In the meantime, Chinese enterprises have been"going global" with unprecedented scale and speed and enjoy a upper hand in expanding markets in Africa, the Middle East, Central Asia, Eastern Europe and Latin America. It is entirely possible for Chinese and Japanese enterprisesto work together to complement each other and achieve common development.

In addition, many small and medium-sized Asian countries generally follow a strategy of balance of powers. While actively participating in the Belt and Road Initiative, they are also worried about over-reliance on China economically, in particular considering that many large-scale infrastructure projects are vital to the economic lifelines of the country. If Chinese and Japanese companies can jointly build related projects, it will not only help to avoid vicious competition and share commercial risk between China and Japan, but also help to alleviate the host country's above concerns.

It should also be noted that the Japanese government still has a clear "two-faced" policy on China. On the one hand, Japanintents to check and balance China with respect to political and security issues, and on the other hand, Japan seeks strengthening cooperation with China in economic and social fields. As a matter of fact, the Japanese government has set a precondition for its participation in the Belt and Road cooperation. In a speech delivered on the evening of December 4, 2017, Prime Minister Abe claimed that Japan must ensure the region from the Pacific to the Indian Ocean a free and open area, with fairness and transparency as indispensable elements. Based on its"Indo-PacificStrategy", Japan is willing to cooperate with China on the Belt and Road Initiative. According to Japanese media reports, Abe has decided to match the "Indo-Pacific Strategy" with the Belt and Road Initiative, and seek to cooperate with China on an equal footing instead of "joining"China’s initiative. In addition, Japan has joined hands with India, United States and Australia to promote the "Indo-Pacific Strategy," emphasizing their support for a "rule-based order," and building "infrastructure connectivity in line with international standards." These are all cliches and obviously point to the Belt and Road Initiative.Many Japanese commentators see the “Indo-Pacific Strategy” as a Japan-anchored alternative to Belt and Road Initiative.

IV. Promoting the Belt and Road cooperation between China and Japan, either through third-party market cooperation or bilateral cooperation,translating potential into concrete results is the key, whichwill in turn provide driving force and create more room for further improving Sino-Japanese relations.

Obviously, the Japanese government still has certain doubts about the Belt and Road Initiative, including financial sustainability and environmental standards for project and whether some major Chinese-led port projectswill be "militarized." However, as long as China and Japan can work together, coupled with accumulated mutual trust, allthese doubts can be gradually dispelled.

According to local media, the Japanese government has formulated  policyguidelines for participating in the Belt and Road cooperation and it will financially support the cooperation between firms of the two countries by loans through Japanese government-backed financial institutions. Cooperation will centre on environmental protection, industrial modernization, logistics, and energy conservation etc. 

It seems that Japanese government hopes to focus on infrastructure investment, including  cooperation in energy projects by Japanese and Chinese firms in Asian countries that connects Asia, Europe and Africa with major trade routes. Japan is also considering joint road, railway development to improve logistics and speed up cargo transport. In addition, the Japanese government is exploring the possibility to invite China to participate in the road rehabilitation projects that the Japanese side had been implementing in certain African countries.

At present, the Japanese government has given a "green light" for the participation of Japanese enterprises in theBelt and Road Initiative and hopes to focus on the cooperation between the Chinese and Japanese companies in the third-party market. This is entirely compatible with the Chinese government's push to promote cooperation with developed countries in third country market along the Belt and Road.

(I) There is already a certain foundation for the cooperation between Chinese and Japanese enterprises in the third-party markets and the two governments should push for the establishment of a long-term cooperation mechanism.

Third-party market cooperation was first seen in the Joint Statement of China-France Cooperationon Third-Party Market issued in June 2015. In this joint statement, the two countries outlined the major areas for their joint cooperation with third parties, including infrastructure, nuclear energy, aviation, agriculture, health and climate change. Third-party cooperation is a new form of international cooperation first proposed by China, with an aim at effectively connecting China's advantageous production capacity, the advanced technology of the developed countries and the development needs of the vast number of developing countries so as to realize the effect of"1 + 1 + 1> 3". 

