Have you noticed a pattern? Japanese “shadowing” investments in the Western BalkansMarch 16, 2021
Comment by Ivica Bakota
In January 2018, Japanese Prime Minister Shinzo Abe made “historic” tour to the six Central and Eastern Europe (CEE) countries (Estonia, Latvia, Lithuania, Serbia, Romania, Bulgaria) which left many grappling the underlying reason for odd-chosen selection of countries included in the visit. Paralleling, shadowing or simply copying the Chinese foreign policy initiatives was the answer, at least according to the most media headlines – all six countries were curiously clustered on northern and southeastern flanks of the Chinese 16+1 cooperation mechanism with the Central and East European countries. A year and half later, again in relative “news draught season” in mid-August 2019, Japanese Foreign Minister Taro Kono has been on a one week “Balkan+tour”, visiting Bulgaria, Slovenia, Croatia, Serbia and Italy. Press releases of the local ministries of foreign affairs have all mentioned the visit as closely related to the launch of Japan's initiative to strengthen economic, trade and cultural cooperation with South Eastern European countries. Some news articles didn’t fail to mention the stop in Rome as having something to do with Italy’s signing € 2.5 billion worth deal with China earlier that year and ushering its way to join the Chinese Belt and Road initiative (BRI).
For the CEE hosts even the talk resounded of Chinese high-level visits that are being held with increasing frequency from Dubrovnik to Tallinn, Sofia to Warsaw. As far as from Foreign Minister’s visits to Bulgaria, Croatia and Serbia can be discerned, Japanese side also took a broad perspective in encouraging bilateral trade exchanges, showing prospects in expanding tourist cooperation, emphasizing the benefits of geographic location of the host country to become a “hub” or an “entry point” for Japanese companies trying to enter the market of Central and Eastern Europe.
Japanese diplomatic steps toward CEE have been followed with concrete, albeit timid investments so far. In the immediate neighborhood the entry of Japanese capital is being the most visible in Serbia, again perceived as following the steps their western neighbors had taken a couple of years before. The year 2016 was rather successful for Sino-Serbian cooperation, marked by acquisition of Smederevo steel plant and signing of numerous infrastructure projects, yet it was also a year when a first big investment came from the Japanese company Yazaki (矢崎) into Šabac, a small Serbian city not far from Belgrade. In September 2017, this company opened a factory for producing cable sets for Daimler trucks and has committed to invest in Serbia of about € 25 million and to employ over of 1,700 workers in the coming period. Three years ago (May 2018), Chinese Linglong Tire (玲珑) pledged to invest € 800 million in its first European branch to be launched in Zrenjanin. Last year, Japanese Toyo Tires announced opening of a subsidiary in Inđija industrial zone and the investment worth € 382 million. Lastly, in January 2021, Serbian Finance Minister Mali, after the meeting with the Japanese ambassador to Serbia Takahito Katsumata, said that Japanese Nidec (日本电产) plans to invest a “large sum of money” in building electric motors factory in Serbia.
Undoubtedly, Japan is showing interest in Europe, but not only for the G-format peers that are more to match the size and capacity of its economy. Similar to China, Japanese economy has also reached the point where its global outreach requires a new positioning towards Europe as a whole, including small and peripheral economies on the parts where not only Russia is strategically located, but also where non-complementary cooperation initiatives of the US, EU, China et. al. are already present. It might be very interesting to see how Japan will square with highly diverse political landscapes of CEE to expand its economic footprint, or even to attain status of a key international factor influencing the regional cooperation, a permanency of which China has assured only recently.
A small step towards establishing a Japanese-anchored multilateral framework has already been made in the Southeast Europe during Abe’s six-day tour in 2018. Local foreign policy journalists claim Japan’s Prime Minister announced a Western Balkan Initiative in Belgrade following a meeting with Serbia’s President Vučić (Mloja, 2018). Availing to opinions that assume Japanese ‘copycat’ role in the region, one should remember that the Chinese came on the same place with similar idea of chamber-size cooperation framework including only the Western Balkan countries before they decide to set off with a large-scale 16+1. What seems more interesting is that besides obvious parallels in current Japanese diplomatic approaches with those made by China approximately ten years ago – on which, seems worth to note, China does not own a copyright – certain suspicions were voiced about the intentions and the ability of Japan to muddle through regional alliances and deal with many deep-rooted political “externalities” that impact foreign investments. If the two sides could deepen economic cooperation for mutual benefit, says one FP analyst, political (benefits), if they can be measured, should be very visible and harnessed in a propaganda sense (Stanojlović, 2018).
