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Money for the Mekong

Japan plays prominent financing role in region’s development, preservation

FORUM STAFF

The magnificent Mekong River, which at more than 4,800 kilometers long stretches from China through the five Mekong countries of Burma, Cambodia, Laos, Thailand and Vietnam before emptying into the South China Sea, provides food, water and transportation for more than 60 million people while posing some of the Indo-Pacific’s most difficult environmental challenges. With cascading waterfalls and foreboding rapids, the Mekong offers a picturesque landscape for investment and serves as a new kind of battleground in a fight for influence.

The Mekong region is awash in investment from the People’s Republic of China’s (PRC’s) One Belt, One Road (OBOR) infrastructure program. For years, however, Japan has been a prominent investor in Burma, Cambodia, Laos, Thailand and Vietnam.

People who depend on the Mekong River for their livelihoods, such as this couple in the Kandal province of Cambodia, are threatened by the construction of power-generating dams funded by the People’s Republic of China. AFP/GETTY IMAGES

“There is indeed a competitive aspect in Japan’s Mekong investments vis-a-vis China,” Dr. Yee-Kuang Heng, a professor at the Graduate School of Public Policy at the University of Tokyo, told FORUM. “Japan often uses the term ‘quality infrastructure,’ widely seen as a means to distinguish Japanese projects from Chinese megaprojects perceived to be of lower quality and less sustainable fiscally and environmentally. Given growing concerns in recipient countries over debt-trap diplomacy” in the PRC’s OBOR program, “Japan could be seen as a viable alternative player.”

Japan is making significant contributions of public money to back up its private-sector loans and reinforce its image as a reliable financial partner. During the past three years alone, Japanese companies have invested the equivalent of about U.S. $18 billion in the Mekong region, according to The Straits Times newspaper, an English-language daily based in Singapore. Now, as part of its Tokyo Strategy 2018 for Japan-Mekong Cooperation, Japan is expanding its economic footprint. In 2018 meetings with Mekong leaders, Japan pledged to finance 150 more projects over the next three years to improve connectivity in the region and preserve the environment.

“Following the track record of such support, in order to realize private investment more than before, Japan will utilize public funds including overseas loans, investments and ODA [official development assistance],” Japanese Prime Minister Shinzo Abe said during the 10th Mekong-Japan Summit held in Tokyo in October 2018.

Japan’s investment in the Mekong predates China’s OBOR initiative, although its investments now are explicitly tied to Abe’s free and open Indo-Pacific strategy and are more purposefully tailored to counter the PRC’s influence, Heng said.

Alternate Vision

Prior to the Mekong-Japan Summit, Abe held individual meetings with the leaders of Cambodia, Laos, Thailand and Vietnam. In those meetings, he made proposals that were in stark contrast to PRC projects, which, in the case of power-generating dams, have been blamed for the environmental degradation of the region.

Abe pledged to provide Laos with an aid package of up to U.S. $8 million to accelerate the clearing and disposal of unexploded ordnance. In Laos, millions of explosive remnants left over from the Vietnam conflict pose risks to farming and infrastructure development because they have not been removed.

“We highly evaluate Japan’s official development assistance,” said Lao Prime Minister Thongloun Sisoulith, according to the Nikkei Asian Review website. “It is contributing to Lao’s economic development.”

Tokyo also offered to loan Cambodia up to U.S. $31.6 million to build irrigation facilities in the Lake Tonle Sap area. Tonle Sap is the largest inland fishery in the world, producing 3.9 million tons of fish annually with a value of more than U.S. $3 billion. The flooding cycle produces arable land for farming when the water recedes, and the lake expands fivefold during flooding season. Irrigation facilities are expected to boost the productivity of rice farming by threefold.

The 150 projects Japan plans for the region fall into three focus areas: building connectivity, such as expanding airport facilities in Laos and building new roads in Burma; constructing people-focused societies, such as using technology to improve health care; and environment and disaster management, such as the irrigation projects in Cambodia. Japan has not placed a monetary value on the 150 projects.