In recent years, the cooperation model has received a positive response from the international community and shows a good momentum of development. It has become an important part of the Belt and Road Initiative. To date, China has reached third-party market cooperation agreements with more than 10 developed countries,including France, South Korea, Germany, the United Kingdom and Canada. The agreements covered such fieldsas infrastructure, energy, environmental protection and finance, and has achieved pragmatic results in a series of major projects.

Although China and Japan have not yet reached an formal consensus on this issue at the governmental level by signing a cooperation agreement or joint statement, enterprises of the two countries have already worked out some cooperation experiences. For example, some companies engage in technology transfer and joint research and development cooperation. China's cement maker Conch Cement Company Limited, working with Japan’s Kawasaki Heavy Industrieshas forged a technical cooperation since 2006. The two firms jointly developed a technology for power generation by utilizing low temperature waste heatas a by-product from cement kiln,which has been widely promoted in China. They also jointly developed the world's leading technology to dispose of urban solid waste using cement kilns. At present, the two companies have set up a joint venture in Shanghai and actively expanded overseas markets of countries along the Belt and Road. 

In another example, some enterprises engage in capital cooperation through mutual holding of shares and joint investment. China’s CITIC Group, Japan’s ItochuCorporation and Thailand’s Chia Tai Group(better known as Charoen Pokphand Group) have been holding shares of each other for many years and jointly tappingmarkets of three countries as well as overseas markets. Again, some companies engage in joint bidding or mutual subcontracting of infrastructure projects in third country. In 2011, China’s Sinopec Engineering Co., Ltd. and Japan’s Nippon Marubeni Corporationformed a consortium and won the bid for infrastructure construction orders from Atyrau Petroleum Refineries in Kazakhstan. In 2013, a consortium by China’s Qingdao Sifang Co., Ltd and Japan’s Kawasaki Heavy Industries was awarded a Singapore subway carriage contract. In 2017, after Japan's Hitachi won the London subway project, the production of cabin air-conditioners and other related components was handed over to one of its joint ventures in China.

The spontaneous cooperation among Chinese and Japanese enterprises shows that it is not only feasible but also promising for China to engage in third-party market cooperation with the developed countries under the Belt and Road Initiative. In order to make the cooperation between Chinese and Japanese enterprises in third-party markets stable and sustainable, the two governments should explore long-term working mechanisms.

First of all, the existing mechanisms such as “China-Japan High Level Economic Dialogue” and the consultation for “China-Japan Economic Partnership Agreement” should befully utilized as governmental platforms to negotiate some joint policy arrangement that could support enterprises in conducting third-party cooperation. If conditions are right, the two governments should also explore the possibility to sign a cooperation agreement or a memorandum of understanding on third- party cooperation.

Secondly, governmental departments or agencies in charge from both sides should establish various working teamsto promote the establishment of a joint and unified working platform consisting of governmental departments, chambers of commerce and industrial associations, financial institutions and respectiveembassies. The joint and unified working platform could provide services to enterprises by sharing information oninvest policies, laws ofthird-party markets, identifying key areas and formulating cooperation road-mapsas well as implementation plans.

Thirdly, a data base consisting of information of key projectsand key enterprises should be established through the above-mentioned working platform. Regular forums should be held, focusing on third-party market cooperation and other key cooperation areas agreed upon by the two sides.Such forums could serve as a two-way informationexchange mechanism to promote collection and follow-up of key projects as well as experiences sharing .

