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Politics

For ASEAN, Japan is a key counterbalance to China

China's growing economic influence also poses risks to the 10-nation bloc

TOKYO -- Five decades after the Association of Southeast Asian Nations was established, changing economic and political dynamics in the region are putting a spotlight on Japan's growing importance to the bloc as a counterbalance to China.

Japan and the 10-member ASEAN have maintained close relations for more than 40 years. In that time, Japanese companies have made Southeast Asia their production and export hub, capitalizing on cheaper labor costs.

According to Japanese credit-research agency Teikoku Databank, more than 11,000 Japanese companies were operating in the region in 2016.

But rising wages are diminishing the region's appeal as an investment destination. Even Cambodia, one of the least-developed ASEAN members, is no exception. Minimum monthly wages in the country have surged 150% over the past five years, rising to $153 in 2017 from $61 in 2012.

Less than a one-hour drive from central Phnom Penh, Cambodia's capital, sits a special economic zone. There used to be a sign at the site announcing that a major Japanese motorcycle manufacturer was planning to set up operations there. Early this year, however, the sign vanished.

The manufacturer "has apparently abandoned its plans to step up operations there," said one source familiar with the matter.

Perhaps this is symbolic of the fact that Japan is losing its long-held status as ASEAN's most important economic partner.

Chinese investment, China risk

In June, Chinese automaker Zhejiang Geely Holding Group agreed to buy 49.9% stake in Malaysian peer Proton Holdings. Malaysian Prime Minister Najib Razak expressed hope at the time that Geely would help Proton expand across the Southeast Asia.

Proton is a "national car" manufacturer that once received technical support from Japanese companies. Geely's emergence as Proton's major shareholder reflects the changing competitive landscape of the auto industry in Southeast Asia.

China's presence in infrastructure projects in the region is also growing.

Based on data from ENR, a U.S. magazine specializing in the construction industry, China is the top player in the Asian infrastructure market, accounting for 17% of project deals by value. Japan ranks fifth, at 10%.

With the U.S. presence in Southeast Asia declining, China's economic influence in the region will only growing stronger. But this also means that Southeast Asia will face "China risks."

In late July, Indonesian President Joko Widodo urged his transport minister and others to get a derailed high-speed railway project back on track and fast-track it.

In autumn 2015, the country chose a Chinese proposal for the project over a Japanese one. But construction work has made virtually zero progress, making it all but impossible to have the trains running in 2019 as planned.

Chinese financing for the undertaking is also behind schedule. One high-ranking Indonesian official said the country should have chosen the Japanese proposal.

The diminishing presence of the U.S. and the rise of China in Southeast Asia is deepening Japan's importance to ASEAN as a counterbalance to China.

After decades of close ties, Japan has won the bloc's trust, an asset China lacks in Southeast Asia.

Japanese direct investment in the region totals nearly 20 trillion yen ($180 billion). Along with that spending, Japan has made significant contributions to developing human resources and legal systems -- not to mention the manufacturing industry -- in Southeast Asia.

In a survey of six ASEAN countries conducted by Mitsubishi Research Institute, 86% of respondents said they either "like Japan very much" or "like Japan," compared with only 36% who gave similar replies about China.

Such a welcoming region presents a stable growth market for Japan. In contrast, the massive Chinese market is complicated by political risks.

Take, for example, the auto industry. Japanese carmakers are in the driver's seat in Southeast Asia. They have a combined market share of 80% in six major ASEAN countries, selling about 2.5 million vehicles there annually.

That is more cars than they sell in Europe or India, and about 30% less than their total for China.

Turning to the future

One company -- Scientex, Asia's largest stretch film producer -- exemplifies the mutually beneficial relationship between Japan and ASEAN. At its plants, there are signs carrying the slogan, "Japan Quality at South East Asia Cost."

Scientex was founded in 1968, a year after ASEAN was established, and has since grown with the help of its partnerships with Japanese companies, such as Futamura Chemical. The company now exports its products to some 80 countries.

Today, ASEAN is a massive economic zone with a population of 600 million. The 10-nation grouping is expected to overtake Japan in terms of gross domestic product in around 2025.

ASEAN's 50th anniversary presents an opportunity to reflect on how Japan and the bloc can build a truly equal partnership both politically and economically over the next five decades.

(Nikkei)

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