Although they often do business with the PRC, the Mekong leaders voiced support for Abe’s free and open Indo-Pacific strategy, which promotes freedom of navigation in the South China Sea and the construction of quality infrastructure projects. Although its assertions were rejected by an international tribunal, the PRC has staked territorial claims to reefs and man-made features in the South China Sea in areas also claimed by Vietnam, one of the Mekong countries. While those leaders didn’t single out a country by name, they alluded to the PRC in their joint statement at the Tokyo summit by saying that land reclamation projects and other activities “have eroded trust and confidence, increased tensions and may undermine peace, security and stability in the region.”

Long-term Mekong Investor

While the PRC’s far-reaching OBOR program has recently generated international attention, Japan has been investing in Mekong countries for many years. 

“It should be noted that Japan has long been supporting and developing several connectivity corridors, for instance, in the Mekong region, way before the emergence of China’s BRI [Belt and Road Initiative],” Heng said. “Tokyo is not a new player on the block, and with its long history of ODA projects post-1945, it has abundant experience and skills.”

A Vietnamese woman sells fruit and vegetables from a floating market on the Mekong River. The Mekong is famous for its floating markets that allow farmers to sell their goods to local dealers. ISTOCK

Japan has contributed to the East-West Economic Corridor, an integrated system of roads, rails and ports that connect Mekong countries. The East-West Economic Corridor focuses on the construction of bridges and national roads that connect Burma, Laos, Thailand and Vietnam. The projects include the upgrading of the Danang seaport in Vietnam. Japan also has financed connectivity projects in the Southern Economic Corridor that link Cambodia, Thailand and Vietnam, Heng said.

Japan’s motivations to invest, according to Heng, are broader than merely competing with China. “Japan’s desire to play a larger regional role, however, is also driven by domestic considerations that are important in their own right,” Heng said. “Prime Minister Abe, for instance, has long claimed that ‘Japan is back’ and will never be a second-rate power. ODA and long-standing connectivity initiatives and multilateral frameworks in the region and beyond have emerged as key instruments that Abe has utilized to raise Japan’s international profile.”

In addition to its Mekong investments, Tokyo mobilized the Tokyo International Conference on African Development and the Pacific Island Leaders Meeting to drum up support for its connectivity initiatives and its overarching free and open Indo-Pacific strategy, Heng said.

Fierce Competition

Japan is facing stiff Chinese competition in attracting business partners in the Mekong. As part of its OBOR program, the PRC has doled out concessional loans and investments worth billions. Through its Lancang-Mekong Cooperation (LMC) initiative, the PRC promised the Mekong countries of Burma, Cambodia, Laos, Thailand and Vietnam about U.S. $1.6 billion in loans and U.S. $10 billion in credit in 2016 alone. The following year, the LMC promised government concessional loans worth U.S. $1.1 billion and U.S. $5 billion in credit for 45 projects, according to a report written by Nguyen Khac Giang, a researcher at the Vietnam Institute for Economic and Policy Research at the Vietnam National University in Hanoi. The name of the joint China-Mekong effort originates from the name of the river, which is called Lancang in China and Mekong downstream.

Japanese Prime Minister Shinzo Abe welcomes Burmese leader Aung San Suu Kyi as she arrives at the 10th Mekong-Japan Summit in Tokyo in October 2018. REUTERS

Although its investments are hard to track due to a lack of transparency, the PRC is one of the larger contributors of ODA in the Mekong, according to the Organisation for Economic Co-operation and Development (OECD), an organization of 36 countries geared toward stimulating economic progress. ODA is a term coined by the organization to indicate international aid flow. It includes loans and grants.

As for the countries that meet OECD transparency standards, Japan is the largest contributor of ODA in the Mekong, and South Korea is in the top five. South Korea has focused its development assistance on Vietnam, where it just surpassed Japan in 2018 as the largest foreign investor.