Fourth, explore the establishment of a China-Japan joint investment fund. Modeling on the China-France Co-Investment Fund and China-EU Co-Investment Fund, China and Japan could promote the establishment of a joint fund between ChinaDevelopment BankCorporation(a policy financial institution) or Silk Road Fund Co. Ltd (a Chinese government-sponsored long-term investment fund) and Japan Overseas Infrastructure Investment Corporationfor Transport & Urban Development (known as JOIN, it was established by the Japanese government by injecting 110 billion yen in October 2014 as Japan’s first and only government-private sponsored fund that specializes in overseas infrastructure investment). Through financing instrument such as equity and bonds, the fundcould provide financial support for projectsjointly undertaken by Chinese and Japanese companies, thus ensuring long-term sustainable cooperation. In addition, the two countries should continue to promote existing co-financing cooperation between the Japanese-led Asia Development Bank(in which China is the 3 largest share holder) and China-led Asia Infrastructure Investment Bank(AIIB) by providing financing for joint bidding for major infrastructure projects inAsian countries.

(II) Making full use of the recent positive trend in the Sino-Japanese relations, the two countries should vigorously intensify their bilateral cooperation in all fields, which will help create favorable conditions for the cooperation in third-party market.

The core of the Belt and Road Initiative is"connectivity", which means to promote cooperation in five key priority areas, also known as “five connectivity” or “five links”. They are policy coordination, facilities connectivity, unimpeded trade, financial integration and people-to-people bonds. If measured by these “five connectivity” or "five links" standard, the "connectivity" between China and Japan can certainly be described as a very close one.

In economic and trade relations, China is Japan's largest trading partner and Japan is China's second largest trading partner by country. Japan is the third largest source of foreign investment in China and there are over 23,000 Japanese enterprises investing in China. At the same time, a rapid growth trend has be maintained by Chinese enterprises in investment in Japan.

In the financial field, the two countries have already realized a direct settlement between the Chinese currency Renminbi and the JapaneseYen and the two governments are now negotiating to renew a currency swap agreement that expired. Both central banks hold each others’ treasury bonds and the scale is also expanding. Recently, Mizuho Bank of Japan successfullyentered the Chinese inter-bank bond market as the first Japanese bank to do so.

In terms of infrastructure connectivity, there are currently more than 1,000 weekly flights flying in betweenover 60 cities of thetwo countries. Almost all of the major sea ports of the two countries have regular routes of cargo or passenger transportation.

In terms of people-to people and cultural exchanges, the number of personstraveling between the two sides has exceeded 10 million each year for several consecutive years and there are 345 pairs of friendship cities between the two countries. China and Japan are historically and culturally connected, as evidenced by their common use of Chinese characters. Ancient Chinese culture of the Han and Tang Dynasties are regarded by many Japanese as their cultural roots. In addition, Japan was an important part of the ancient Silk Road and thus Japanese people's closeness and identity to the Silk Road far exceeds that of people from Western countries in Europe and the United States.

Over the past few years, the relations between China and Japan have seen complicated twists and turns. With the joint efforts of both parties, the relations between China and Japan have continued to improve. Since the leaders of the two countries have reached an important consensus on the cooperation on the Belt and Road Initiative, it will certainly inject new impetus into the continuous development of Sino-Japanese relations. As Chinese President Xi Jinping pointed out during his meeting with Japanese Prime Minister Abe at the sidelines of APEC summit in Hanoi in November 2017, the Belt and Road Initiative is expected to become a new platform for mutually beneficial cooperation and common development between China and Japan.

This year marks the 40th anniversary of the signing of the China-Japan Treaty of Peace and Friendship. China will usher in the 40th anniversary of the reform and opening up. A summit meeting on trilateral cooperation  among China, Japan and Republic of Koreais expected to be held in the first half of 2018 in Japan. Sino-Japanese relations are facing a golden opportunity for further improvement.

Against this backdrop, both China and Japan should strive to deepen their mutual trust in politics and security and work hard to promote "connectivity" in various fields such as trade, investment, finance, science and technology, education, and cultural and people-to-people exchanges. These efforts will not onlyhelp further consolidate the foundation of the Sino-Japanese relations, but also create favorable conditions for the two countries to join hands in tapping the vast third-party market so that the opportunities brought about by the Belt and Road Initiative will truly benefit both peoples and promotepeace, development and prosperity in Asia, Europe, Africa and even the world at large.

Yan Shenchun is An Observer for International Affairs.