In a time when everyone's watching China's big moves in Southeast Asia, there's a surprising twist: Japan is the one making waves. Despite what many think, it's Japan, not China, that's taking the lead in shaping Southeast Asia's future. This game-changing turn of events is shaking up what we thought we knew about who's really calling the shots in the region.
Japan's Infrastructure Supremacy
At the heart of Japan's influence lies its colossal investment in Southeast Asia's infrastructure. From Vietnam's Nhat Tan Bridge to the New Bohol International Airport in the Philippines, Japanese fingerprints are evident in the region's rapidly developing landscape.
In stark contrast to the attention-grabbing headlines of China's Belt and Road Initiative, Japan's approach has been less about fanfare and more about substantial, long-term investments.
Recent data from Fitch Solutions reveals a startling figure: Japanese financiers are involved in projects worth almost $330 billion in Southeast Asia, dwarfing China's involvement in projects valued at about $100 billion.
Not only is Japan’s infrastructure investments in Southeast Asia substantially bigger, it is also more fruitful. A study published by the ASEAN Studies Centre at ISEAS- Yusof Ishak Institute reveals that only 26.8% of Southeast Asians would trust China to “do the right thing”, while 54.2% would instead trust Japan.
This strategic investment not only underscores Japan's commitment to the region but also represents a tactical move to counterbalance Beijing's growing influence. Through these projects, Japan is embedding itself in the economic fabric of Southeast Asia, fostering deep-rooted partnerships that go beyond mere financial transactions.
Japan Outclassing China in Brand Awareness
To this day, Japan still holds much more power than China over the Southeast Asian consumer.
In the realm of automotive manufacturing, Japan's supremacy is unmistakable. Japanese automakers collectively hold an 80% market share in new car sales across the region, a staggering figure that underscores their long-standing dominance.
This dominance persists despite the rising tide of electric vehicles (EVs), where Chinese manufacturers are starting to carve a niche. While EV sales in Thailand tripled from last year, it still only accounted for around 6% of all new vehicles, Japanese automakers still maintain a large portion of the overall market share.
Japanese brands are not just leading in the automotive sector. In fashion, brands like Uniqlo and Muji are not only expanding their presence in Southeast Asia but are also doing so profitably. Uniqlo, in particular, has seen substantial financial success, with its parent company Fast Retailing reporting a 10.2% increase year-on-year in Southeast Asia.
This success contrasts with the operations of Chinese competitors such as Shein and TEMU, which, despite their rapid market growth, reportedly operate at a loss while their Japanese counterparts are making money hand over fist.
In contrast, the electronics sector showcases China's growing influence. Chinese electronics brands like Huawei, Lenovo, TCL, and Haier have been gaining a significant foothold, challenging the traditional dominance of Japanese brands such as Sony, Panasonic, and Toshiba. The competitive pricing and rapid technological innovations of Chinese brands, coupled with their effective use of digital and e-commerce platforms, have appealed to the price-sensitive and tech-savvy consumers in Southeast Asia. In fact, while both local, US and Chinese e-commerce sites dominate Southeast Asia, not a single Japanese e-commerce site is in the top-10 of either country.
As Southeast Asian markets continue to evolve, Japanese brands will need to adapt and innovate to maintain their dominance, especially in the face of China's rising influence in sectors like electronics and e-commerce. However, it is clear that Japan will still hold the leading position in the minds of Southeast Asian consumers for the foreseeable future.
Japan Crushes China in Diplomacy
Sure, China might hold some cards in infrastructure and brand awareness, but when the game shifts to diplomacy, there's no contest – Japan is the undisputed leader in Southeast Asia. Japan's diplomatic strategy, a stark contrast to China's growing aggression, has won hearts and minds across the region, firmly cementing its role as the more favorable and influential power.
Japan's engagement in Southeast Asia, especially since the end of the Cold War, has been increasingly proactive and multifaceted. Japan has not only been assertive in resolving regional conflicts, like its role in the Cambodian Civil War, but also in contributing to economic and social development initiatives. Japanese diplomacy has been notable for its emphasis on peacekeeping, disaster relief, and improving the defense capabilities of ASEAN member states through joint training programs and equipment transfers, rather than direct military involvement.
Japan's economic engagement with Southeast Asia is also significant. In 2018, Japan's foreign direct investment (FDI) in ASEAN was nearly $30 billion, accounting for a substantial portion of its FDI in Asia. Japan ratified economic partnership agreements with all 10 ASEAN member states between 2002 and 2008, advocating for increased economic integration within ASEAN. On top of that, in 2021, Japan, with its Official Development Assistance (ODA) standing at US$17.6 billion, was the largest donor in Asia, markedly higher than China’s aid delivery.