The competition for financing and trade, however, has some Mekong countries voicing concern that they will be forced to choose between competing powers. Regional leaders voiced these concerns at a Japan-Mekong forum in Phnom Penh, Cambodia, in March 2018, according to the Nikkei Asian Review.

At the forum, Kentaro Sonoura, special advisor to Abe, responded that Tokyo’s new strategy is geared toward supporting the Association of Southeast Asian Nations (ASEAN) on a broader Indo-Pacific strategy. Japan wants to combine two continents and oceans through transport and infrastructure linkages and to promote additional connectivity through free trade, rule of law and enhanced security. “We think it is possible to cooperate with any country that upholds the principles of that strategy,” he said.

ASEAN ministers, along similar lines, have adopted what they call an ASEAN-centric regional architecture that is “open, transparent, inclusive and rules-based.”

A Green Mekong 

One of the pillars of Tokyo’s strategy to partner with the Southeast Asian countries is what it calls the “realization of a Green Mekong.” The strategy includes countermeasures against climate change and marine pollution, water resources management and disaster risk reduction. It’s a subject area where Japan has the upper hand.

When it comes to the PRC’s investment in the region, protectors of the environment are some of its loudest critics. Scientific studies abound that conclude the PRC’s desire to harness hydropower and control flooding along the Mekong River basin is undermining the region’s food security and damaging the environment.

Japanese Prime Minister Shinzo Abe, right, looks on as Vietnamese Prime Minister Nguyen Xuan Phuc hugs Cambodian Prime Minister Hun Sen during the Tokyo summit. REUTERS

A recent study, “Potential Disruption of Flood Dynamics in the Lower Mekong River Basin Due to Upstream Flow Regulation,” said the scores of dams being built by the PRC in the region deprive downstream ecosystems of much-needed nutrients to keep fish populations healthy. Michigan State University researchers published the study in December 2018 in Nature, an international science journal.

“Any major alterations of the seasonal pulses could easily change the area’s floodplain dynamics,” said lead author Yadu Pokhrel, assistant professor of civil and environmental engineering at Michigan State University. “This could severely affect a wide range of ecosystems and undermine regional food security.”

Environmentalists have criticized power-generating dams funded by China, such as this one in the Stung Treng province of Cambodia, as disastrous to the freshwater fish populations that feed the region. AFP/GETTY IMAGES

The largest dam planned for the Mekong is a Chinese-backed project in Cambodia to build a 620-square-kilometer reservoir. Designed by the China Southern Power Grid Co., the dam would increase power generation “but at the probable cost of the destruction of the Mekong fishery, and the certain enmity of Vietnam,” said a report written by experts at the National Heritage Institute on behalf of the Cambodian government.

The proposed dam would block a migration path traveled by thousands of fish per hour before heading to upstream tributaries to spawn or downstream to nursery and fishery habitats in Tonle Sap Lake and the Mekong delta. The fish eventually reach the Vietnam delta, which is already fraught with flooding and land loss due to rising sea levels.

Strategic Interest

Japan views the Mekong region, which had a combined population of 238 million and an aggregate gross domestic product of U.S. $781 billion in 2017, as a promising market and an important destination for its companies’ infrastructure exports. Japanese officials also consider the Mekong vital from a military and geopolitical standpoint because it is located between China and India and faces vital shipping lanes in the South China Sea, according to an October 2018 report by Kyodo News.

Many Mekong leaders at the Tokyo summit said Japan’s cooperation brings positive benefits — not just for economic gain, but for peace. Aung San Suu Kyi, Burma’s leader, said her country has benefited greatly from Japanese investment, and so has the region. 

“All in all, I think everybody was agreed that the Japan-Mekong cooperation has been a success story,” she said, according to media reports. “And we’re confident that we will go on to use this cooperation, not just for the sake of prosperity but also to contribute toward regional peace and security.”  

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