Still NOT TOO LATE for Japan to join the AIIB

But those in favour say that Japan has a major strategic interest in taking part in the process of shaping the future economic structure of the region. In other words, if Tokyo stays out, it will miss the train and Japan’s position in the international scene will be weakened in a significant way.

Chief Cabinet Secretary Yoshihide Suga said on March 31 that it was “impossible” for Japan to join unless China answered its concerns about how the bank would operate. 

Finance Minister Taro Aso has said China needs to set out terms for the bank’s governance.

Aso has also said that Japan wants to ensure transparency in the AIIB’s governance and its screening for the provision of loans.

The Nikkei newspaper, without quoting the source, reported last week that Jin Liqun, who heads the body tasked with establishing the bank, was willing to hand over the post of senior deputy governor to Japan plus a seat on the board if it became a founding member.

Japan and the US have so far declined China’s invitation to become part of the AIIB. Allies including the UK, Australia, South Korea, Germany and France have said they will join. So far, 57 nations have registered to become founding members.

The AIIB, which will be based in Beijing, will be authorised to lend as much as $100 billion (Bt3.3 trillion), though initially its subscribed bunds, which include paid-in and callable capital, will be $50 billion.

Aso said in Washington on April 18 that the joint financing of development projects by the AIIB and the Asian Development Bank (ADB) would help raise standards at the new lender.

Aso and US Treasury Secretary Jack Lew met on the sidelines of a meeting of G-20 finance ministers. They agreed that the AIIB needs to be held to international standards.

The two will call on the AIIB to “secure fair governance and debt sustainability as well as to be considerate of environment and society” when selecting projects for support.

But certain quarters in Japan are strongly against Japan’s joining the AIIB, for fear of being exploited by their big neighbour.

A strongly-worded article in the April issue of Sentaku, a monthly magazine covering political and economic affairs, speculates that with China expected to contribute half of the initial paid-up capital and the headquarters likely to be in Beijing and headed by Jin Liqun, former head of the China International Capital Corp and ex-vice president of the ADB, overwhelming Chinese influence would be inevitable.

“With so much Chinese influence, the bank can without much exaggeration be called a ‘financial institution by China and for China’.”

The article added ominously: “Thus, once the AIIB starts its operations, nobody will be able to stop Beijing from making unilateral decisions. Another way or looking at it is that the bank will become a tool for implementing the external economic policies of the Chinese Communist Party, enabling China to use funds contributed by other countries for projects that best suit its own strategies.”

What should Japan do, then? The article sums up its position this way:

“It is only natural for Japan to decline to join the AIIB. Japan will do well if it continues to cooperate in infrastructure projects in Asia by strengthening the ADB and working in close collaboration with the World Bank and the United Nations. Before long, it will become clear on which side justice lies, Japan or China.”

But Yoichi Funabashi, chairman of the Rebuild Japan Initiative Foundation, a think-tank in Tokyo, insisted in an article published in the Japan Times last week that Japan must join the bank.

“The case for Japan joining the AIIB is simple and strong. By distributing financial assistance to states in the Asia-Pacific, the bank will inevitably help shape the region’s future economic architecture, as well as, implicitly, its security relations. Japan has a major strategic interest in participating,” he wrote.

If the US and Japan are worried about the degree of transparency in the governance of the China-led venture, and at the same time recognise the limitations of the World Bank, IMF and Asian Development Bank, then that should be all the more reason for Washington and Tokyo to join the AIIB and help lay the foundation for a strong, healthy and professional regional bank to help shape Asia-Pacific’s economic architecture.

Engagement, after all, should be the name of the game of the new emerging world order. Staying out simply because the initiative has come from somewhere else isn’t the most convincing reason for not joining AIIB.