Why Thailand could be the big winner as China and Japan start to work together

Thailand has emerged as a major beneficiary from improved relations between China and Japan by providing opportunities for joint development initiatives to offset the problems caused by increasingly aggressive US trade policies.

Observers also noted that as well as providing opportunities for economic collaboration, the choice of Thailand allowed Japan to check China’s expanding influence over Southeast Asia.

Both countries have been under pressure to act to cut their trade surplus with America, prompting a renewed effort to put their differences aside.

A “Third-Party Market Cooperation Forum” in Beijing on Friday highlighted what form this may take as businesses signed a series of agreements on infrastructure initiatives in other countries.

Among the agreements reached was a deal by Japan Bank for International Cooperation to establish a cooperation framework with China Development Bank to provide joint loans when investing in infrastructure in third-country markets, according to Kyodo news agency.

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Many of the deals focused on Thailand, including a project to promote smart city developments in Chonburi province involving Japan’s JFE Engineering and Chinese firms.

Chonburi – along with Chachoengsao and Rayong – is a major region for Thailand’s Eastern Economic Corridor project, a US$45 billion plan to develop the eastern seaboard.

The project includes a high-speed rail link to connect Bangkok’s two main airports Don Mueang and Suvarnabhumi with U-Tapao outside Pattaya as part of the plan to develop the area as a trade and investment hub,

Thailand has already approved legislation aimed at attracting more investment, providing tax breaks for investors in the economic corridor and allowing them to rent land for up to 99 years.

Observers said Beijing and Japan’s decision to invest in Thailand may demonstrate the two countries’ frustration with the uncertainty generated by Donald Trump’s actions.

“With China’s GDP growth slowing down as a result of the trade war and the Japanese supply chains disturbed by the Trump administration’s tariffs, it makes sense for Tokyo and Beijing to orchestrate this rapprochement to weather the storm,” Benoit Hardy-Chartrand, an Asia-Pacific analyst at Temple University in Tokyo, said.

Yasuhiro Matsuda, a professor at the University of Tokyo’s Institute for Advanced Studies on Asia, said cooperating in a third country enables the two nations to stabilise ties, but would help Tokyo reduce the risk of upsetting the US by promoting China’s rise.

“China has wanted to include Japan as a partner of the Belt and Road Initiative, which has been criticised by many Western nations,” Matsuda said.

“Japan wants to stabilise relations with China by using economic leverage, but doesn’t want to be labelled as collaborating with China”.

He said cooperating in third-country projects was a way of compromising.

“Thailand is known as a friend of both China and Japan. It’s the best country to promote Sino-Japanese joint projects,” Matsuda said.

Thailand stands at the centre of Japan’s investment in Asean.

The total value of Japanese investments in the country reached approximately US$4 billion last year, according to Thailand Board of Investment, and major car firms such as Toyota, Nissan and Honda have built factories there.

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But China and Japan may have differing agendas and analysts argued the investments may offer Japan a new tactic for limiting China’s influence over the region.

“The joint development with China implies Japan is indirectly helping the [belt and road] by developing smart cities in Thailand,” said Kotaro Tamura, an Asia fellow at the Milken Institute and a former parliamentary secretary in charge of economic and fiscal policy at Japan’s Cabinet Office.

“But Japan will check both Chinese government and business activities in Asean through mutual collaboration.”

Lee Myon-woo, a Japan affairs expert and vice-president of the Sejong Institute in Seoul said: “Japan may have adopted a different approach to limit the unilateral expansion of China’s influence over Thailand and consequently the Southeast Asian region …. by engaging in projects with Beijing.

“Although Japan is actively engaging with China for now, the competing nature of the bilateral relations is less likely to change”.

Additional reporting by Sarah Zheng and Reuters