Japan Refuses To Join China's Investment Bank At Its Peril

The Asian Infrastructure Investment Bank that China is leading will launch with 57 founding members, but Japan isn't among them. Its dependency on the U.S. is a symptom of its outdated thinking, and will leave it badly isolated.

Shinzo Abe
Shinzo Abe
Daisuke Kondo

BEIJING â€" Despite a pointed meeting earlier this month between Japan Finance Minister Taro Aso and his Chinese counterpart Lou Jiwei, it appears Japan won't be among the 57 founding members of the Asian Infrastructure Investment Bank (AIIB) that China is establishing at the end of the year,.

The bank, initiated by Chinese President Xi Jinping to compete with Western-dominated financial institutions such as the International Monetary Fund, will include 37 Asian states led by India and another 20 from other parts of the world.

So why is Japan passing on this opportunity?

Fundamentally, it is because Japanese Prime Minister Shinzo Abe and his government are mired in 20th-century thinking. In the latter half of the last century, the Japanese economy was regarded as Asia's leader. Closely following Japan were the "four little Asian dragons" â€" Taiwan, South Korea, Hong Kong, and Singapore â€" followed by the ASEAN countries. Bringing up the rear was the world's largest developing country, China.

In the minds of most Japanese, this 20th century model still applies. Since Abe assumed office at the end of 2012, he has been striving under the banner of Abenomics to achieve "Japan's return to prosperity."

Meanwhile, the Chinese economy has made great progress over the last three decades. Since Xi took office, Asia's leading economy is China, followed by Japan and then India, which will soon have an even larger population than China. In fact, China has overtaken Japan in numerous ways. It surpassed Japan in 2010 to become the world's second-biggest economy behind the United States. China's GDP is more than twice Japan's. And as the only permanent member of the UN Security Council from Asia, China is involved in various Asian geopolitical issues, such as North Korea and Iran.

That China initiated the AIIB's creation seems to indicate that the legacy machine of the Asian Development Bank, created in 1966 and centered on America and Japan, is no longer relevant to China. Under its charter, the AIIB will be located in Beijing and will have a Chinese president. China is realizing its One Belt, One Road project through the establishment of this bank.

As such, Abe is left with but two options. Either Japan joins the AIIB to collaborate with China and accept its Asian leadership position, or it refuses to join it, meaning that it confronts China and denies its economic dominance.

Abe has obviously chosen the second option, an isolationist approach that will probably turn Japan into Asia's lonely old man. It's all because of Japan's dependence on the United States, where Abe visited in late April, once again confirming the unshakable Japan-U.S. alliance. He's convinced that as long as Japan sticks with the great Western power, it will have no worries. So if the U.S. isn't joining the AIIB, then Japan won't either.

A would-be alliance

"China has always attempted to expand its rights within the IMF and the World Bank without success due to America's opposition," says former Japanese ambassador to the UN, Makoto Taniguchi. "But so has Japan, which makes a large UN contribution just after that of America, and which can't become a permanent member of UN Security Council. In brief, both Japan and China have been striving to counter the West for this unjust treatment. But the real reason why Japan hesitates to join the AIIB is that since its creation, the presidency of the Asian Development Bank (ADB) has been held by the Japanese for nine consecutive terms."

Taniguchi says times have changed, that it's unreasonable for Japan to continue to dominate the ADB. Likewise, China shouldn't dominate the AIIB, he says. "As long as Japan and China work together to assure its success, this is an excellent chance for improving Sino-Japan relations."

I have always been skeptical of the Japanese idea, born during the Cold War era, that "as long as we hang on to the Americans, whatever happens it will be fine."

The Washington Post published an April piece by former U.S. Treasury Secretary Lawrence Summers. Entitled, "A global wake-up call for the U.S," Summers noted that the United Kingdom, Germany, France and Italy had one after the other showed their willingness to join the AIIB.

"This past month may be remembered as the moment the United States lost its role as the underwriter of the global economic system," he wrote. "No event since Bretton Woods is comparable to the combination of China's effort to establish a major new institution, and the failure of the United States to persuade dozens of its traditional allies, starting with Britain, to stay out."