Furthermore, Japan's diplomatic approach is characterized by high-level visits and dialogues, maintaining a similar level of engagement with Southeast Asian countries as China. These visits have increased over time, especially with countries like Indonesia, due to strengthened security ties and disaster relief initiatives. Japan's continuous engagement in the region is also evident in its consistent foreign aid disbursements, demonstrating sustained interest and influence.
China's Contrasting Approach
In contrast to Japan's diplomatic successes in Southeast Asia, China's approach has often been counterproductive, leading to strained relations with several countries in the region.
China's assertive stance in the South China Sea, exemplified by the controversial Nine-Dash Line, has been a major point of contention. This claim overlaps with the territorial waters of several Southeast Asian nations, creating significant diplomatic friction. And China is definitely not making their neighbors less weary with aggressive military expansion, including naval exercises, and the construction of military bases on contested island in the South China Sea. These actions are often viewed as an attempt to assert dominance in the region, having both leaders and people from southeast Asian nations running towards both the US and Japan for help in their distrust of China.
Secondly, while China is the third largest source of foreign direct investment (FDI) inflows into ASEAN countries with total FDI reaching US$18.65 billion in 2022, which has strengthened diplomatic ties in the region, issues such as debt sustainability, environmental impact, and concerns over sovereignty have emerged. Several projects under the Belt and Road Initiative (BRI) have been scaled back or outright cancelled due to for poor implementations, cost overruns, accidents, and a perceived lack of transparency, leading to suspicion and resistance in countries that initially welcomed Chinese investment.
The cumulative effect of these actions has been a growing wariness of China's intentions in Southeast Asia. While China continues to be a major economic partner for the region, its diplomatic and strategic maneuvers have often been perceived as heavy-handed and self-serving. This has led to a decline in trust and confidence in China as a stable and reliable partner, contrasting starkly with Japan's more nuanced and cooperative approach to diplomacy in the region.
In summary, Japan is decisively outperforming China in forging diplomatic ties in Southeast Asia. Japan's approach, rooted in cooperation and mutual benefit, has resonated strongly with nations in the region, establishing positive and robust relationships. On the other hand, China's more heavy-handed and unilateral tactics have sparked significant suspicion and worsened relations with these countries.
The preference of Southeast Asian people mirrors this diplomatic landscape. Japan emerges as the top travel destination for citizens of six out of the ten ASEAN countries – Laos, Singapore, Thailand, the Philippines, Indonesia, and Malaysia. In a striking contrast, China doesn't even appear on their travel wish lists.
China's Diminishing Economic Footprint
To make matters even worse for China, Japan is seeing an economic upswing while China's once unassailable economic clout is showing signs of strain. The World Bank's projection of China's growth at a mere 4.4% in 2024, the lowest since the 1960s, paints a picture of an economy grappling with internal challenges, including a property crisis and a general slowdown. This deceleration has ramifications for Southeast Asia, a region that had previously hitched its wagon to China's seemingly unstoppable economic engine.
Moreover, external factors like the United States' Inflation Reduction Act and the Chips and Science Act are reshaping the economic dynamics within Southeast Asia. These policies, aimed at reducing American reliance on China, are inadvertently affecting the region's economic interplay, further complicating China's economic agenda.
Conclusion
In a time where China's growing power in Southeast Asia grabs headlines, it's actually Japan that's stealing the show. Contrary to what many think, Japan is the real heavyweight in the region, flipping the script on how we see the economic and political chessboard in Southeast Asia.
Japan's investment in the region's infrastructure is nothing short of epic, completely overshadowing China's efforts. It's not just about the money – it's about Japan making strategic, lasting moves. And in the consumer world, while Chinese brands are catching up, Japanese brands like Toyota, Uniqlo or Muji are still king.
Diplomatically, Japan's playing a smart game. Its approach is all about building bridges – through aid, cultural ties, and a focus on peace. This strategy has won hearts and minds across Southeast Asia, in sharp contrast to China's more heavy-handed approach, especially with its controversial moves in the South China Sea and mixed success with its Belt and Road Initiative.
But let's not forget: China is still a powerhouse. It's a giant that can change the game in a heartbeat. In the high-stakes match of regional influence, things can turn on a dime. Today's leader could be tomorrow's challenger, making Southeast Asia one of the most thrilling and unpredictable battleground of geopolitics.
Great analysis!
I linked to your post for my Monday links collection post: https://emergingmarketskeptic.substack.com/p/emerging-markets-week-august-5-2024
Aside from Japan, Korea especially flies under the radar e.g. there were an estimated 100,000+ Koreans in the Philippines when I lived there in the early 2000s (many owned small businesses catering to Korean students and travellers as there were better opportunities for small entrepreneurs with capital in the PH than back in Korea) + they had a shipyard at Subic... Last time I was in Yangon, the Koreans development authority was financing or building another bridge across the river there... Lots of Korean factories in Vietnam etc BUT Koreans have a BAD reputation for pay and work conditions...