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Economy

The Japan-China infrastructure battle is a welcome rivalry

Healthy competition will spur Asia's development, says Indonesia's finance chief

Indonesian Finance Minister Sri Mulyani Indrawati says the Japan-backed ADB and the China-led AIIB can play off each other's strengths.

YOKOHAMA, Japan Competition between Japan and China to build Asia's infrastructure is healthy and will help spur the region's development, Indonesian Finance Minister Sri Mulyani Indrawati told the Nikkei Asian Review.

Japan is advocating the construction of "high-quality infrastructure" in Asia, and is keen to push through such initiatives with the backing of the Asian Development Bank, with which it has a close relationship. China, meanwhile, is offering the region an alternative route to funding through the Asian Infrastructure Investment Bank, which it helped create.

"This is a good competition," said Indrawati, who was in Yokohama to attend the ADB's annual meeting in early May. "You do not want to build infrastructure that is high quality but [that the] people cannot afford and [the] country cannot afford ... . With the combination of pressure which is coming from China, [and] many other players, that creates a competition that will reduce the cost," she added.

But the minister was quick to point out that low costs are not everything. Indrawati said the high standards set by Japan regarding the impact of infrastructure on the environment and society, as well as governance, will spur China and the AIIB to aim similarly high.

"I really appreciate Japanese infrastructure ... . I know that they are using a social/environmental standard, as well as a procurement standard, which [is] very strong. We don't want to compromise that," she said. "This creates pressure also for the AIIB to not say, 'I can deliver fast [and] cheaper,' but then [offer] less quality or pollute the air."

CAN'T DO IT ALONE But ultimately, Indrawati said, cooperation between the ADB and AIIB would be crucial to meeting Asia's vast infrastructure needs. The ADB estimates the region will need to invest over $26 trillion in infrastructure by 2030 if it wants to maintain economic growth momentum. For Indonesia alone, that demand is projected at $1.2 trillion for the same period.

"Indonesia is a big country. We are an archipelago country, so infrastructure is very critical to supporting our economic development," Indrawati said. To be able to catch up and create high-quality growth, she said, it is important to have "much more evenly distributed growth across the region [and] islands, then infrastructure and connectivity."

The minister said that despite the AIIB's deep pockets, it was still new to the game and not yet "fully staffed" and "skilled in preparing" projects. Indrawati said this offers the two multilateral development banks an opportunity to cooperate, pointing to previous examples.

"Sometimes [a] project has been designed and developed by the World Bank, and it only provides 10% [of the financing], with the ADB providing the rest," Indrawati said. "The AIIB is going to continue to look for potential projects which are ready enough so that they can just lend the money without thinking or preparing the project themselves." She said this presents a good chance for collaboration with the more experienced ADB.

"We definitely do need to build infrastructure ... . I don't think one country can solve it. I don't think one institution can solve it," Indrawati said. "That is why collaboration is very important. Collaboration for ... better quality, for better cost, for more efficient and faster delivery."

Sri Mulyani Indrawati, an economist, returned to her former role as Indonesian finance minister in July 2016 after serving as managing director of the World Bank for six years.

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