Former Japanese Finance Minister Eisuke Sakakibara, a one-time Summers ally, said in April that it would be a mistake to underestimate Sino-U.S. relations. "The two countries have a deep connection beyond what Japan imagines," he said. "With reference to the AIIB, it's possible America will just bypass Japan to reach a deal with China. To avoid Japan being left as the only country refusing to join, it should closely communicate with the U.S."

This is entirely possible, and the 1971 Nixon crisis serves as an historical warning. Without first notifying Japan, President Nixon announced in a May 1971 statement that he would visit China, their common enemy. The decision created chaos within the Japanese government.

Forty-four years on, Japan hasn't changed. It's still grasping at that straw â€" America. Yet Sino-U.S. economic dialogue is to be held in June, and President Xi will visit the U.S. in September. And remember, U.S. Treasury Secretary Jack Lew visited China at the end of March.

In Asia, this century's trend is to bind oneself militarily with United States and economically with China. Japan's trade is about 20% dependent on China, which is Japan's largest trading partner.

At first glance, the AIIB issue seems just a question of whether to join a new bank. But in reality, it's the fork in the road for Japan's future, not that Abe and Aso recognize it as such. But it's not too late.

*Daisuke Kondo is a Japanese expert on China. He has worked and lived in Beijing and is the Deputy Chief Editor of Shukan Gendai, a Japanese general-interest weekly.

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In Argentina, A Visit To World's Highest Solar Energy Park

With loans and solar panels from China, the massive solar park has been opened a year and is already powering the surrounding areas. Now the Chinese supplier is pushing for an expansion.

960,000 solar panels have been installed at the Cauchari park

Silvia Naishtat

— Driving across the border with Chile into the northwest Argentine department of Susques, you may spot what looks like a black mass in the distance. Arriving at a 4,000-meter altitude in the municipality of Cauchari, what comes into view instead is an assembly of 960,000 solar panels. It is the world's highest photovoltaic (PV) park, which is also the second biggest solar energy facility in Latin America, after Mexico's Aguascalientes plant.

Spread over 800 hectares in an arid landscape, the Cauchari park has been operating for a year, and has so far turned sunshine into 315 megawatts of electricity, enough to power the local provincial capital of Jujuy through the national grid.

It has also generated some $50 million for the province, which Governor Gerardo Morales has allocated to building 239 schools.

Abundant sunshine, low temperatures

The physicist Martín Albornoz says Cauchari, which means "link to the sun," is exposed to the best solar radiation anywhere. The area has 260 days of sunshine, with no smog and relatively low temperatures, which helps keep the panels in optimal conditions.

Its construction began with a loan of more than $331 million from China's Eximbank, which allowed the purchase of panels made in Shanghai. They arrived in Buenos Aires in 2,500 containers and were later trucked a considerable distance to the site in Cauchari . This was a titanic project that required 1,200 builders and 10-ton cranes, but will save some 780,000 tons of CO2 emissions a year.

It is now run by 60 technicians. Its panels, with a 25-year guarantee, follow the sun's path and are cleaned twice a year. The plant is expected to have a service life of 40 years. Its choice of location was based on power lines traced in the 1990s to export power to Chile, now fed by the park.

Chinese engineers working in an office at the Cauchari park


Chinese want to expand

The plant belongs to the public-sector firm Jemse (Jujuy Energía y Minería), created in 2011 by the province's then governor Eduardo Fellner. Jemse's president, Felipe Albornoz, says that once Chinese credits are repaid in 20 years, Cauchari will earn the province $600 million.

The Argentine Energy ministry must now decide on the park's proposed expansion. The Chinese would pay in $200 million, which will help install 400,000 additional panels and generate enough power for the entire province of Jujuy.

The park's CEO, Guillermo Hoerth, observes that state policies are key to turning Jujuy into a green province. "We must change the production model. The world is rapidly cutting fossil fuel emissions. This is a great opportunity," Hoerth says.

The province's energy chief, Mario Pizarro, says in turn that Susques and three other provincial districts are already self-sufficient with clean energy, and three other districts would soon follow.

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