Serbia is of a special attention to Tokyo in both aspects: as a country still generally investment-thirsty and a country whose remarkable cooperation track with Beijing at least can provide an odometer for their own access to infrastructure projects and public procurement in the region. However, regional geo- or inner-political issues are expected to be the last on the list the Japanese are able to stomach. Following the 2018 Abe’s visit and several instances when Japanese officials promoted cooperation in the local media, comment boards were filled with skepticism regarding Japanese investors figuring “bribe cues” given by the local politicians. FP pundits would, on the other hand, reflect whether Japanese cooperation initiative proposal is competing with China’s FP initiatives, would it be looked upon more benevolently from Brussels and Washington, or is it simply “coming too late”, giving a pretense that “quota has been filled” with Russia, China and Turkey already claiming entire market share for non-Western players. (As the Western Balkan’s infrastructure market is to be saturated soon and could not accommodate a dozen of such investment initiatives hurling into region.) Therefore, besides popular myths on hard-working and punctual Japanese clashing with local rent-seeking sheriffs, a certain pre-emptive zero-sum logic is present on demand-side regarding the arrival of a yet another big fish in a small pond.
How does this reflect on supply side and does China see Japanese “shadowing” as complementary or competitive or sth else? Although neither side would officially voice out any opinion, let alone confrontational about the other players in the region, some patterns of this Sino-Japanese symbiosis may be traced back in infrastructure arenas of Southeast or Central Asia It is rather very recently that researchers have begun to argue that Japan became active only as a reaction to the China’s BRI strategy. As a matter of fact, Japan has been active in infrastructure initiatives for a long time. Southeast Asia has become the focus of Japan’s investment initiatives in 1990s, after the country made a huge FDI shift from high developed to developing markets. In this period, when Japan’s economy seemed not much recovering from 1991 collapse, the Hashimoto government (1996–1998) set up a plan for a so called “Eurasian diplomacy”, which included a focus on political dialogue and the support of democracy just as much as on economic cooperation and strengthening natural resource supply chains. Koizumi’s government in 2004 came up first with “plus format”, with “Central Asia + Japan” covering bilateral as well as multilateral cooperation, political dialogue and people-to-people exchanges.
There are several reasons why Japanese initiatives didn’t get much currency in these regions. Among often stated were exactly those that proved later to be of China’s competitive advantage, i.e. lack of coherent and sustained policy approach due to frequent cabinet changes and absence of upward pressure for state-backed mobilization of resources to sail off towards new investment destinations. However, as some argue, it was only after the 2008 recession that the real “window of opportunity” for setting multilateral infrastructure initiatives arrived. By this time, China had already caught up with investment to neighboring regions and became a main competitor in Southeast and Central Asian infrastructure projects. It is fair to say that in the last ten years Chinese FDI outpaced Japanese in Asia and took a lead in providing multilateral infrastructure initiatives, but this is hardly surprising given the continuous growth of Chinese economy in general. However, competitive niche of Japanese infrastructure initiatives was never eclipsed by arrival of China as an “infrastructural hegemon”. Chinese competitive advantage are funds combined with increasing experience and bar raising skills in infrastructure projects, Japan’s, on the other hand, are know-how and more private-own capital mobilizing foreign investments. This still makes Japan more open for joint ventures and labor-sharing cooperation models. A brainchild of this approach is the Partnership for Quality Infrastructure (PQI), a principal Japanese initiative launched in 2015 and worth $ 110 billion US.
The name of the PQI give the impression that with “quality” Japan tries to promote its own competitive features vis-à-vis some “other” arguably cheaper and less sophisticated offers from elsewhere. However, does this make the PQI rival initiative to the BRI? Experience so far had shown quite the opposite. Indeed, Chinese leaders several times welcomed the participation of Japan in BRI-related projects, seeing Japanese cooperation endeavors in terms of complementarity rather than exclusion or containment. Both countries have agreed on extensive infrastructure cooperation during their October 2018 Summit. Specific regional entanglements notwithstanding, but Japan seems also prone to think of the PQI as a complementary initiative to the BRI. As a Japanese researcher pointed out, exclusion of the other is often a first best in leadership rivalry, but joining may sometimes be second best (Hamanaka, 2018). Moreover, even if we see a rivalry for leadership in infrastructure initiatives between China and Japan imminent someplace and sometime, such an outcome is beyond any realistic considerations in the contemporary Western Balkans. If Japan is ever to amount to claim higher position and more agenda-setting power in providing multilateral initiatives for public good, more likely it will run counter not China, but the same infrastructure monopolies China stirred up in the last decade, regardless of democratic values and other political commonalities it might share with them.