June 8, 2017 4:30 pm JST

Japan races China to secure Asian port rights

Tokyo on the lookout over Beijing's Belt and Road Initiative

The Chinese-built Colombo International Container Terminals towers over reclaimed land earmarked for a China-backed commercial development. (Photo by Marwaan Macan-Markar)

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 of their national interests.

Sihanoukville Autonomous Port, a major Cambodian port operator, is floating 25% of its shares on the local bourse on Thursday. The Japan International Cooperation Agency plans to purchase about half that amount.

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

Japanese trading house Mitsui & Co. is working with India's Tata Group to secure a contract for expanding and operating the Port of Colombo in Sri Lanka. 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 located at the midpoint between East Asia and Europe, and its proximity to India further adds to its potential. The Japanese government considers the waters near Sri Lanka to be 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 ($411 million at current rates) in yen-denominated loans.

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

Historic ties

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 an outstanding balance of yen-denominated loans of about 1.7 trillion yen apiece. Vietnam was not far behind at 1.4 trillion yen. Tokyo has a major diplomatic and economic stake in the region.

Meanwhile, Beijing is trying to exert greater control over the shipping route from the South China Sea to Europe under its Belt and Road Initiative. The problem is that this overlaps with a popular route for vessels transporting oil and gas from the Middle East to Japan, and containers from Japan to Europe.

Ports along the Indian Ocean handle mainly civilian cargo during times of peace. But if China extends its influence, "they could be used for military purposes," a Japanese government 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 greater ties between the region and the rest of Asia, and aims to continue working with Asian countries, such as by providing official development assistance. The Japanese government also decided in 2015 to start providing aid even on projects involving foreign militaries, as long as they meet certain objectives like disaster relief.

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

(Nikkei)

Mitsui & Co., Ltd.

Japan

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