Why Japan Should, or Shouldn’t, Join the China-led AIIB: Q&A

Shinzo Abe and Xi Jinping
Japanese Prime Minister Shinzo Abe, left, shakes hands with Chinese President Xi Jinping in Jakarta on April 22. Photographer: Bay Ismoyo/AFP/Getty Images

When Japan’s finance minister meets his Chinese counterpart in Beijing on Saturday, the Asian Infrastructure Investment Bank will loom large in the talks.

While 56 nations signed up to the new $100-billion lender being established by China, Japan hasn’t. In a recommendation compiled for Prime Minister Shinzo Abe on Thursday, lawmakers in the ruling Liberal Democratic Party urged caution on joining. Taro Aso, the finance minister, has repeatedly raised concerns about what the AIIB’s governance will look like.

Japan is boosting spending in the region to counter China’s rising influence, using its Asian Development Bank to expand funding for infrastructure projects to about $110 billion over the next five years.

Below are the pros and cons of Japan joining the lender for both governments in Tokyo and Beijing:

What’s in it for the Japanese?

- Joining would help give Japan stronger influence on policy and investment decisions in Asia, said Masahiro Kawai, a professor at Tokyo University and former dean of the ADB’s think tank.

- Japan’s entry could improve ties between the governments in Tokyo and Beijing, according to the LDP’s recommendation.

- It would help the Japanese economy by raising the odds that Japanese companies -- seeking expansion overseas as the domestic market contracts -- are chosen to build infrastructure projects. Banks would also benefit.

Why not sign up then?

- China has failed to explain how the AIIB will be governed, Aso said last month at the ADB’s annual meeting in Baku, Azerbaijan

- It would add to Japan’s debt burden, the world’s heaviest

- By keeping its options open, Japan can use its position as a diplomatic card, said Toru Nishihama, chief economist at the Dai-Ichi Life Research Institute.

- Japan has to move in line with the U.S., which also hasn’t joined, said Hiromichi Shirakawa, chief Japan economist at Credit Suisse Group AG.

Why would China want Japan in?

- China can gain technology and expertise from Japan, which has headed the ADB since its founding in 1966, said Chen Fengying, a senior fellow researcher with the China Institute of Contemporary International Relations.

- Having Japan on board would show regional solidarity, said Shi Yinhong, professor of International Relations at Renmin University in Beijing.

- Zhang Dejiang, China’s chairman of the Standing Committee of the National People’s Congress, urged LDP vice president Masahiko Komura to join when they met in Beijing on May 5, Kyodo News reported. The only thing President Xi Jinping told Abe during an April meeting was that the proposal “has been welcomed in the international community,” according to the Xinhua news agency.

Why wouldn’t China want Japan to join?

- China is frustrated with the regional influence of the Japan-led ADB, and concerned that Japan would seek to counter its influence in the AIIB.

- China and the other founding members will have little problem getting the capital together, said Renmin’s Shi.

- Chinese Finance Minister Jiwei Lou has said that there are no such things as “best practices” in development finance. So what could China learn from Japan?

What is the timeframe for joining?

- Lou said May 22 that founding members have agreed to sign a charter in Beijing in the latter half of June, and Xi has said he wants to start the AIIB in December.

- Practically, it would be next year as the amount of capital is fixed and would need to be specially expanded if Japan were to join.

- “For the situation now, without Japan, it might be a bit easier for China to finalize the agreement of associations and detailed structure with the existing founding members,” says Renmin’s Shi.

— With assistance by Maiko Takahashi, and Xin Zhou

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