June 15, 2017 10:00 am JST

Japan and China tussle over Asian ports

Beijing and Tokyo are locked in a strategic and commercial fight over sea lanes

The port at Gwadar, Pakistan, is being updated and expanded as part of the China-Pakistan Economic Corridor initiative. © Reuters

TOKYO Japan and China are snapping up rights in key Asian ports as they vie for control over a shipping route that is crucial to both their nations' interests.

Sihanoukville Autonomous Port, a Cambodian port operator, floated 25% of its shares on the local bourse on June 8. Then the Japan International Cooperation Agency purchased about half that amount.

Sihanoukville is Cambodia's only deep-water international port. Its container traffic grew an average of 13% each year between 2011 and 2015 on strong economic growth in Asia. Although Japan provided large loans for the port's development, Chinese players have been aggressively buying shares in the operator, leading to a bitter contest.

In Sri Lanka, Japanese trading house Mitsui & Co. is working with India's Tata Group to secure a contract to expand and operate the Port of Colombo. If they succeed, they could get financing from the Japan Bank for International Cooperation and the Japan Overseas Infrastructure Investment Corp. for Transport and Urban Development.

The Port of Colombo is roughly halfway between East Asia and Europe, and its proximity to India further adds to its potential. The Japanese government considers the waters near Sri Lanka a key transport link. It decided in April to assist the island nation with maritime security, as well as to provide around 45 billion yen ($406 million at current rates) in yen loans.

In Myanmar, Japanese players are also the main contenders for the operating rights to the Thilawa port, to be completed as early as 2018.

Japan has contributed to infrastructure development in Asia through direct loans and through the Asia Development Bank. As of the end of March 2016, India and Indonesia topped the list of borrowers, with outstanding yen-denominated loans of about 1.7 trillion yen each. Vietnam was not far behind at 1.4 trillion yen. Tokyo has a major diplomatic and economic stake in the region.

CHINESE MOVES Beijing is trying to exert greater control over shipping lanes from the South China Sea to Europe under its Belt and Road Initiative. The problem is that this overlaps with a well-used route for vessels transporting oil and gas from the Middle East to Japan, and container shipping from Japan to Europe.

Ports along the Indian Ocean handle mainly cargo in peacetime. But if China extends its influence, "they could be used for military purposes," a Japanese official warned. In the fall of 2014, a Chinese submarine entered a Chinese-run port in Sri Lanka, shocking neighboring nations.

India is particularly troubled, given its territorial disputes with China. That Tata is joining with a Japanese company on the Colombo port points to the extent of its concern.

In an attempt to curb China, Japanese Prime Minister Shinzo Abe has called for a "free and open" Indian Ocean. He is urging stronger ties between the region and the rest of Asia, and aims to continue working with Asian countries by providing official development assistance and other help. The Japanese government also decided in 2015 to start providing aid even for projects involving foreign militaries, as long as they meet certain objectives, such as providing disaster relief.

But there are a number of regions where Japan has not built similarly strong relationships, such as Europe and Africa. China could take advantage of that, exacerbating their already heated rivalry.

(Nikkei)

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