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China and Japan rivalry in ASEAN

By Dandan Wan

23 February 2018



As the 600m strong Association of Southeast Asian Nations (ASEAN) becomes more cohesive as a political and economic actor, Japan and China are competing for influence within the bloc. In the past 20 years, ASEAN has made steady progress in promoting regional integration. It has established the ASEAN Economic Community (AEC), East Asia’s first multilateral security dialogue the ASEAN Regional Forum (ARF), the East Asian Summit (EAS) and the ASEAN Plus frameworks with various partners including the EU.


Development Assistance, Trade and Investment


Japan, the largest economy in East Asia until 2010, has long been a major investor and provider of development assistance to ASEAN throughout the post-1945 era. Japan sought to build on this support by establishing a high-level political dialogue, an ASEAN-Japan Comprehensive Economic Partnership in 2008 and an ASEAN-Japan FTA in 2012. Japanese prime ministers from Hashimoto to Abe have been keen to ensure close relations with ASEAN, not least to contain Chinese influence.[1]


Diplomatic relations between China and ASEAN were not developed until the early 1990s but it was only during the 1997 Asian financial crisis that a closer relationship was forged. China’s support for ASEAN then helped promote economic relations leading to the 2010 ASEAN-China FTA (ACFTA), the first for ASEAN with a third country.


Though the starting level of bilateral trade was relatively low between China and ASEAN, it has grown sharply in recent years. China has been ASEAN’s biggest trading partner for the past eight years and ASEAN has been China’s third-largest trading partner for six years. Bilateral trade volume has increased from $7.9 billion in 1991 to $452.2 billion in 2016, an almost 60-fold increase.[2] Vietnam and Malaysia contribute most to the expansion of the ASEAN-China trade, accounting for almost 40% of total trade in 2016.[3]


For ASEAN, Japan is the third largest trading partner after China and the US and ASEAN is Japan’s second largest trading partner following China. However in the past two decades, ASEAN has seen a general trend towards declining levels of trade with Japan with a bilateral trade of $238 billion in 2015.[4] This change in trade patterns has much to do with the staggering growth of China.

 trade value


asean china japan trade weight 



In terms of investments, Japan has been investing more heavily in ASEAN than China for years just following the EU in a wide range of fields. Japan invested $11,536 million in ASEAN in 2016 while FDI from China to ASEAN is growing steadily with $9,799 million in 2016.[5] While it was still lower than Japan, actual FDI flows from China were underestimated since Chinese FDI flows through Hong Kong were not taken into account. Moreover, China’s investments in Laos, Cambodia and Myanmar has exceeded that of Japan, with much of this investment devoted to infrastructure construction in these Mekong countries.[6] Although Japan and EU have historically accounted for the bulk of FDI into ASEAN, it is now being challenged by China as shown in the graph.


china japan investment asean  



One thing notable is the sharp increase of Japanese FDI during 2012 and 2013 amid rising tensions between China and Japan over the Diaoyu/Senkaku Islands in the East China Sea. The anti-Japanese riots in China in 2012 due to the territorial disputes pushed Japan in pursuit of a more diversified investment strategy beyond its traditional focus on China. This political consideration, combined with economic factors such as lower labor costs in ASEAN together make ASEAN an even more attractive destination for Japanese FDI. ASEAN’s burgeoning economies, existing ties to Japanese industry, and history of receiving aid from the Japanese government also made it a natural destination for Japanese investment.[7]In the meantime, China also plans to invest heavily in ASEAN via its Belt and Road Initiative (BRI) and called for an upgraded version of the ACFTA, pledging trade cooperation of a greater scope and higher quality.


In terms of economic assistance, Japan has long been the main donor of economic and development aid to ASEAN. Japan’s foreign aid to ASEAN has been expanding since Prime Minister Shinzo Abe took office in 2012 and the significance of Southeast Asia was re-addressed in the latest ODA white paper in 2016. Moreover, a new approach was also introduced which caused some controversy: the aid budget for non-combat military purposes is now included apart from the traditional poverty alleviation, and human security aspects.[8] Surveillance ships were afterwards provided to Vietnam and Philippines by Japan, both of which have maritime disputes with China in the South China Sea (SCS).[9] Experts pointed out that there is common ground strategically to be found and diplomatic support to be gained against China.[10] This can be regarded as a counterbalance by Japan in face of a rising China in the ASEAN region.


