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Japan stepping up aid to ADB, drawing distinction from AIIB

On May 4, Japan announced a new aid package for infrastructure projects targeting developing nations at an annual session of the Asian Development Bank (ADB). The move is aimed at supporting the ADB and drawing a distinction from the China-led Asian Infrastructure Investment Bank (AIIB). Meanwhile, Southeast Asian nations are letting Japan and China compete with each other to win as much support as possible.

 

Japan’s new aid package calls for the Japan Bank for International Cooperation (JBIC), the ADB and the World Bank to jointly extend debt guarantees to private banks that finance quality infrastructure projects in partnership with JBIC. Eliminating private banks’ concern over lending loss will allow developing nations to receive more financing than before. Debt guarantee is expected to be extended to quality projects that place emphasis on environmental conservation, such as offshore wind power generation and geothermal generation.

 

While Japan is stepping up infrastructure aid, China is capitalizing on its price competitiveness to win many large-scale projects, such as power generation plants, roads and ports. In particular, it identifies the Association of Southeast Asian Nations (ASEAN) as a panther essential to promoting its “One Belt, One Road” initiative. Japan has tried to compete against China by playing up “quality” with consideration for safety and the environment, but it has failed to stop China’s momentum thus far.

 

ASEAN, on its part, wants to accelerate infrastructure building. Thus China’s cooperation is indispensable as the country offers huge amounts of funds and attractive terms that do not take profitability into great account.

 

With Japan and China intensifying their battle over infrastructure projects in Asia, an ASEAN diplomatic source indicates that “we will face difficulties if tensions grow between Japan and China, but we welcome a moderate degree of friction.” (Abridged)

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