Infrastructure Construction


According to a report by the Asian Development Bank, at least $8 trillion investment in infrastructure is needed from 2010 to 2020 for countries of Asia and the Pacific to sustain their current economic trajectory.[11] This huge requirement for financial investments is far beyond the capabilities of national governments, which creates opportunities for strong competition between China and Japan.


China is now entering a “new normal” phase of slower growth, which requires more overseas growth opportunities and exporting excess industrial capacity especially in manufacturing industries such as steel and aluminum. As for Japan, it was once a dominant player in the field of high-speed railways in ASEAN and has played a leading role in infrastructure development in ASEAN. Apart from this, nowadays Japan also sees ASEAN rail projects as a way to breathe new life into its languishing rail industry.[12] Thus, both China and Japan are vying to construct megaprojects among ASEAN countries and this trend has only grown in prominence.


For example, China won the bid for the 142-km Jakarta-Bandung high-speed rail line in Indonesia in 2015; Japan won the 505-km project between Mumbai and Ahmedabad. Both are now bidding for the 350-km project between Kuala Lumpur and Singapore. It is ASEAN countries that benefit most from this competition since both countries were offering additional benefits. For example, China usually promises a large amount of extra investment, a shorter construction timeline, lower price and no need for sovereign guarantee. Japan also takes softening the demands for sovereign guarantees into account and increased its development aid budget in 2015.[13]


The competition on high-speed rail infrastructure just exemplified the broader Sino-Japanese rivalry for industrial supremacy in Asia, with power generation, nuclear power, telecoms, and port and road infrastructure also emerging as areas of potential competition.[14]


Maritime Security and Military Dimensions


Recent years have seen the large economic rivalry spilling over into the military arena. Although Japan is not a SCS littoral state and is not a claimant country of the SCS disputes, Tokyo attaches great significance to this issue. A large proportion of Japan’s trade especially oil imports passes through these disputed waters, thus the freedom of navigation is of vital importance to Japan. Out of these considerations, Tokyo has been boosting defense and security ties with ASEAN in a bid to strengthen its position in the region. For example, Japan and the Philippines conducted their first joint naval exercises in the SCS in 2015. A deal has been concluded for the Philippines to acquire ten high-speed patrol vessels. Economic assistance in the military field was provided to the Philippines and Vietnam to build up their maritime security capacity.


Both China and Japan are exerting their economic and military influence in the SCS to defend their own interests. China insisted on the declaration of an air defense identification zone in the East China Sea in 2013, and the deployment of the PLA Navy to far-flung regions on the ground of a new counter-terrorism law in 2015. Japan has reinterpreted its pacifist constitution to permit “collective self-defense”, which gave its Self-Defense Forces the right to expand overseas operations.




Despite being a relative latecomer to the region, China has successfully caught up with Japan in terms of trade and economic cooperation with ASEAN. The rivalry on infrastructure provides a glimpse of the fierce competition between Japan and China for economic (and political) influence in ASEAN. In fact, the competition is not limited to the ASEAN region but in broader Eurasian area through initiatives such as the Central Asia Plus Japan Dialogue and China’s BRI.


Many ASEAN countries welcome this rivalry as they seek to maximize their interests. Some ASEAN states are much more concerned about China’s military assertiveness, and turning to Japan for military cooperation was seen as one approach to reduce their vulnerability. Instead of choosing one side between China and Japan at the obvious expense of the other, they turn to a hedging strategy by adopting a middle position. While regional economic integration will continue to flourish, the competition between China and Japan for influence will continue in ASEAN region in the foreseeable future.



[1] Sueo Sudo: Japan’s ASEAN policy: Reactive or proactive in the face of a rising China in East Asia?[J]. Asian Perspective, Vol.33, No.1(2009), pp. 137-158.

[6] Chung Chien-Peng: Japan’s involvement in Asia-centered regional forums in the context of relations with China and the United States[J], Asian Survey, Vol.51, No.3(2011), pp407-428.